Rahul M wrote:
... One idea would be for the MoF to connect the reduction in corporate tax (say) to a proportionate increase in total employed : capital invested (in Cr) ratio. That is, for any excess in TECI ratio above a certain benchmark (to be set adjusted annually) the corporate tax would get reduced by the corresponding percentage. The upper limit to such reductions might be set at 5% (i.e effective corporate tax of 25% ).
... I fear there might be industries which are being rendered obsolete by tech or will move fully into automation in the near future. Industries we need to get out of.
Sir, while the intention behind this suggestion is very noble indeed (to generate employment), I fear that as a policy this is the exact opposite of what should be done. Allow me to explain.
I am starting with the assumption that we are all looking for the same outcome, i.e. a prosperous Indian society that can lead the world in many technological domains. Just employment, by itself, should not be the objective; if it is then the easiest way is to go *down* the tech. curve and force more labour utilization for usually inferior quality output.
If there is one lesson we can learn from economic history, it is that economic growth comes overwhelmingly from productivity growth. This was very much arguable before the industrial revolution (e.g. European economy expanded after the Black death as population increased) but since automation came into play, this is less and less debatable. In our present age, it is truer than ever.
This lies at the heart of what is known as The great divergence, i.e the great widening between per capita incomes between W.Europe and the rest of the world. As per estimates by A. Maddison, the ratio of GDP/capita of Britain and India went from ~3 to ~9 between 1820 to 2008. Much of this stems from the systematic de-industrialization of India. Interestingly, Ricardo's principle of comparative advantage would suggest that de-industrializing was the right policy for India since labour was cheaper here, but we all know it only resulted in even more poverty.
So, what is the way out of this poverty? We need to ensure the creation of world-beating industries in India. This does not mean India has to beat the world in every sector, just that we have to be competitive *internationally* at the global level in many (as appropriate to the size of India). Today, we are very much struggling here as there are very few industries we are competitive in, much less leading. IT services is the obvious counter example but the industry as a whole is losing its prominence. Small-automobiles is another sector but there is a big risk coming with the electrification of transport.
To come back to the point, the leading industries of today will be more automation driven than less, and to incentivize employment is shooting oneself in the foot. Its a mistake to think industry captains would automatically gear up to navigate the technological challenges of tomorrow if left alone, let alone when incentivized by the govt. not to!
Indeed, many govt have in the past forced their industries to automate and move up the technology frontier. For example, Korea mandated its (heavily state assisted) steel, automobile and chemical industries to compete in the export markets. This meant they could not compromise on quality (which was the path of least resistance, just maximize short term profit like what happened in India pre-Maruti era).
All this is purely from an overall wealth-generation perspective. In a democratic country as large as India, purely following long term optimal economic policy is never going to work. Which is why it might make sense to promote labour intensive industries as well. But this should be done as a part of a separate policy and recognized as a social welfare expense. Also, often times the path to world beating industries happens to lie through labour intensive industries (e.g. electronics assembly). This is the best of both worlds.
TL;DR : A blanket incentive to industry to promote employment is not a good idea. A better idea might be to push them to export (to compete globally) and also promote labour intensive industries as a social welfare program.