Why India must rethink the way it values skills, jobs and productive work

Why in the News

India has become the world’s fourth largest economy and is treated as the next engine of global growth. The assessment now placed against that record is that the country is drifting toward the middle income trap, where an economy exhausts its gains from cheap labour and rapid catch up and fails to move to productivity led growth. Weak job creation, stagnant wages, sluggish private investment and low productivity are named as reinforcing one another. Youth protests across the country are read as the visible sign of that distress. The two standard explanations, another round of market reform and a larger public spending push, both treat this as a supply or a demand problem. The argument placed against both is that the binding constraint is institutional, meaning social norms that decide how the market prices skills and how the State allocates resources.

Why do the standard explanations of the slowdown fall short?

1. The pro market reading: Economists trained in market orthodoxy call for a second round of reform on the scale of 1991, covering labour flexibility, agricultural reform, deregulation and infrastructure investment.
2. The Keynesian reading: Economists in the Keynesian tradition locate the problem in weak aggregate demand and prescribe higher public spending, redistribution and social protection.
3. What both miss: Each treats the constraint as one of supply or of demand. Institutions shaped by social norms decide both how markets set incentives and prices and how the State allocates resources and supplies public goods.

What does the present pattern of growth look like?

1. Jobless growth: Productivity gains stay concentrated in narrow capital intensive and skill intensive enclaves that generate little employment.
2. Weak domestic demand: Private investment remains sluggish, wage growth is stagnant and household consumption is weak.
3. Manufacturing has not absorbed labour: The sector has failed to generate enough jobs for the workforce moving out of agriculture.
4. An uneven recovery: Growth after the pandemic favoured large corporations and the digital economy and left the informal sector barely touched.
5. Inequality and low productivity together: Rising inequality alongside low productivity is the specific combination that makes the trap dangerous, since neither corrects the other.

How do social norms distort what the market and the State each do?

1. Competitiveness through cost cutting: Private capital, freer from regulation than at any earlier point, competes by cutting costs rather than by innovating.
2. Knowledge does not travel: Firms have failed to absorb the knowledge that arrives with foreign direct investment (FDI). Productivity has risen neither through movement between sectors nor through innovation inside them.
3. Capital is priced below labour: Heavy subsidy to capital lowers its price relative to labour in an economy with surplus labour, which pushes firms toward machines over workers.
4. Innovation is thin: Research and development spending stands at 0.65% of GDP, and technology adoption remains weak rather than spontaneous.
5. State capacity is low despite size: Government has grown in size, and the ability to deliver basic services such as health centres and schooling remains among the lowest anywhere.
6. Spending is tilted toward the privileged: Mass education has been historically underfunded. Higher education for elites was subsidised.
7. The elite bias carried into the growth pattern: That same bias produced service sector heavy growth after the reforms, letting upper castes monopolise better occupations and relegating low productivity work to others.

What does India’s vocational training record show?

1. Almost no formal skilling: Fewer than 3% of the workforce has any formal vocational education.
2. Seats go unfilled: Roughly 14,000 Industrial Training Institutes (ITI) offer about 25 lakh seats, and actual intake is only about 48%.
3. Placement is weak even for those who finish: The employment rate among graduates is 63%, against over 90% in many other countries.
4. The system is badly run: Vocational training remains poorly managed and chronically underfunded, which follows from the long neglect of mass education.

Why does the social valuation of skills decide productivity?

1. Useful knowledge drives modern growth: Sustained growth rests on the coevolution of science, technology and the spread of “useful knowledge”, meaning the practical skills that let a society innovate, adapt and raise productivity. Eg. The economic historian Joel Mokyr, a Nobel laureate in economics, treats the diffusion of such knowledge as the taproot of entrepreneurial success.
2. India privileged the abstract: University degrees command prestige. Courses training electricians, welders, machinists and carpenters do not.
3. The hierarchy has a source: That ranking reflects centuries of caste based occupational stratification in which manual and artisanal work was systematically undervalued despite its role in industrial development.
4. The visible result: Skilled manufacturing workers are chronically short even as millions of educated young people fail to find decent work.
5. Valuation shapes choices before markets do: Social premiums attached to some occupations, visible in the marriage market, shape educational choices and occupational aspirations and therefore the allocation of labour.
6. Official advice runs against the norm: The Chief Economic Adviser has urged young people to take up trades such as welding and plumbing rather than software jobs or management degrees.
7. Labour intensity is falling: Data show a persistent decline in the labour intensity of production technology across sectors, including traditionally labour intensive ones, and artificial intelligence is expected to accelerate the trend.

