Reduction of employment-generating tendency of economic growth has been especially marked in the last 15 years in India.
With one of the fastest growth rates in the world, it might be thought that India is leaving its historical problems of joblessness and privation behind. The growth is enough to lead to a doubling of income every decade. Unfortunately, the data on jobs in India suggest otherwise.
A recent landmark report on the State of Working India by the Centre for Sustainable Employment of the Azim Premji University surveys the available statistics on employment, working conditions and wages in the country. What it shows presents a despairing picture.
The most disturbing point in the report may be that the Indian economy is producing far fewer jobs than it once did, and the high growth rate has not reversed this. According to the report, the annual growth of employment is less than a quarter of what it was in the early 1970s, even though the growth rate is almost one-and-a-half times as high [Figure 2.1]. Each unit of increase in national income is tied much more weakly to employment generation than in the past.
The reduction of the job-creating tendency of economic growth has been especially marked in the last 15 years as compared to the 30 years that preceded it. The growth in the labour force has also been faster than that of employment. The prevalent tendency to celebrate economic growth, therefore, misses the point.
The growth of the economy is not an end in itself but it is to be valued insofar as it contributed to the well-being of people. If it is failing to do so, then that is not merely an opportunity foregone. It is worse because the lack of employment growth implies growing numbers denied livelihoods, and consequent likely frustrations.
Troublingly, the problem of unemployment appears to be high among the relatively more educated as well as among the youth. It is especially serious in north and northeast India and Kerala [Figure 2.2]. Unsurprisingly in light of the poor generation of employment, despite high growth, the problem of unemployment has markedly worsened in recent years. The authors point out that the intense competition for public sector jobs and the numerous agitations for reservations for additional groups are among the effects of this problem. The social and political implications of the failure to create employment are, therefore, deeply troubling. To the extent that the problem of unemployment worsens further in coming years, as a result of a large number of new entrants to the labour market who are not employed, there may be a looming crisis in India.
Why has this situation come about? Many economic activities are no longer as labour intensive as they once were. Manufacturing activities, in particular, are increasingly being automated, and thus require fewer people. This is true in India just as it is the case elsewhere in the world.
Moreover, manufacturing growth has been weak. The manufacturing share of value added (at 15 per cent) was lower in 2017 than it was in 1960, and has been mostly falling since its peak in 1995. What was previously envisioned as the engine of development has not occurred in India or in many other places.
The increase in employment that has taken place may be mainly attributed to non-manufacturing activities, especially construction. Agriculture’s share of value-added and of employment have been shrinking sharply. The gap has been made up by services. However, these are mostly un-remunerative ‘low-end’ services, more than they are remunerative ‘high-end’ services (such as India’s global signature product, information technology-enabled outsourcing).
The first step to addressing the problem is to diagnose it, but the country now needs actions. The opportunity to generate employment in manufacturing on the required scale, as China did, may be receding. The climate for exports is not as receptive as it was, and the labour-intensity of manufacturing has been sharply decreasing globally.
A new strategy is needed. This should focus on developing a more regionally and sectorally distributed growth strategy, supported by infrastructural and skills development. The aim should be to improve competences and raise productivity. Waiting for growth on the existing pattern to generate the required employment is likely to lead to increasing social strains, manifested in stark differences between regions, sectors and rural and urban areas. This will increase the frustration of the unemployed, especially among the youth. This provides a potentially dangerous cauldron. The ‘headline’ growth number, captivating though it may be, must be joined by other concerns in framing economic policy.
The author is an economist at the New School for Social Research, New York. He can be followed on Twitter @sanjaygreddy