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India Needs To Create 90 Million New Jobs By 2030 – McKinsey Report

Last Updated on August 27, 2020 by Admin

As per the latest McKinsey report, India will have to create at least 90 million (9 crores) new non-farm jobs between 2023 and 2030 to absorb new workers and an additional 30 million workers who could move from farm work by 2030, and to achieve this target, the country’s GDP needs to grow at 8.0 to 8.5 percent annually over the next decade.

“To absorb this influx, the country will need about 12 million additional gainful non-farm jobs every year starting in fiscal-year 2023, triple the four million non-farm jobs created annually between 2012 and 2018. If an additional 55 million women enter the labor force, at least partially correcting historical under-representation, India’s job creation imperative would be greater,” said the McKinsey report titled “India’s Turning Point: an economic agenda to spur growth and jobs.

The report comes at a time when CMIE data shows that nearly 19 million jobs have been lost since April and multiple analysts feel that India’s GDP will remain in the negative territory for a substantial portion of the current fiscal year. This, after witnessing a 4.2 percent mere growth in FY20.

According to McKinsey, India’s GDP could contract between 3 and 9 percent in FY21, depending on the effectiveness of the steps taken to contain coronavirus infections and the government’s economic policy responses.

It added that if the government does not manage the shock of the crisis adequately, its economy could expand by just 5.5 to 6.0 percent from 2023 to 2030, with a decadal growth of just 5 percent and absorb only about six million new workers, marking ‘a decade of lost opportunity’.

The report warned that the economic shock could put the banking system under stress, leading to a rise in bad loans by 7-14 percentage points in FY21 if the financial strain on households, small businesses, and corporations is not mitigated.

It also proposed six areas of targeted reform that could raise productivity and competitiveness in the economy. This includes the privatization of more than 30 state-owned enterprises and channelizing more household savings to capital markets.

The report says that 60 million will enter the workforce based on current demographics, and an additional 30 million could move from farm work to non-farm sectors.

If an additional 55 million women enter the labor force, India’s job creation imperative would be even greater. But, the report added that India has a successful track record to draw on.

“Net employment would need to grow by 1.5 percent per year from 2023 to 2030, similar to the average rate that India achieved from 2000 to 2012,” the report pointed out.

Post the COVID-19 pandemic, annual gross domestic product (GDP) growth of 8% to 8.5% will be required with continued strong productivity growth and faster employment growth than in the past, it added.

The report said, Choosing a high-growth path that creates 90 million gainful jobs requires India to simultaneously increase its rate of employment growth sharply and maintain its historically strong productivity growth.

Also, it states, to achieve 8% to 8.5% GDP growth, net employment would need to grow by 1.5% per year from 2023 to 2030, similar to the average net employment growth rate of 1.5% that India achieved from 2000 to 2012, but much higher than the flat net employment (growth rate) experienced from 2013 to 2018.

India will also need to maintain productivity growth at 6.5-7% per year, which is achieved from 2013 to 2018.

The two objectives—employment generation and growth—are not contradictory and “indeed, employment cannot grow sustainably without high productivity growth and vice versa”, the report noted.

India’s economy faced structural challenges even before the coronavirus outbreak, causing the GDP growth to decline to 4.2% in FY20. The crisis has compounded the challenge of creating jobs and improving economic activity.

In the absence of urgent steps to spur growth, “India risks a decade of stagnating incomes and quality of life”, the report added. Besides, in the high growth path, the manufacturing and construction sectors can accelerate the most.

A focused and enabling environment could potentially create 11 million new jobs in manufacturing, 24 million in construction, 22 million in the labor-intensive service sectors and 30 million in the knowledge-intensive service sectors, the report said and clarified that the McKinsey looked beyond the pandemic with scenarios beginning in fiscal 2023, “assuming India takes steps to transition out of the COVID-19 recession by then”.

If India fails to put in place measures to address pre-pandemic trends of flat employment and slowing economic growth and does not manage the crisis adequately, its economy could expand with a decadal growth of just 5%,” it said underlining that in such a situation, the economy would absorb only six million workers compared to 60 million in the high-growth path, marking a decade of lost opportunity.

The McKinsey report said the sector-specific policies for improving productivity in manufacturing and real estate, reducing the cost of doing business, unlocking supply in land markets, creating flexible labor markets, privatizing 30 or so of the largest state-owned enterprises can raise productivity and competitiveness.

Mckinsey takes on Construction, Real estate, Manufacturing, Agriculture and Food Processing, Retail, and Healthcare

The report estimates these sectors could contribute $6.3 trillion of GDP in 2030, compared to $2.7 trillion in 2020. Of this total, the manufacturing sector has the potential to generate $1.25 trillion of GDP in 2030, more than double the $500 billion it accounted for in 2020. Putting in place a holistic policy framework with three components would be a key step forward.

First is a stable and declining tariff regime, with inverted duty structures removed.

Second, building well-functioning port-proximate manufacturing clusters, with free-trade warehousing zones, faster approval processes, and more flexible labor laws.

Third, providing incentives, which are targeted, time-bound, and conditional, and reduce the cost disadvantage India faces in comparison with other outperforming emerging economies.

The construction sector has the potential to more than double its GDP to $550 billion, from $250 billion in 2020. In the real estate sector, homeownership could be encouraged by rationalizing stamp duties and registration fees to reduce costs to buyers and offering greater tax incentives.

Regulatory amendments in tenancy and rent-control policies could bring additional investment into rental stock construction. Large-scale affordable-housing contracts could enable modern construction methods that can increase productivity and reduce costs.

India also has the potential to generate up to $95 billion in high-value agricultural exports, with growth was driven predominantly by livestock and fisheries, pulses, spices, fruits and vegetables, horticulture, and dairy, among others.

Possible reforms include changing the Agricultural Produce Marketing Committee Act to ensure barrier-free interstate trade and amending the Essential Commodities Act to deregulate the supply and distribution of agricultural commodities.

The government announced these reforms as part of its COVID-19 package, but they will require the support of specific policies implemented at the state level.

In retail, if traditional models are to give way to a larger share of e-commerce and modern trade, India will need a level playing field across trade formats, which would imply minimal regulatory intervention and a foreign direct investment policy that is agnostic to business models and products.

In healthcare, India’s potential to increase access to quality healthcare and attract medical tourism will require ramped-up spending and investment from the public sector. India currently spends about 3.5 percent of GDP on healthcare, but we estimate that it could nearly double spending to 6.4 percent of GDP in line with benchmarks. India could also increase healthcare productivity by enabling new business models, including telemedicine.

Buying a home is financially out of reach for many Indians, and the high cost of land is a key reason. For companies, high-cost land puts a brake on expanding productive capacity.

The McKinsey report estimate that, by enacting several key reforms, India has the potential to reduce land costs by 20 to 25 percent and increase the supply of land available for construction.

Steps toward achieving this could include mapping out 20 to 25 percent of public and state-owned enterprises’ land that is suitable for construction and currently underused and leasing out portions at affordable prices to private developers.

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