Arvind Panagariya Urges Increased Spending On Job-Creating Industries

Capital needs to be reassigned to labour-intensive industries to ensure sufficient jobs, according to the Chairman of the 16th Finance Commission, Arvind Panagariya.

Right now, money is concentrated in a few industries that don't use too many workers, Panagariya told NDTV in an interview. This calls for a shift in the composition of industries, particularly manufacturing, he said.

"You got machinery, you got pharmaceuticals, and you got petroleum refining—these are capital absorbers, but they don't absorb enough workers," said Panagariya. "The industrial structure has to move a little bit more towards industries that employ more workers per unit of capital."

India's problem is underemployment, not unemployment. The issue lies with low labour productivity in the country, according to the economist. "And this is a matter of spreading capital more evenly over workers."

The government can start by notifying the four labour codes that were enacted in 2020, said Panagariya.

The Modi government had subsumed 44 labour laws under four new codes: the Code on Social Security 2020; the Occupational Safety, Health and Working Conditions Code 2020; the Industrial Relations Code 2020; and the Code on Wages 2019. The motive was to ensure ease of doing business and boost investments.

Nirmala Sitharaman, who took charge as the finance minister for a record second term on Wednesday, faces the challenge of presenting a foundational budget, said Panagariya.

"We would hopefully see the announcements that ought to be made," he said. The government is likely to table the full budget before the parliament in July.

"She has to bring together various constituencies and ultimately lay down the road map of what the economic policy is going to be in the next year and the years that will follow," the economist said.

The recently re-elected National Democratic Alliance has proponents of reforms as its constituents, Panagariya said.

"Chandrababu Naidu himself is a very reformist politician... I found him to be very forthcoming with practically all reforms," he said. "Nitish Kumar has undertaken some major reforms in Bihar in the last four-five years, perhaps not to the same degree... The coalition may now change him as well, but certainly, I don't see him pulling the other way."