As eCommerce Looms In India, Tough Labor Market A Sticking Point?

Finlok: Financial Services for Indian Consumers

The recent swirl of headlines around India have focused on eCommerce and the ways in which Amazon, Flipkart and Google might jockey for their share of consumers’ hearts and wallets. There was also news that Berkshire Hathaway has taken a stake in the company that owns Paytm, in a bid to tap into digital payments.

Yet, as sanguine as the outlook might be for tapping into a population that is increasingly mobile, tech savvy and looking to spend, there are details in the economic picture that might offer reasons to temper that enthusiasm a bit.

As Bloomberg reported this week, “The world’s fastest economy is not growing nearly fast enough.” Though 7 percent GDP growth is nothing to sneeze at, “India is having trouble creating enough new jobs,” even as wealth is not being redistributed to help boost the middle class.

In fact, argues Bloomberg, GDP growth should be in the double digits, but it is being held back by systematic barriers, ranging from a “fragile banking system” and labor laws that keep 12 million young people who join the work force annually from doing so in full force. Of course, where money is not coming in steadily via jobs, might we read that to mean that digital payments are not being embraced as whole-heartedly as it otherwise could be, were the employment and earnings picture a bit more robust?

India, under Prime Minister Narendra Modi, is trying to stir up demand and create new jobs, in part through programs to boost domestic manufacturing. But the government can do more to grab the attention of foreign investors. China, which has been more aggressive in its pursuits, has an economy that is four times the size of India’s, which is only $2.6 trillion.

In the meantime, accurate data on joblessness is lacking, and amid an economy that is notoriously informal, job vacancies loom. One anecdote shows that, when there were 90,000 vacancies for its state run railway, 28 million people applied. There’s a skill shortage, noted Bloomberg, and only 5 percent of the workforce has what might be termed “formal” skills, and a third of the younger population are neither employed or seeking training. Further, the country “needs to skill and re-skill 400 million people in four years,” and boosting training efforts has been stymied by misuse of funds.

Growth proceeds apace, as GDP was up eight percent in 2018’s second quarter from a year ago. But don’t expect that to last all that long, said some analysts.

“Achieving rates of 8 percent may not be possible unless there is a major boost coming from any specific sector,” Madan Sabnavis, chief economist at CARE Ratings Ltd., stated. “Given the challenges of higher interest rates, weak rupee, oil price concerns … we may expect some moderation in growth in the next few quarters.”