What separates the countries that escaped the trap from those that did not?

1. South Korea: Escape came from building institutions capable of creating and diffusing useful knowledge across domains, not from building factories alone.
2. China: Early state led industrialisation was paired with large investment in technical education, local manufacturing capability and technological learning, and earlier interventions in education and health laid the productive base.
3. Brazil, Argentina, Thailand and the Philippines: All four failed to build or sustain such institutions and remain stuck in the middle income trap.
4. The shared symptom of failure: In those four, as in India, large sections of the population depend on public transfers and handouts for the basic requirements of a decent living.

What does productivism propose instead?

1. The core shift: Productivism, proposed by the economist Dani Rodrik, moves policy attention from redistribution after the fact to the creation of productive employment.
2. Where it parts from market orthodoxy: It gives government a leading role over markets in shaping economic opportunity rather than leaving that to prices alone.
3. Its stated priorities: It places the real economy above finance, jobs above redistribution and production above consumption.
4. Dignity as an economic output: An inclusive economy on this reading gives people social recognition as productive members of society, which requires changing the norms underpinning institutions rather than only the policy framework.

Challenges to escaping the middle income trap

1. Industrial policy without skilled labour stalls: Incentives for manufacturing cannot be used if the plants receiving them cannot staff skilled lines. Eg. Electronics units in India remain concentrated in final assembly rather than component fabrication.
   The Fix: Tie incentive disbursement to verified apprenticeship and skilling numbers at the receiving plant.
2. Training is disconnected from employers: Curricula and equipment in public training institutes lag the technology used on the shop floor, so a certificate does not signal usable skill. Eg. Many public institutes still train on machine tools several generations behind those in contract manufacturing plants.
   The Fix: Give industry associations a decisive voice in course content and equipment upgrades at each institute, with annual revision.
3. Skilling is measured as enrolment, not as employment: Targets reward seats filled and certificates issued rather than wages earned afterwards. Eg. Short duration certification under national skilling programmes has repeatedly recorded low conversion into formal jobs.
   The Fix: Shift reporting to wage outcomes after training, tracked through provident fund records.
4. Cheap capital keeps displacing labour: Accelerated depreciation, concessional credit and duty exemptions lower the effective price of machinery against workers, so firms automate ahead of demand. Eg. Garment units have moved to automated cutting and spreading, with employment in the sector staying flat.
   The Fix: Rebalance the incentive structure toward employment linked support rather than capital linked support.
5. State capacity limits the very services the strategy needs: Schooling and primary health are the inputs into a productive workforce and are delivered most thinly where they are needed most. Eg. Teacher and doctor vacancies persist across the districts with the youngest populations.
   The Fix: Fill sanctioned posts in the lowest performing districts first rather than distributing recruitment evenly.

Conclusion

The diagnosis places the binding constraint outside the familiar argument about how much the State should spend and how far markets should be freed. What follows from it is that a skilling target or a manufacturing incentive will not move productivity for as long as the social ranking of occupations stays where it is. The difficulty is that a norm of that kind is not amenable to a budget line or a notification. Whether policy can change the standing of skilled manual work, and not only its supply, is what decides where the economy settles.

Back2Basics: Industrial Training Institutes

1. What they are: Post school vocational institutions that train candidates in designated trades such as fitter, electrician, welder and machinist.
2. Who runs them: They function under the Directorate General of Training in the Ministry of Skill Development and Entrepreneurship, and are set up by State governments and by private promoters.
3. The qualification awarded: Trainees who clear the All India Trade Test receive the National Trade Certificate.
4. Statutory anchor: Trade training and apprenticeship in these institutes operate within the framework of the Apprentices Act, 1961.

Matching Previous Year Question

“[2022, GS3, 15 marks] “Economic growth in the recent past has been led by increase in labour productivity.”Explain this statement. Suggest the growth pattern that will lead to creation of more jobs without compromising labour productivity.”