Nudge More Farmers into Manufacturing

A recent study conducted by the Centre for the Study of Developing Societies (CSDS) observes that over 60% of Indian farmers prefer to move to cities in search of alternative jobs. With decreasing returns from farming this is not abnormal. But while China exploited the huge supply of cheap labour freed from agriculture to build its manufacturing sector, in India the construction sector has received much of the surplus labour freed from agriculture, with its share of the total labour force increasing from 3% in the 1990s to around 10% in the 2000s. With construction attracting a bulk of the labour force, manufacturing has remained a laggard, with its share in GDP stable at around 15% for more than two decades now.

Manufacturing’s gloomy performance is explained by obsolete regulations and restrictive labour regulations that affect the entry, functioning and exit of firms. Regressive labour laws that favour the entrenched interests of rent-seeking labour unions have effectively stalled the economy from utilising India’s cheap labour potential to build a competitive manufacturing sector. This also largely explains the stagnation of much of the country’s workforce in the non-formal sector. To accommodate the huge supply of surplus labour, India must strike down regulatory barriers to labour mobility towards manufacturing.

Unless the roadblocks are duly attended to, the movement of farm labour towards manufacturing will be slow and the country’s huge developmental potential will remain unharnessed. The Chinese level of growth will remain a dream. The cold reality is that there is a natural aversion on the part of farm labour towards manufacturing due to excessive government controls. Water scarcity is a major roadblock due to which nearly 70 per cent of those surveyed were reported to have suffered at least one crop failure in the last three years. The other issue that irks the farmer migrants is the domination of the farm supply chain by state mandis in which middlemen rule the roost. There is indeed no substitute to strong institutional reforms to get over these obstacles.