The Crisil forecast comes close on the heels of Congress vice-president Rahul Gandhi underscoring the urgent need to tweak multiple labour laws at the central and state levels to increase labour flexibility, a necessary condition for the economy to grow and create decent jobs for about 10 million people entering the country’s labour market every year.
According to Crisil, employment outside agriculture will increase by only 38 million between 2011-12 and 2018-19 compared with 52 million between 2004-05 and 2011-12. In contrast, the additional employment in the farm sector between 2011-12 and 2018-19 will be 12 million, compared with the decline of 37 million between 2004-05 and 2011-12.
The manufacturing sector’s share in India’s GDP has stagnated at 16% for many years as transportation bottlenecks (physical and tax- and administration-related) and poor quality/paucity of electricity stifled the sector, along with inflexible labour norms. There are as many as 40 labour laws in India at the central and state levels that manufacturers will have to comply with and the burden of compliance increases as a unit grows in size.
That, however, doesn’t prevent the government from setting lofty goals like creating 100 million additional jobs in manufacturing by 2025 and taking the share of manufacturing in GDP to 25%, as is said in the national manufacturing policy.
The farm sector with 14% share in GDP employs 49% of the workforce at present.
“The ability of relatively labour-intensive sectors such as manufacturing to absorb labour has diminished considerably in the face of rising automation and complicated labour laws. The employment elasticity of manufacturing deteroriated sharply to an average 0.17 in the seven years to FY 2012 from 0.68 in the seven years to FY 2005. As a result of falling labour intensity, GDP growth now creates far fewer jobs in the industry including manufacturing, construction, mining, utilities and the services sector than it used to a decade ago,” Crisil said.
Some economists, however, do not believe there would be workforce migration from the industry to the farm sector in response to the slowing down growth rate in non-farm job creation. “I agree that in manufacturing sector, jobs growth has come down because of industrial slowdown in the last three years. But I don’t think that there will be reverse migration from industry to agriculture. Rather, the surplus labour in manufacturing will move to services sector,” said Care Ratings chief economist Madan Sabnavis.
According to him, some of the services sectors such as retail trade will be absorbing huge amount of labour in the coming years. “Also remember, half of the services sector is in the unorganised sector, which has been absorbing most of the unskilled labour migrating from farm sector,” said Sabnavis.
DK Joshi, chief economist at Crisil said: “We expect he Indian economy to expand at slower pace of 6% per year in FY 2013-19 from 8.5% in FY 2005-12. Further, GDP growth is increasingly driven by less labour-intensive services such as financial, real estate and business services (including IT-ITES).”
Gurudas Dasgupta, member of Parliament and senior leader of CPI said, “”It shows how bad the job situation is in the organised sector. It’s a reflection of economic crisis, decline in investment and job creation.”
Experts say the way to counter the falling rate of job creation in the industry is to reform labour laws and encouraging sectors like textiles, gems and jewellery and leather that employs large number of people. This has to be complemented by higher investments in health, education and infrastructure.
In fact, construction sector, being the most labor-dependent industry, is the only major sector where employment elasticity rose during 2004-05 to 2011-12 compared with the preceding five years. This sector requires more than 12 people to produce Rs 1 million of real output. A fast-growing construction sector can therefore create significant job opportunities, said Crisil.
There is also the need to impart the skills essential for employment to a large number of graduates, especially engineers. Crisil says about 70% of graduate engineers are not employable because of lack of technical or soft skills and hence, require intensive training.