Demographics: India's Greatest Economic Advantage (And Weakness)
The lack of manufacturing growth is also said to be simply a function of depressed global demand. Yet Bangladesh, in textiles, and Vietnam, in footwear and electronics, have both enjoyed solid export growth in the period since the global financial crisis slowed world trade growth. India is wage and skills competitive with these countries but does not provide as welcoming a business environment, so firms leaving China as its wages rise pass India by.
The central government can do little in the short term to amend labour regulations because the Congress Party blocks it in the upper house. In the meantime, the government has shown a willingness to allow states, as in Rajasthan, to proceed with changes and has committed to developing infrastructure so that when changes do come, labour regulation reform is effective. It has also made some small progress on ameliorating factors that affect the ease of doing business, and introduced an important new bankruptcy law.
But it must also start preparing the electorate to be responsive to legislative reforms of labor regulations down the road. The government’s failure on land acquisition reform shows the pitfalls of not building momentum for change, even when there is longstanding agreement that reform is desirable. That will require government effort to build a coalition in parliament for these changes, rather than contenting itself with teasing opposition leader Rahul Gandhi.
Mark Fabian is a doctoral candidate in economics at the Crawford School for Public Policy, The Australian National University.
This piece first appeared in East Asia Forum here.
Image: Creative Commons.