This could be a cause of concern for a young country like India. Every year around 10 million people enter the labour market. Most of these jobs are low-skilled gig-type and urban construction labour jobs. This also explains why India, despite being the fifth largest economy (nominal GDP), continues to rank low in terms of per-capita income.

The per capita income in India is US$ 2,410 per year, around 19% of the world average. India’s labour productivity – economic output per hour of work – is just over 10 per cent of the US. As wage rate and labour productivity are directly related, it is not surprising that a low-productive workforce will result in a lower per-capita income. Technology advancement is going to create problems for job creation.

Technology And Jobs

A closer look at the data suggests that gross fixed capital formation is falling in India. Gross fixed capital formation has fallen from a high of 36 per cent of GDP in 2007 to 29 per cent in 2022, according to the World Bank.A part of the fall in the value of the investment has to do with lower input costs. Technology has made sure that inputs come at a cheaper price. This has reduced the cost of private investment.

During the last century, technology complemented India’s workforce by making it more productive. Electricity, combustible engines and refrigeration aided economic growth through a more productive labour force. Unfortunately, things are now different.

In this age of big data analytics, machine and deep learning, machines are increasingly taking over jobs performed by humans. With technology changing at a rapid pace, no one knows where jobs of the future will come from and what they will look like. US regulators have approved smart pills that send accurate diagnostic information from inside the patient’s body to doctors via Bluetooth. The computing power of a mobile handset is already equal to that of the human brain.

With its innovative bend, Tesla has already changed the dynamics of the automobile industry. A significant societal dislocation is waiting to happen. The government acknowledges this. Reacting to the possibility of driverless cars, Road and Transport Minister Nitin Gadkari said, “I will never allow driverless cars to come into India because it will take away the jobs of several drivers and I will not let that happen.”

Although the Indian government has opened a bunch of IIMs and IITs, there is still a dearth in the supply of skilled labour, who can make better use of the technology. Even now, few Indian universities rank in the top 300 of the Times Higher Education World University Rankings. This comes as a nasty surprise to those who believed in the prowess of India’s scientific, technological and managerial manpower.

The truth is that the curriculum taught in most Indian universities is stuck in the past, with little relevance to modern industry. Hence, fewer graduates can execute their jobs. In 2015, employment generation in the organised sector fell to less than two lakh jobs a year, which was less than 25 per cent of the annual employment generated in 2011.

Presently, India (like elsewhere in the world) is slowly rebuilding a gig economy where the labour market is increasingly characterised by the prevalence of short-term contracts or freelance work as opposed to permanent jobs. A study by KellyOCG, a global recruitment company, showed that 56 per cent of Indian companies have more than 20 per cent of their workforce as contingent workers.

To make Indian universities world-class and manage the skilled labour shortage, the government has decided to give autonomy and Rs 10,000 crore (US$ 1,540 million) funding to top 10 public universities as well as 10 private universities.

A better idea would be to facilitate stronger linkages between India’s universities and the private sector. For instance, the UK government is promoting robotics, 5G wireless internet and smart technologies while asking the private sector to sponsor 300 master students and 200 doctoral students in AI every year.

Farmers’ Reluctance To Modernise

In India, farming is extensive rather than intensive. Indian farmers grow crops using more land, labour and animal inputs, rather than using technology. For a long period, output per hectare, a common measure of agriculture productivity, remained low in India.

For example, in potato farming, the productivity of an Indian farmer is less than half of that of the US, Germany and the Netherlands. In the case of rice, it is less than half of that of the US and Egypt; and for wheat, it is less than half of that of the UK and Egypt.

The problem is aggravated as 83 per cent of the farmers in India who are marginal and small (someone with less than 2 hectares of landholding) do not have the wherewithal to understand technology. This has prevented many farmers from entering into contract farming with corporates such as ITC, Coca-Cola, etc., as they were not sure about the quality aspect of the crop produced.

Reforming the agriculture sector cannot happen without embracing technology. The bottom line is farmers are not realising remunerative prices and thanks to the minimum support price regime, they prefer growing low-yielding, less remunerative crops such as wheat and rice. With nearly 50 per cent of the Indian population still earning their livelihood from the agriculture sector, a lower productive agriculture sector means an adverse income distribution.

Widening Income Inequality

New World Wealth, a Johannesburg-based company, has published a report where it claimed that India is the second-most unequal country in the world, with millionaires controlling 54 per cent of the wealth. In Japan, the most equal country in the world, millionaires control only 22 per cent of the national wealth.

Interestingly, in India, with an uncertain business outlook and a falling interest rate regime, a substantial portion of corporate and high/middle-income savings are now finding their way to the stock market. Mutual funds investment through systematic investment plans touched a record high in 2023, with the stock market scaling an all-time high in January 2024. Even now, less than 5 per cent of Indians participate in the stock market, flagging another reason for the rising income inequality.

Technology, which is the key to raising productivity, is here to stay. As much as 90 per cent of increases in per-capita income come from technological innovation. There is a need for the government to give more importance to primary education, and if possible raise the amount of scholarships starting from the mid-school level to attract talent.

The success of the Chinese and South Korean economies is attributed to their increased government spending on primary education. Although the impact will not be immediate, India’s young population can hope to tackle the advancement of technology better with a robust primary education system in place.

(The author is Professor, Mahindra University, Hyderabad).