The last quarterly survey by the Labour Bureau showed that India has never created so few jobs, since the survey started in 2009, as in 2015: Only 1.35 lakh jobs compared to more than nine lakh in 2011 and 4.19 lakh in 2013 in eight labour-intensive industries (the only ones that are surveyed).
These figures are particularly alarming since almost one million new people enter the job market every month. As President Pranab Mukherjee said last month, “The Indian economy today needs to generate 115 million non-farm jobs over the next decade to gainfully employ its workforce and reap its demographic dividend.” That is not the direction in which India is going.
In fact, the Economic Survey last year showed that during the last decade (2001-11), the growth rate of the labour force (2.23 per cent) was significantly higher than the growth rate of employment (1.4 per cent), which itself was several-fold less than the growth rate of the economy. According to Census 2011, the average growth rate of the economy was 7.7 per cent per annum, when it was only 1.8 per cent for employment.
This jobless growth, which has been more dramatic in the last two years, is probably the main issue of the Indian economy today.
It is largely responsible for demonstrations by young Patels of Gujarat and Jats of Haryana in the name of reservations. Since they can’t get jobs in the private sector, they fall back on government jobs.
But the public sector is shrinking: Government jobs, which were 19.5 million in 1996-97, are about 17 million today. Not only are jobs fewer than before but those that are created are precarious and badly paid because of the informalisation of the economy. In fact, the share of registered manufacturing in employment peaked in 1984.
Jobless growth may be explained in many different ways, but two factors in particular need to be highlighted.
First, India has an employability problem. While the services can rather easily recruit skilled white-collar workers (IT engineers, English-speaking people for the call centres, etc), the industry cannot transform peasants into factory workers so quickly. Such a transition requires basic training, which is missing.
The 2015 Economic Survey assessed that “6.8 per cent persons aged 15 years and above are reported to have received/ be receiving vocational training”. These data reflect a larger problem: Primary and secondary education, where the dropout rate remains very high, provides a poor education.
In this context, the minuscule increase in the share of education in the 2015-16 budget, from 3 to 3.1 per cent, will hardly make any significant difference.
The fact that the government seems to rely on private initiatives in this domain also stands in stark contrast to an obvious reality: No country has developed without a robust public education system.
The second factor that needs to be pointed out pertains to the small and medium enterprises (SMEs). Their labour intensity is four times higher than that of large firms. The multinationals are particularly capitalistic, as evident from the commitments/ promises expressed during the last “Make in India Week” in February.
While the investment commitments were impressive at $225 billion over five years, the fact that they would translate into the creation of 6 million jobs only was not trumpeted. In fact, the Make in India programme is revealing of the jobless growth syndrome: Highly capitalistic multinationals will start factories in India to sell their products to the white-collar middle class but will not create the manufacturing workforce the country is longing for.
SMEs, which employ 40 per cent of the workforce of the country and which represent about 45 per cent of India’s manufacturing output and 40 per cent of India’s total exports, are in a better position to do so — but they are not treated well.
First, Issues in SME financing approximately 95 per cent of units still require to be brought into banking fold”. As a result, they get a small share of the net credit of India’s domestic banks, whereas these banks are mandated to register at least 20 per cent year-to-year growth in credit to micro and small enterprises. Instead of increasing their loans to SMEs, public banks are asked to lend money to big companies.
Second, the SMEs are badly affected by the erosion of state protections which harked back to the earlier days of independence.
Moreover ,the growth is led by consumption and lack of enough investment in enhancing human capital along with lack of turn around of industrial sector are seen as the obstacle to reap the demographic dividend of India.
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Steve Ovett, the famous British middle-distance athlete, won the 800-metres gold medal at the Moscow Olympics of 1980. Just a few days later, he was about to win a 5,000-metres race at London’s Crystal Palace. Known for his burst of acceleration on the home stretch, he had supreme confidence in his ability to out-sprint rivals. With the final 100 metres remaining,
[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]Ovett waved to the crowd and raised a hand in triumph. But he had celebrated a bit too early. At the finishing line, Ireland’s John Treacy edged past Ovett. For those few moments, Ovett had lost his sense of reality and ignored the possibility of a negative event.
