A combination of higher wages and lower rise in prices of consumer durables is spurring demand for white goods. As highlighted in a Crisil report, discretionary spending grew to Rs 24,000 in 2009-10 from Rs 14,000 in 2004-05. This is a growth of over 11% per year, and higher than inflation which rose about 6% per year over the same period. So clearly higher affordability has fuelled more spending.
But is rise in wages the only factor that can be relied upon for higher growth in these regions? Indeed, not. While it is certainly an important factor, over a period of time adequacy of infrastructure will be the key point that will drive the growth of such goods. Take power for instance. Many states in the country are deprived of power and lack of electricity is not going to create demand for white goods even if incomes of people in rural areas of those states are higher. Similar is the case for automobiles. While tremendous growth potential exists, unless focus is laid on developing road network in rural regions, demand for vehicles will remain lukewarm at best. So we are back to square one. This means that ramping up infrastructure will have to be the government's key priority if India's growth has to reach the next level.
Garnering and harnessing talent has always been a major issue for corporates. But now it seems that labor imbalance is likely to further exacerbate this situation. By labor imbalance we mean differences in the ratio of skilled and non-skilled labourers. In early 80s when industrialization erupted, many unskilled nonfarm jobs were created. Along with that many high wage jobs were also created. True that the ratio of skilled to unskilled workers was not in unison then. But it provided enough opportunities for both sets of workers.
However, as per the new study of Mckinsey Global Institute (MGI), the world might witness a huge labor imbalance in the future. It says that by 2020, developing economies will face shortfall of 45 m workers with secondary school educations. On the other hand, in developed economies about 95 m people will lack the necessary skills for employment.
As far as India is concerned, it is believed that it will have very limited opportunities for low skilled workers. While labor markets may adjust to these gaps it could have serious repercussions in the near term. It could lead to higher levels of unemployment. Income inequality could also gain prominence. Perhaps the policy makers should provide a framework to avert such talent tensions in future.
But is rise in wages the only factor that can be relied upon for higher growth in these regions? Indeed, not. While it is certainly an important factor, over a period of time adequacy of infrastructure will be the key point that will drive the growth of such goods. Take power for instance. Many states in the country are deprived of power and lack of electricity is not going to create demand for white goods even if incomes of people in rural areas of those states are higher. Similar is the case for automobiles. While tremendous growth potential exists, unless focus is laid on developing road network in rural regions, demand for vehicles will remain lukewarm at best. So we are back to square one. This means that ramping up infrastructure will have to be the government's key priority if India's growth has to reach the next level.
Garnering and harnessing talent has always been a major issue for corporates. But now it seems that labor imbalance is likely to further exacerbate this situation. By labor imbalance we mean differences in the ratio of skilled and non-skilled labourers. In early 80s when industrialization erupted, many unskilled nonfarm jobs were created. Along with that many high wage jobs were also created. True that the ratio of skilled to unskilled workers was not in unison then. But it provided enough opportunities for both sets of workers.
However, as per the new study of Mckinsey Global Institute (MGI), the world might witness a huge labor imbalance in the future. It says that by 2020, developing economies will face shortfall of 45 m workers with secondary school educations. On the other hand, in developed economies about 95 m people will lack the necessary skills for employment.
As far as India is concerned, it is believed that it will have very limited opportunities for low skilled workers. While labor markets may adjust to these gaps it could have serious repercussions in the near term. It could lead to higher levels of unemployment. Income inequality could also gain prominence. Perhaps the policy makers should provide a framework to avert such talent tensions in future.
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