Indian employment engines must start for the rural population: Nobel Prize winner

NEW DELHI :India's economy has the potential to grow sustainably by 7-8%, but for that to happen, the job-creating engines need to be broader and more powerful, said Canadian-American economist and Nobel laureate Michael Spence in an interview on a visit to India.

India's economy has the potential to grow sustainably by 7-8%, but for that to happen the job-creating engines need to be broader and more powerful, Canadian-American economist and Nobel laureate Michael Spence said in an interview on a visit to India.

Spence, co-chair of the Commission on Global Economic Transformation, a panel of 21 experts set up by the New York-based think tank Institute for New Economic Thinking (INET), said there are examples of some economies such as China Although we have experienced growth for several decades in the past, we now have to deal with a significantly changed global economic situation, geopolitical tensions, climate change and energy transition.

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Spence, co-chair of the Commission on Global Economic Transformation, a panel of 21 experts set up by the New York-based think tank Institute for New Economic Thinking (INET), said there are examples of some economies such as China Although we have experienced growth for several decades in the past, we now have to deal with a significantly changed global economic situation, geopolitical tensions, climate change and energy transition.

All of this is a global pattern of declining productivity following the global financial crisis, he said, meaning expanding supply-side capacity will not be easy.

India's manufacturing sector must be geared to meet global demand and not just domestic demand, including by addressing issues such as land availability and the number of licenses required for companies.

With a growing economy, a large workforce and a low dependency ratio, India is well placed to benefit from its demographic dividend, he said.

Spence said that in India's case, there are certain things that are going very well, but others still need to be addressed.

“The digital side of the economy is extremely well designed and important in terms of both financial system inclusivity and efficiency. State transfers now have no intermediaries.

I have studied it and find that it is not only excellent, but also a model that should be emulated in other emerging markets and perhaps even in the developed world. I’m talking specifically about the universal payment interface and all that,” Spence said.

He said India is witnessing a surge in entrepreneurial activity, some of which is in the digital space.

“However, India's long-standing problem is whether the employment engines are strong and broad enough to employ large numbers of people in rural areas. “They must be so for India to achieve its full growth potential,” he said.

“You cannot achieve full potential if there is a significant portion of the population that is not experiencing any productivity growth and associated income growth.”

In the case of China, Spence said that private entrepreneurs in that country are under-investing amid tight regulation and political uncertainty, and that restoring business confidence will not happen overnight.

“The bottom line is that the Chinese economy is much less efficient. Because they are a large economy, they do not need to grow at huge, high growth rates to have a major impact on the global economy. But they are underperforming and may stay that way for a while. Then it affects pretty much everyone… certainly the whole of the East and a good part of South Asia, just because of trade relations.”

“The bottom line is that China has a lot of things to sort out. “You need comprehensive tax reform in China in addition to fixing the housing problem,” Spence said.

“I don’t think this represents a lasting dent in China’s long-term growth, as the country has been investing heavily behind the scenes in really important growth drivers, intangible assets like human capital.”