A big threat to India's growth

Mon, 18 Apr Pre-Open

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India's economy has grown steadily in the recent past. In fact at the height of global recession, India was one of those that turned out a spectacular performance. So much so that it became a global hot spot for investment The big question in everyone's mind now is whether this economic growth would continue in the future? Experts have highlighted several obstacles in India's path of progress. These include higher inflation rates. The higher interest rates. Lack of infrastructure. Corruption. But another major problem that has emerged for the country is the labor shortage.

And the worst part is that it is thanks to a government programme that the labour situation in the country has taken an ugly turn. The government's National Rural Employment Guarantee Scheme (NREGS) has been a main reason for the shrinking migrant supply of labour. As reported by a leading daily, the NREGS scheme has resulted in a 10-15% decline in migrant labour. By the scheme, the unskilled labour ends up getting up to Rs 100 a day. Therefore, they prefer to be closer to home and do nothing or very little rather than come down to the cities and take up the more severe hard labour jobs.

The result is that the country's construction industry is now facing an acute labour shortage. The choice that they would now have to make would be to increase wages. This may help to lure back at least some of the workers. But it would result in a huge cost increase for the industry and subsequently pressurize their margins. And they cannot afford further erosion of margins, which have already been hampered by higher input costs. The rising interest costs have not helped the situation either.

The NREGS has also resulted in another problem. The enrollments to the technical institutes, who train the unskilled workers, have declined as well. As a result, the number of technical hands coming out has gone down as well. And this would turn out to be a bigger problem for the country in the years ahead as jobs get more sophisticated and technical skills become the norm of the day.

While it is commendable that the government is making sincere efforts to boost the employment rates in the country. However, the resultant labour shortage and the subsequent decline in the technical skill-set would be problems that it would have to address. Otherwise, there would be one more major roadblock on India's road to success.