While capital-intensive industries growing much faster than labour-intensive ones is a paradox that India has to cope with—and is especially unfortunate given the size of the labour force we have—as a recent paper by Radhicka Kapoor of ICRIER points out, for the decade FY01 to FY12, the growth in employment was far higher in the capital-intensive industries in the manufacturing sector than in the labour-intensive ones. Partly, this is a base effect thing—these industries had smaller number of employees to begin with—but more important, these industries grew that much faster due to either their being more competitive or being better capitalised. The government has been talking of giving incentives to companies that create more employment, and we may see some action in the budget, but it would be wise not to get your hopes up as creating competitive units takes more than just tax-breaks. What’s more worrying and needs some policy fixes are other issues raised in the ICRIER paper. Given the share of capital-intensive production is rising so fast, it is not surprising that the share of gross value added that goes to labour is falling—total emoluments paid to workers declined from 28.6% to 17.4% of GVA between FY01 and FY12. What is worrying, however, is that the share of wages going to shop-floor staff has fallen hugely—from 57.6% of the total wage bill to 48.8% between FY01 and FY12. That for supervisory managerial staff, in contrast, has risen from—from 26.1% to 35.8%. This implies an urgent need to reskill our employees; indeed, given how jobs are getting outsourced to machines, even pure skilling won’t do the trick—just 4% of workers in manufacturing have technical education, and just 27% are vocationally trained, mostly informally. What will be required will be a proper education, failing which, as in the US, India will see hollowing out of the middle class with near-stagnant median wages.
Even more worrying is the falling share of regular or non-contract workers; this came down to 51.53% of total employment in the manufacturing sector from 61.12% between FY01 and FY11. Tackling this requires a different approach, that taken by TeamLease which just saw its IPO being over-subscribed 66 times. TeamLease realised that employers didn’t want the hassle of hiring workers and looking for their replacements, especially in small towns. So, what TeamLease did was to formalise non-formal employment—to ensure that workers didn’t lose out on health and social security benefits, TeamLease took them on its rolls and made all these payments. The government also needs to play its role. So, as compared to the old EPFO where benefits were not portable, this needs to be legislated. The New Pension Scheme needs to be strengthened, and put on a par with the EPFO; low-cost insurance schemes of the type started by government need to be pushed so that non-formal workers can avail of them. India is in a new employment paradigm. It needs to deal with it, not hark back to the past.