Skills Shortage, a Critical Challenge for India

Dr Subbarao Outlines Five Mega Trends Shaping the Economy in India

A shortage of skills is a critical challenge that can derail India’s efforts of embracing manufacturing and posing a threat to China.

It is difficult even to find suitably trained crane operators in the country and the bulk of the engineers that India produces annually are unemployable, as Dr Duvveri Subbarao, a Distinguished Visiting Fellow at the NUS Business School and the Institute of South Asian Studies, emphasised at a talk this evening.

Labs and other facilities in educational institutions are not up to global standards, so our students are at a handicap.

It was indeed a sobering talk, with Dr Subbarao touching on what he called five mega trends shaping the Indian economy, without any of the hype that jingoists would expect.

In fact, even I thought it would be an evening filled with hyperbolic declarations on how India would soon become an economic powerhouse thanks to new prime minister Narendra Modi with a pronounced urban bias.

Shifts and Challenges

Instead, the former Governor of the Reserve Bank of India talked about both the shifts and challenges confronting the country’s economy and sought to dispel some of the myths associated with it.

Like an impressionist painting that will offer greater clarity from a distance rather than from a close view, the state of the economy can throw in new perspectives with a dispassionate look at it, he reckoned.

The Five Mega Trends

Dr Subbarao summarised the five major trends as:

  1. Shift in terms of trade towards the rural economy
  2. Contrarian demographic dynamics
  3. A manufacturing revolution, infrastructure a key drag on manufacturing
  4. Decentralisation
  5. Globalisation

These trends are not entirely new, they had all been tapped by the previous governments. It is just that the Modi government is starting to build on them with renewed focus.

IMG_1540 IMG_1538 IMG_1534

The first generation of reforms had been initiated in 1991 by then Prime Minister Narasimha Rao and then Finance Minister Dr Manmohan Singh.

The second generation of reforms is now under way, but he was not certain if the focus on manufacturing would yield the desired dividends.

Another myth Dr Subbarao sought to shatter was the common belief that the Indian economy was decoupled from global factors. India’s growth is also dependent on global factors.

“During the earlier global and Asian economic crises, India was hit too and people thought it was because of the RBI Governor (he held the reins then),” he joked.

India’s prospects are inescapably linked to the world’s prospects, he asserted.

Industrialisation

He pointed out that India had leapfrogged from an agrarian focus to the services sector long ago, bypassing manufacturing. But China had capitalised on manufacturing and industrialisation when there was a trend towards offshoring and that was as early as in 1972. It started focusing on services in 1987.

India’s challenge now is that the focus of the West is reversing to onshoring, thanks to emerging technologies such as robotics that are reducing the dependence on labour. As for FDIs, while businesses would welcome tax concessions they would appreciate a better law and order situation more.

Adding to the challenge is India’s infrastructure woes. Greater private sector and public sector participation in infrastrastructure development will help address that, he argued.

Then there are such issues as rigid governance, labour issues and corruption that scuttle development, preventing India from exploiting the economies of scale.

Talking about structural inflation that persists, Dr Subbarao noted the shift from cereal to protein, setting off a wage spiral. A decline in rural poverty is thus sharper than a fall in urban poverty. While wages are up production is not. Protein is perishable and India lacks facilities to deal with that.

In a lighter vein, he recalled how elections have been fought and lost on onion inflation.

Decentralisation, both political and economic, has been something that India has always seen. He pointed out that Churchill felt India would break apart with independence as it was a disjointed country. However, it was a decentralised India that kept the country together, Dr Subbarao said.

In this context, he also felt China was not a monolithic state as widely perceived but is in fact more decentralised than we imagine.

Globalisation is something India would need to manage well to accelerate the pace of growth, he argued. Costs have to be minimised while maximising the benefits of globalisation. With the kind of overwhelming mandate that the BJP and Modi enjoy, this should be feasible, he said.

Dr Subbarao has been in Singapore the last five months, but he said he could already see the difference in the way strategies are defined and executed here.

G Joslin Vethakumar

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