Bootstrapping India
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Why   is   unemployment   higher   in   India,   compared   to   West?

    Contents

  1. Introduction
  2. Reasons why unemployment is higher in India
  3. How can citizens of India reduce unemployement?
  4. Non-solutions

Introduction

India has been having much higher unemployment compared to West. And West has doles for unemployed, which drastically reduces hardships that the unemployed individuals face. While Indian govt has so far NOT been able to create any dole-type mechanism. The purpose of this article is to enumerate and discuss ONLY those factors
  1. which increase employement, are present in West, and absent in India
  2. which decrease employment, are present in India, and absent in West
The purpose of this article is NOT to enumerate factors that are present/absent in BOTH countries. Hence a large number of factors, such as moral values, greed etc will get dismissed as non-issues. Why? Becuase greed is present in US/West as well as India. And moral values are at same level in India as well as West.


Factors why unemployment is higher in India

The higher unemployment rate in India compared to West is due to 10s and 100s of large/small wrong ADMINISTRATIVE decisions that India's govts/citizens have taken in past 20 years, or due to several right decisions they DID NOT take. The cummulative effect of these wrong administrative decisions is that we have chronically high unemployment, less growth etc.

So IMO, there is NOT 1 economic policy, changing which, unemployment problem can be solved. There are 100s of small changes we will need to make to fix the problem.

Following are the main reasons why India has been having higher unemployment than West :
  1. The administration/courts in West create less obstacles to starting, running and closing a business/industry. Easy exit policies are necessary, as unless a business is closed, the resources like land, capital, machineries etc it owns cannot be sold or transferred to another business and hence starting another business will become expensive and difficult. In India, due to lack of Jury System against officers, the officers find it very easy to create obstacles in the path of small/medium industrialists etc. This has hampered the progress.

  2. Lawlessness/corruption : In a large part of India, there is utter lawlessness and high cirruption. Due to lawlessness, perpetual violence threat of extortion and kidnapping and rampant corruption in officers/judges, the small/middle level industrialists keep away. As a result, even large industrialists, who need a number of small/large industrialists to provide goods/services etc, do not go there. IOW, a portion of India is sterile for industries due to lawlessness. Hence high unemployment in those areas.

  3. High stamp duty : The transfer duty of 12% on land/building sale drastically reduces liquidity in land/building market. The liquidity of land/building market is crucial to starting new industries and closing existing loss-mkaing industries. The illiquidity in land/business market stiffles industry and thus employment.

  4. Lack of wealth tax : Due to lack of wealth tax, there is NO cost in hoarding land/building in India. As a result, lot of wealthy individuals merely keep hoarding land and buildings in large amount. This creates an artificial scarcity of land/building in crowded cities. This stiffles industries and increases unemployment. While most Western countries have wealth tax due to which wealth hoarding is less.

  5. Regressive taxes : The regressive taxes, like taxes on movie tickets, tobocco, sugar, cloth, liquor, edible oil, crude oil etc depletes the disposable incomes of poor. As a result, the poor in India have less money to spend, and so they buy fewer goods. This will decrease the sales, and thus reduce employment.

  6. The currency system in India enables RBI-directors etc to deflate the currency i.e. rupee at the rate of 10% to 14% a year. This raises the cost of production, and puts an undue pressure on businesses and industrialists. As a result, unemployment increases.

  7. The currency system in India enables RBI-directors etc to deflate the currency i.e. rupee at the rate of 10% to 14% a year. This raises the cost of production, and puts an undue pressure on businesses and industrialists. As a result, unemployment increases.

  8. High cost of telecommunications: Due to defunctness in telecom regulation. the cost of phone calls (as a % of per capita GDP) is much higher in India. A low cost, and less sophisticated, telephony is possible in India, but due to defunct TRAI, does NOT materialize. And so the service providers have to depend to imported machinaries, which increases the cost (as % of per-capita income). So cost of telephony remains higher in India compared to West. This reduces employment oppurtunities.

  9. Defunct rental laws : Since rent laws are defunct, a large number of building owners hesitate in renting the apartments. This increases the cost of starting a new business. Hence lesser growth in employment oppurtunities.

  10. High cost and poor quality of electricity : Given the voltage fluctuations, load sheddings etc India has poor quality of electricity compared to West. And this is due to administrative problems, NOT lack of natural resources. The cost of fuel is same all across the world, but due to low competitiveness in electricity generation, tranmission etc, the staff of the generation/transmission companies etc manage to get away with much higher salaries compared to per-capita income of an average Indian. This results into higher cost of electricity power. This in turn reduces industrial growth and increases unemployment.


How can citizens of India reduce unemployment problem?

Trivial.
  1. Steps 1-3: The citizens should force MLAs, MPs and District Panchayat Members to create procedures that would enable citizens to pass laws in District Panchayats, Assemblies and Parliament. Please read LM.01 to see the procedure using which citizens can pass laws in District Panchayats and City Councils. Please read LM.02 to see the procedure using which citizens can pass laws in Assembly. And please read LM.03 to see the procedure using which citizens can pass laws in Parliament.

