Modi’s job challenge

Besides controlling food inflation, the most challenging task before Narendra Modi is to create jobs for millions of young men and women, some of whom were responsible for his resounding victory in the elections. It is one thing to promise jobs and another to actually create them.

The really difficult part of creating employment opportunities is to ensure that those who are moving out of agriculture and settling down in urban areas are able to find jobs in the manufacturing industry. The growth of this sector of the Indian economy has been tardy of late.

Consequently, despite phases of high growth of gross domestic product (GDP), there has not been commensurate growth in jobs — a phenomenon called “jobless growth”. For the first time in the history of India, the country’s GDP grew by more than 9 per cent three years in a row, between 2005-06 and 2008-09. Thereafter, after a gap of a year, in 2010-11, GDP again grew by 9 per cent, subsequently falling below 5 per cent over the last two years — the lowest in a decade. If one looks at the data that has been put out by the National Sample Survey (NSS) Organisation, between 1999-2000 and 2011-12, the average annual rate of job creation was only 2.2 per cent.

In other words, even if the economy grows at a relatively fast pace, there is no guarantee that new employment opportunities will be created at a similar pace. That is, even as output grows, machines are replacing human labour. This is a phenomenon that economists describe as low employment elasticity of output. In other words, for every additional unit of output in manufacturing, the number of jobs created is diminishing not growing.

India is not unique among developing countries where despite the fall in the share of agriculture in GDP, the proportion of people dependent on farming and allied activities for their livelihood does not come down commensurately. At present, the share of agriculture and “allied activities” (which include horticulture, forestry and fishing) in India’s GDP is in the region of 16 per cent, although this sector directly provides livelihood to half the country’s population.

As Jean Drèze pointed out to this writer in an interview in Farmers’ Forum (June-July 2014): “What is unusual in India is the large share of services in total employment, and the small share of the manufacturing sector. No doubt the share of employment in agriculture would be smaller today had there been faster growth of the manufacturing sector and especially of labour-intensive industries. But the share of agriculture in total employment today would look abnormally high only to someone who thinks of India as some sort of middle-income country. That illusion is quite common, but the fact is that India is still a poor country, despite robust economic growth in the recent past.”

The Mahatma Gandhi National Rural Employment Guarantee Act has been responsible for an increase in the rate of growth of farm wages — from close to zero during the five years that preceded MGNREGA to 3-4 per cent per year in real terms (that is, after adjusting for inflation) over the following five years. Women’s wages went up faster than men’s wages which, Dr Drèze argues, is a welcome development. But the employment generated under the Act is mainly during the lean season as wages during the peak farming season are higher than the minimum wages paid under MGNREGA and also paid more promptly.

Despite the growth of India’s population, there has been an absolute decline in the number of people engaged in agriculture: by around 23 million in 2005 and 2010 and another 13 million in 2010 and 2012, or a total of 36 million. Why are people leaving agriculture? First, farming has been and remains one of the most (if not, the most) risky professions. Second, when people move out of farming and migrate to urban or semi-urban areas, they earn higher wages, even if they are engaged in uncertain, short-term and risky work, such as construction.

There are indications that the rate of growth of employment opportunities in the services sector in the country that has been witnessed over the last decade and longer cannot be sustained over the next decade. The disturbing part of the story is that the NSS data shows that jobs in the manufacturing sector did not grow between 2004-05 and 2009-10.

A December 2012 paper prepared by the Institute of Applied Manpower Research (IAMR), a research body that is under the Planning Commission, stated that “one of the most disturbing numbers that the 2009-10 employment-unemployment NSS data shows is the addition of merely 2.76 million of work opportunities during the period of fastest growth of the economy and compared to this there was an addition of 60 million to the workforce during 1999-2000 and 2004-05.”

Santosh Mehrotra, who heads IAMR, explains that between 2000 and 2005, although 60 million jobs were supposedly created, 20 million of these were in agriculture. This was on account of the fact that the increase in school enrolment was slow. Thereafter, many children and young people who would otherwise be in the labour force looking for work started going to school and, importantly, remained in school. In other words, the number of people offering themselves for work went down. Another reason why jobs were not created in agriculture was on account of the rise in mechanisation of farming, he adds.

The estimates vary but anywhere between one million and two million young people (who are 15 years of age or older) are entering India’s job market every year. Put differently, over the next five years, employment opportunities for between five and 10 million people would need to be created even if one ignores the backlog of those who are already unemployed, underemployed and/or engaged in work that is far from certain or “decent” as defined by the International Labour Organisation.

There has been much talk of reforming labour laws. There is a view that once the provisions of the Factories Act, the Industrial Disputes Act and the laws relating to engaging contract labour are liberalised (as is being sought to be done by the Rajasthan government), this would automatically kick-start the economy and create jobs. But, contrary to what neo-liberal economists argue, changing labour laws will not kick-start the economy.

Can the government not just revive manufacturing industry but also ensure that manufacturers opt for labour-intensive techniques of production and not capital-intensive ones, as has been the norm so far? This is easier said than done.

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