The big Indian policy challenge- moving unskilled to skilled

I came across this superb interview of Arvind Subramanian of Peterson Institute.

He says why services picked up?

you had this sudden accident of the IT (information technology) thing picking up and India being particularly well-suited. The fact (is) that we developed high skill and neglected basic education. So the technology shock came along, (and) we had high skills and the services sector takes off.
This is pretty standard well-known stuff. However this was very interesting point:

What I am going to develop further is that in some ways this has gone one step further. If you look at FDI (foreign direct investment), the big China-India comparison is that China gets a lot of FDI, India gets very little. If you look at the exports of FDI, India exports a lot of FDI, more than China. It exports this FDI to not just poorer countries, but to the rich countries as well.

So to me what this suggests, of course, is two things. This skill we have is not just people, who can write code cheap, it’s also about managerial and entrepreneurial capital, which is now a world beater. This is kind of really striking. Generally, countries do this when they are at a much higher stage of development. This is the kind of upside, or triumphalist side of precocious India.

However, there is a downside to this:

 By definition if you develop based on a factor that is in limited supply, you don’t use a factor in relatively abundant supply, you get inequality. So the challenge for India is going to be how we provide opportunities for all these unskilled people. How we manage the challenge is one of the big challenges facing the Indian economy.

He says skilled labor is scarce compared  to unskilled and as growth goes to former, we have higher inequality. And this is the biggest challenge India faces.

He also says India needs to improve its public institutions ( I had reviewed his excellent paper on India’s institutions here), lagging states like Bihar and Rajasthan need to catch up etc.

I had highlighted similar issues in my paper here.

2 Responses to “The big Indian policy challenge- moving unskilled to skilled”

  1. The big Indian policy challenge- moving unskilled to skilled : insuranceslowprices Says:

    […] Original post by Amol Agrawal […]

  2. Avid reader Says:

    Another good interview. I am liking livemint though I don’t like its owner and its ideology.

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