This analogy works well for the India story and our policy failures , including during the ongoing covid pandemic. While we have never been as well prepared or had significant successes in terms of growth stability as Ovett did in his illustrious running career, we tend to celebrate too early. Indeed, we have done so many times before.
It is as if we’re convinced that India is destined for greater heights, come what may, and so we never run through the finish line. Do we and our policymakers suffer from a collective optimism bias, which, as the Nobel Prize winner Daniel Kahneman once wrote, “may well be the most significant of the cognitive biases”? The optimism bias arises from mistaken beliefs which form expectations that are better than the reality. It makes us underestimate chances of a negative outcome and ignore warnings repeatedly.
The Indian economy had a dream run for five years from 2003-04 to 2007-08, with an average annual growth rate of around 9%. Many believed that India was on its way to clocking consistent double-digit growth and comparisons with China were rife. It was conveniently overlooked that this output expansion had come mainly came from a few sectors: automobiles, telecom and business services.
Indians were made to believe that we could sprint without high-quality education, healthcare, infrastructure or banking sectors, which form the backbone of any stable economy. The plan was to build them as we went along, but then in the euphoria of short-term success, it got lost.
India’s exports of goods grew from $20 billion in 1990-91 to over $310 billion in 2019-20. Looking at these absolute figures it would seem as if India has arrived on the world stage. However, India’s share of global trade has moved up only marginally. Even now, the country accounts for less than 2% of the world’s goods exports.
More importantly, hidden behind this performance was the role played by one sector that should have never made it to India’s list of exports—refined petroleum. The share of refined petroleum exports in India’s goods exports increased from 1.4% in 1996-97 to over 18% in 2011-12.
An import-intensive sector with low labour intensity, exports of refined petroleum zoomed because of the then policy regime of a retail price ceiling on petroleum products in the domestic market. While we have done well in the export of services, our share is still less than 4% of world exports.
India seemed to emerge from the 2008 global financial crisis relatively unscathed. But, a temporary demand push had played a role in the revival—the incomes of many households, both rural and urban, had shot up. Fiscal stimulus to the rural economy and implementation of the Sixth Pay Commission scales had led to the salaries of around 20% of organized-sector employees jumping up. We celebrated, but once again, neither did we resolve the crisis brewing elsewhere in India’s banking sector, nor did we improve our capacity for healthcare or quality education.
Employment saw little economy-wide growth in our boom years. Manufacturing jobs, if anything, shrank. But we continued to celebrate. Youth flocked to low-productivity service-sector jobs, such as those in hotels and restaurants, security and other services. The dependence on such jobs on one hand and high-skilled services on the other was bound to make Indian society more unequal.
And then, there is agriculture, an elephant in the room. If and when farm-sector reforms get implemented, celebrations would once again be premature. The vast majority of India’s farmers have small plots of land, and though these farms are at least as productive as larger ones, net absolute incomes from small plots can only be meagre.
A further rise in farm productivity and consequent increase in supply, if not matched by a demand rise, especially with access to export markets, would result in downward pressure on market prices for farm produce and a further decline in the net incomes of small farmers.
We should learn from what John Treacy did right. He didn’t give up, and pushed for the finish line like it was his only chance at winning. Treacy had years of long-distance practice. The same goes for our economy. A long grind is required to build up its base before we can win and celebrate. And Ovett did not blame anyone for his loss. We play the blame game. Everyone else, right from China and the US to ‘greedy corporates’, seems to be responsible for our failures.
We have lowered absolute poverty levels and had technology-based successes like Aadhaar and digital access to public services. But there are no short cuts to good quality and adequate healthcare and education services. We must remain optimistic but stay firmly away from the optimism bias.
In the end, it is not about how we start, but how we finish. The disastrous second wave of covid and our inability to manage it is a ghastly reminder of this fact.