Growth & the Tier 2 City

• As the fastest-growing large economy in the world, India’s high growth has attracted headlines.
• But, with nearly a quarter of the youth being unemployed, India’s youth unemployment has also attracted attention.
• More than 50 percent of India’s population is below the age of 25 and more than 65 percent is below the age of 35.

India’s Young Demographic needs to be utilised effectively

• India needs good infrastructure, both physical and human, to create more jobs.
• It has made huge progress in improving its physical infrastructure but has fallen behind on human infrastructure like education and skills.
• Physical infrastructure in the absence of good human infrastructure has slowed the pace of job growth.
• Physical infrastructure investments are also focused on urban areas, but the manufacturing sector is migrating away from urban to rural areas to remain cost-competitive.
• However, poor physical and human infrastructure in rural areas has constrained the growth drivers and limited the size of the manufacturing sector in India.

Challenges to Human Infrastructure

• India has the largest concentration of illiterate people in the world.
  • More than one-third of India’s adult population remains illiterate.
  • Less than 20 percent of people have completed secondary education.
• The challenges are enormous in rural areas.
• They are also multidimensional viz. access, quality, relevance, finance and governance.
• Concerns have been raised about the quality of education due to a huge variation in the quality of graduates from both the public and private systems.
  • Effective systems of quality assurance do not exist, either for the public or the private sector.
• The following compounds this problem
  • shortage of qualified faculty due to poor compensation
  • rigidities in the number of places allocated to different disciplines in the public system
  • outdated curriculum and pedagogical methods that still rely too much on rote learning.

Steps Needed to scale up Investments in Education

• The governance of the education system needs to be improved, and new and better systems must be established.
• It needs better incentives, monitoring, performance assessment, and accountability both for the internal processes of the education process as well as for students.
• A key challenge is to scale up tertiary education which increases the dissemination of knowledge beyond universities, through interactions between firms and the rest of society.
• This will increase the cadres of professionals who can create new enterprises and maximise job creation.

Investment in Education

• Returns to investment in education are much higher than the returns to investment in physical investment.
• The average social rate of returns to primary education is nearly 20 percent and returns to higher education are increasing rapidly.
• Policymakers need to recognise that investments in education will accelerate the pace of job creation.
• Most of the jobs are created by new enterprises, and enterprises, both domestic and foreign, look for both skilled workers and a good physical infrastructure.
• Given India’s large youth bulge, the potential to benefit from education is huge.
• Education and skills are becoming more important as new enterprises make their location decisions based on the education and skills of the local workforce.

Tier 2 Cities: The Future of Economic Growth

• In the early 1990s, India’s manufacturing sector walked hand in hand with urbanisation.
• However, this process has reversed from 2000 onwards, with the pace of de-urbanisation of manufacturing gathering momentum.
• Industrial firms are choosing to locate in rural areas due to cheaper land prices, lower pollution restrictions, weaker congestion and other spatial factors.
• The future of economic growth will not be in tier I cities, which are already dense with India’s best and brightest, but in tier II cities.
• New cities have the potential to generate 70 percent of the country’s new jobs and GDP over the next 20 years.
• This process could drive a four-fold increase in per capita incomes.
• Globally, manufacturing has been dispersing from high-density clusters to less dense areas.

Conclusion

• India needs a broader focus on rural structural transformation to accelerate job creation.
• This can be achieved if policymakers can scale up physical and human infrastructure investments to build the missing links between urban and rural India.
• The de-urbanisation of the manufacturing sector has scaled up the importance of rural development and job creation agenda.