Is India really experiencing jobless growth?


Jobless growth: it's a term that makes economists cringe, makes fund managers worry and causes sleepless nights for any Government in power. Jobless growth refers to economic growth without commensurate growth in jobs - which means rising unemployment, rising social tensions, widening gulf between the haves and the have-nots, slowdown in consumption with rising unemployment and therefore an economic growth that's not finally sustainable in the long run. The question is whether India is right now experiencing jobless growth or are job growth concerns overblown? Therein lies an answer to whether our secular growth story is for real or only a mirage.

Fact Checking

The understanding amongst economists is that economic growth generates jobs, or that it ought to. However in recent years India has slipped into what is technically known as jobless growth. It describes a situation when increase in employment neither does nor correlate with economic growth. 'Jobless growth is an economic phenomenon in which a macro economy experiences growth while maintaining or decreasing its level of employment.'(The Hans India, Gudipati Rajendera Kumar Jun 08, 2017)

In the 2005-10 period there were on an average12 million new entrants to the labour force. However, some experts say that only 7 million workers entered the workforce every year. Thus there is a statistical problem as well here, since accurate labour figures are hard to get in India. Says Kaushik Das, India economist at Deutsche Bank AG, "be cautious when you put numbers to job creation, because we do not have any formal data from the government on the number of jobs that are being created. People try to draw conclusions from piecemeal data that they get." (Livemint Joji Thomas Philip, 29 July 2017)

In the same period as above, while 27.5 million new jobs were created, the number of self-employed persons reduced by 25.5 million. This is because many people who were previously self-employed took up jobs, mostly in the construction sector. According to the Labour Bureau, 2015 saw the lowest level of job creation. On top of all this worrying trends, underemployment continues to dog the India economy. The Labour Bureau's Annual Employment-Unemployment Survey Report in 2013-2014 showed only 60.5 per cent of persons aged 15 and above who were available for work for all the 12 months were able to get work during that year. Even more worrying is that for the 7 million young people who join the labour force, the open unemployment rate is 10 times higher than that for those 30 years and above. The 2011 census showed that while the economy had grown at a robust 7.7% in the previous decade employment had increased only at 1.8% per annum.

According to Labour Bureau statistics, India added just 1.35 lakh jobs in eight labour-intensive sectors in 2015, compared to the 9.3 lakh jobs that were created in 2011.The rate of unemployment grew steadily from 3.8% in 2011-12 to 5% in 2015-16.Many experts feel that this is understated.

Experts say that the main cause of the problem is inadequate development of skills and a mismatch between supply and demand in the labour market. "Clearly, not enough jobs are being created to meet the needs of people entering the workforce. The manufacturing and construction sectors are not doing well," said Dharmakirti Joshi, chief economist at CRISIL. (Nikkei Asian Review, Go Yamada May 31, 2017).

Job Creation

As many societies and countries industrialised, a large number of manufacturing jobs were created. Industry's share of the GDP went up, and that of agriculture declined relatively, while industry in turn then gave room to the services sector. According to Princeton economist Dani Rodrik, normally, services sector dominance arrives when per capita incomes are already high. But in recent years many developing countries, India most notably, have jumped from an industry fuelled growth to a services dominated economy. Rodrik says that in such cases, developing countries have been reaching their peak shares of income and employment in industry at much lower levels of income, particularly in the post-1990 period. So the underlying dynamic, that as jobs and incomes grow they fuel savings, which in turn brings in more growth, is endangered. It is also difficult to reap the harvest of the demographic dividend without a stellar performance by the industrial and allied service sectors.

Currently, agriculture, information technology and construction sectors are not performing well, unlike in the recent past when they created a lot of job opportunities. A big problem of jobless growth is the employment capability of youngsters. It is a sad truism that many of our college graduates, not to mention school graduates are woefully short on employable skills. The education system, oriented towards rote learning, is simply not up to the task of producing intelligent, skilled andself-confident workers needed for a modern economy.

Ways to mitigate

One important way out is to pump up infrastructure spend. For example,taking off from the Golden Quadrilateral program of the earlier NDA regime, the government in the 2007-12period spent $475 billion on infrastructure. In this period, employment in the construction sector increased even while wages went up. This led to a consumer boom and sustained growth. However this growth in employment stagnated after 2012.

Small and medium industries are four times as labour intense as large firms. Many large firms are capital intensive and create relatively fewer jobs. Hence encouraging smaller firms can theoretically push up employment. However it must be noted smaller firms need large firms to prosper since they mostly supply goods and services to large firms. Hence it may not be out of place to encourage large firms who in turn will give business to smaller firms. Thus, pushing growth is perhaps the best answer to the problem of joblessness. As Arvind Subramanian the chief economic advisor has said, India requires sustained growth of 8% and more to provide full employment.

Government's response

Several government schemes like Smart Cities, for building new cities, Sagar Mala for upgrading and building new ports and the renewed emphasis on road building are likely to help reduce unemployment. It has also allowed industry to hire more trainees and apprentices. This would give youngsters a chance to develop employable skills.

Further, the labour ministry is offering to pay 8.33% of salary for pension contribution for newly hired workers earning up to Rs. 15,000. The government is fine tuning incentives for labour intense export oriented industries, though its Interest Equalisation Scheme and Merchandise Exports from India scheme. Further the government has relaxed foreign investment norms across the board, particularly in food retail, where the only condition is that the goods must have been manufactured in India. Further under the Stand Up India scheme, Dalit and Scheduled tribes and women entrepreneurs would be given loans, training and help with marketing.

However many experts feel that the case for jobless growth is overblown. Indeed as it emanates more often from political quarters than economic experts, there may be some substance to the assertion. India is in a phase of strong structural economic reform that typically takes time to get reflected in macro numbers and country rankings such as ease of doing business, says Kaushik Das.

According to Kaushik Das, "you will see jobs come through along with growth, and this is why the government is focusing on certain sectors that will give a fillip to jobs and have a multiplier effect. One could be increased focus related to low-cost housing. Or, if you draw this further and think of urbanization itself as a focus area of this government, then what happens is that it creates other layers of jobs. The concern on jobless growth is overrated. India will continue to grow at between 7.5% and 8% range over next 3-4 years. I am forecasting 7.5%, but I see the potential going up - when GST (goods and services tax) comes through, it will add at least 50 bps (basis points) or more to the growth rate."

(Livemint Joji Thomas Philip, 29 July 2017)

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