  2. Steps 4-17 : The citizens of India, using LM.01-03 can enact procedures EAS.01-14. These procedures will provide a monthly dole to EVERY citizen, and will provide higher dole to elders. This will increase the purchasing power of individuals, perticularly poor, and will thus increase the demand of goods. This will prompt the industrialists to produce more, and thus reduce umeployment.

  3. Steps 18-33 : The citizens of India, using LM.01-03 can enact procedures CT.01-16. These procedures will improve courts and administration, and would make it easier for industrialists to start, run and close the businesses. This will reduce unemployment.

  4. Steps 34-38 : The citizens of India, using LM.01-03 can enact procedures TX.01-05. These procedures will reduce regressive taxes. This will increase the purchasing power of lower strata of the population, and will thus increase the demand of goods. This will prompt the industrialists to produce more, and thus reduce umeployment.

  5. Step 39 : The citizens of India, using LM.02 can the law TX.01-05. This law reduces stamp duty on land/building sale from existing (oct-2004) 12% to 1% and replaces it by annual wealth tax of 1% per year. This will improve liquidity in land/buidling market, and would make it easy to start, expand and wind up an industry/business. This will increase employment.

  6. Steps 40-43 : The citizens of India, using LM.01-03 can enact procedures COMM.01-03. These procedures will reduce cost of telephone calls, and would reduce cost of running businesses. This will further increase employment oppurtunities.

  7. Steps 44-50 : The citizens of India, using LM.01-03 can enact procedures ELE.01-07/a>. These procedures will reduce cost of electricity and improve its quality. This will reduce cost of running businesses and will further increase employment oppurtunities.

  8. Steps 51-56 : The citizens of India, using LM.03 can enact procedures CURR.01-06/a>. These procedures will improve the currency (rupee) system of India. This will reduce cost of running businesses and will further increase employment oppurtunities.

These TRIVIAL steps will reduce unemployment. Please note that it is not a requirement that citizens must take all 50-60 steps, and ONLY then employment will increase. The first three steps on their own do NOT reduce unemployment --- they only reduce the cost of taking next 50 steps. And each step reduces unemployment by a small fraction, irrespective of other steps are taken or not. Except steps1-3, there is no significant dependency.


Non solutions : steps even if taken, will NOT reduce unemployment

Following are non-solutions i.e. steps even if taken by govt, will NOT reduce uneployment
  1. Govt programs : As of today (oct-2004) a large number of NGOs and economists are insisting that govt should start a massive program to generate employment in 10s of areasm where govt would pay contrators or NGOs to provide jobs to unemployed. The govt will have to pay 10s of 1000s of crores of rupees. As per one estimate, the cost of providing 100-day job to some 20cr youth will cross Rs 50000 cr. And where will GoI get this astronomical amount? By increasing taxes on tobacco,liquor, tea, coffee, sugar etc. This program is worthless for two reaons ---
    1. If GoI uses regressive taxes, like taxes on tea, coffee, tobacco, liquor etc, this will only further increase poverty, and will decrease purchasing capacity of the poor, which will DECREASE employment. If GoI uses only flat taxes, like income/wealth tax, the damage will be minimal. But chances are that GoI will use regressive taxes.
    2. The money will get siphoned out by officers, judges, NGOs and contractors and not to mention MPs/MLAs and Ministers. As there will be massive taxation, which will deplete employment, and no real decrease in unemployment.
  2. Trainning : Given that there is already an army of trainned educated unemployed, trainning is unlikely to reduce unemployment problem. The problem is that the purchasing capacity of lower class has depleted due to regressive taxation, and RBI/banks' policy of giving huge loan money to upper class individuals, which they seldom return. The solution here is to increase purchasing capacity of lower strata, WITHOUT taxing the upper class. This can be done by EAS.01-14.

  3. Increase external investments : Indian economy is NOT falling short of funds. There are plenty of unused funds in private hands. But due to defunct courts, police and administration, and defunct laws like stamp duty, lack of hire/fire etc., potential investors rightly believe that investing is "all-risk little gain". The investment is coming, as many investors have not realized this fact. Sooner or later, they will realize it, and investments would stop coming, and rather start leavinng. Instead of running after like investors like beggars, IMO, it would be wrothwhile to improve our own police, courts, prosecution, administration and laws, so that productivity can increase. The investment will surely reduce unemployment, but if productivity does NOT increase, which it wont unless administration improves, investment will disappear and so would employment.

  4. Improve infrastructure : A large number of economists insist that GoI should subsidize development of highways and flyovers, sea-ports, airports etc. and this will reduce unemployment. This is non-sense --- the subsidies have to be funded vt taxation, and taxation reduce purchasing power and thus increase unemployment. Infrastructure should be developed strictly by charging the existing users and NOT by GoI-sponsored subsidies and loans.

There are simply too many non-solutions to re-butt. All these non-solutions have become popular becuase of nexuses of intellectuals with those who benefit.


If you have any other question, please mail it to MehtaRahulC@yahoo.com. Thousand thanks in advance.