One of the most interesting aspects of President Barack Obama’s visit to India was his job hunting spree. He was proud that he had secured 50,000 jobs from India. It feels good to see that the US needs jobs from India. All these years, we saw Indians leaving for the US in search of better avenues. Around 3 million Indians have settled in the US and most are enjoying a much higher standard of life than those back home.
But is America, the biggest and the most powerful country in the world, in dire straits so that its President has to go for job hunting in developing countries like India? Indeed, the statistics say so — the US has 9.6 per cent unemployment and the government has incurred $13.4 trillion in public debt though we all know that a country like the US with its immense wealth, technological superiority, research and innovations will take a long time to decline and sink.
Indeed, the October 2010 data show signs of revival. Consumer spending, which accounts for 70 per cent of economic activity in the US, has risen by 2.8 per cent, the fastest such increase in four years. Corporate profits are also up at $1659 billion, the peak level reached in four years.
Obama’s interest in India also springs from the fact that the US has a prosperous Indian community that has contributed to the creation of thousands of jobs in the past. Indian-American entrepreneurs, hotel and motel owners and doctors have created thousands of jobs. During 2004-2009, Indian companies have made 127 Greenfield investments amounting to $5.5 billion, creating 16,576 jobs in the US. Around 239 Indian companies during the same period made 372 acquisitions in the US and generated a large number of jobs.
The global economic downturn, however, has shaken the US and led to mass unemployment, something which has not been seen since the Great Depression of the 1930s. Many bankers, however, have bounced back with the $18 billion bailout package by the US government. But many millions are still without jobs. While exhorting others not to be protectionist, the US has tried to impose curbs on outsourcing from India and other countries to save jobs. Its own exports are doing well because of a weak dollar. Its trade deficit with China, however, has been ballooning and for the past few years, the US has blamed it on China’s currency manipulations.
The whole world may be losing out owing to the forced low value of the yuan, but China is not paying much heed to it. Today the two biggest countries in the world — the US and China — are playing in the world arena on their own terms. Jobs are, indeed, something to be worried about because not only is there a threat of a deflationary spiral in the US with prices falling and investments declining that would lead to higher unemployment, but there is also a huge fiscal deficit of $1.4 trillion which needs financing. It will mean austerity (decline in demand) and job losses.
No wonder, the government is keen on reviving demand by injecting $600 billion in the guise of quantitative easing (QE2) which will also help bridge the deficit. Brazil, Germany and China have objected to the release of freshly printed billions of dollars in the international financial system because to solve its own domestic problem the US is trying to create international imbalances. There is going to be a huge surge in FII (foreign institutional investment) inflows into the emerging market economies like India, Taiwan and Thailand as a result of QE2. Many countries have already taken action to control these inflows. But India has not done anything about it yet. India’s current account deficit is growing fast and perhaps that is why it wants FII inflows to come in unabated as these will help finance the deficit.
But India needs jobs too! We are burdened with our own unemployment problem. The latest Labour Bureau report says that there is 9.4 per cent unemployment in India which means that around 40 million people are jobless in this country as compared to the 12 million unemployed in the US. Should we not be worried about India’s own unemployed, who have no social security? For many in India, unemployment means starvation and receding into poverty.
Our own huge unemployment problem is worrisome especially when there has been a sudden decline in industrial growth, particularly that related to manufacturing. The service sector, despite its rapid growth and its 62 per cent contribution to the GDP, does not have jobs for the unskilled and uneducated. And most of our 524 million-strong labour force lacks skills and training and consititutes semi-literate people. There has to be extensive investment in skills training to get jobs for the jobless because, despite huge unemployment, there is labour shortage. There are not enough skilled persons in the labour market as most of the jobless are unemployable.
Though the government has proudly declared that the growth rate for 2010 will be around 8.5 per cent, making India one of the fastest growing countries in the world, it may not translate into more jobs because, as everyone knows, there has been jobless growth in India during the past few years. For retaining flexibility in production and for cost reduction, many industrialists are going in more for capital-intensive production rather than hiring labour, training them and then facing problems with unions.
Jobs can be created with a higher rate of investment and industrial expansion, but right now there is a cautious outlook in the market with industry not being able to gauge the demand prospects due to inflation and high interest rates. Inflation is definitely a big problem in India and other emerging market economies. Instead of monetary easing, India has had to embark on a year-long monetary tightening. With more money flowing into the emerging market economies, there will be higher inflation in India. There can be an asset price bubble and India’s rupee may gain more against the dollar, playing spoilsport in the country’s export markets.
As opposed to the US, which has low inflation and close to a zero interest rate, a higher interest rate in India will mean higher debt servicing money outgo by the government and a cut in public spending. This will mean less public investment in training and poverty relief programmes. India urgently needs a higher investment in education and skill upgradation for job creation. Should we not be aware of our own needs first when our own jobless problem is so alarming?
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