Demographic Dividend: Need of New Industrial Policy

A recent report by Deloitte LLP pointed out that India’s young population will drive its economic growth to overtake China and other Asian tigers in the next few decades.

The potential workforce in India is set to increase to 1.08 billion in the next 20 years and hold above the billion mark for 50 years.

This requires enabling conditions for growth are created and sustained.

The Department of Industrial Policy and Promotion (DIPP), released the discussion paper on Industrial Policy 2017.

It highlights the progress made in the last 25 years and facilitates discussions for the formulation of new industrial policy aimed at building a globally competitive Indian industry equipped with skill, scale and technology.

It recognizes the need to gainfully employ a growing workforce and lists long-term and medium-term measures and related challenges.

It points out that the richer peninsular states in India will initially witness a sharp increase in working age populations, followed by a sharp decline.

In contrast, the poorer hinterland states will remain young and dynamic, characterized by a rising working age population for some time, plateauing towards the middle of the century.

The poorer states in the hinterland are characterized by a substantial rural, informal economy where agriculture and allied non-farm activities are the principal sources of livelihood.

For India to realize its economic potential, it is this population which needs to be tapped and provided opportunities.

Significant migration in search of better sources of livelihood is also being witnessed from such areas towards urban centres, which needs to be carefully managed.

The policy does not discuss ideas for creating jobs for and in Bharat.

It follows conventional approach that confines the scope of industrial policy to “manufacturing enterprises”, unrelated to agriculture and the services sectors.

This myopic industrial policy can have adverse consequences in the longer term.

It recognizes the importance of competition and strengthening global linkages and value chains. But incentives to select sunrise sector will potentially disincentivize competition and innovation, and curb the growth of other sectors

This sector specific approach might result in policies soon becoming out of sync with dynamic economic developments and with our World Trade Organization (WTO) obligations.

An effective industrial policy cannot be merely a collection of sectoral policies.

It must appreciate its linkages with agriculture, services policies and with trade, competition and sector-specific policies at a broader level.

A systems’ view informed by a whole-of-government approach is needed.

It will treat the economy like a complex human body, composed of many sub-systems, each of which performs a function to enable the entire system to remain healthy and grow.

The Indian economy has suffered from several ill-advised medications in the past, and more recently as well. Such experiments need to be prevented.

It requires different actors and government departments engaged in specific sub-systems to work with each other.

Stakeholders involved in the design of specific policies must interact with each other and optimize the functioning of crucial sub-systems.

A powerful nodal department in the prime minister’s office should be authorized to ensure coherence through coordination with different departments and related stakeholders, and enable swift decision making within predetermined time frames.

A new forward-looking industrial policy for India must have Bharat as its soul.

A long-term view needs to be taken on competition and trade-related issues, and the industrial policy should avoid the temptation of short-term benefits of over-protectionism.