While the International Labour Office (ILO) expects around 5 million persons to be rendered ?jobless? in 2008 thanks to the global economic turbulence triggered by the credit market turmoil and rising crude oil prices, this year, for the first time ever, India will put in place a comprehensive National Employment Policy to address its perennial problem of unemployment among large swathes of its billion-plus population.

As a Planning Commission task force on employment policies for the 11th Five year plan puts it, India ?s labour market now faces the great paradox of high skill shortages as well as high unemployment. Moreover, restrictive and archaic labour laws mean that a substantial part of the new jobs created in the economy are in the informal sector while formal sector jobs have hardly grown.

The National employment policy would aim at increasing formal sector jobs as well as improving the quality of jobs in the unorganised sector. ?It?s a path-breaking move as this is the first time a national employment policy is being put in place, which will be the basis of the thousands of crores of increased government spends on training, skill development and employment generation schemes,? a senior labour ministry official told FE .

The ministry is close to finalising the policy, which will encompass macro-economic and sectoral employment strategies, labour market institutions, skill development as well as development of employment-intensive industries. A draft of the policy has been debated at two national consultations with employer groups and employee unions in recent months and three inter-ministerial consultations with close involvement of the ministry of micro, small and ,medium enterprises.

?We are meeting the state governments to get their inputs on the policy. Then we will seek the Cabinet?s approval for the policy and table it in Parliament?s monsoon session (July). Attaining political consensus on the policy is very important for its implementation,? director general of employment and training Sharada Prasad said at a recent meeting on the policy organised by the ILO.

Apart from tackling the great paradox of high unemployment as well as skill shortages, there are compelling strategic reasons for India to develop a holistic employment policy. With income distribution between urban and rural areas becoming more unequal since 1993-94 and disappointing employment growth in the years since then, rising socio-economic discontent in the hinterland is strengthening anti-establishment forces.

?Naxalism has spread to several districts of the country and is already affecting investments in mineral-rich areas. The much-talked about ?demographic gift? that India enjoys?of a large young working age population?can easily turn into a ?demographic curse? if we do not ensure the availability of quality jobs and skill development opportunities for the country?s youth,? an official points out.

Specific policies and strategies to tackle the employment challenge apart, the idea is to mainstream employment considerations in the government?s policy making. Like the Centre relies on environmental impact assessment reports before clearing projects, it is envisaged that an Employment impact analysis be conducted to assess changes in employment from expansion in a sector, including the indirect employment created down the value-chain.

The challenge

About 12.8 million new workers enter the Indian labour force every year, but there are only 2.5 million skill training opportunities. Though employment growth, which had slowed to an annual 0.98% between 1993-94 and 1999-2000, had risen to 2.98% per annum by 2004-05, the number of jobs created are not enough and most are in the informal sector. At the same time, real wages have been declining.

The unemployment rate (considering the most inclusive parameter of ?current daily status?) has been steadily rising?from 6.1% in 1993-94 to 8.3% in 2004-05. Thanks to inadequate attention to developing job-oriented skills during the period, the unemployment rate among the youth has soared to three times that of the adult unemployment rate.

Apart from the unemployed and the underemployed, a large part of the workforce is in ?vulnerable? employment. According to the ILO, while South Asia contributed a bulk of the 45 million jobs created in the world in 2007, the region has the highest share of vulnerable employment and it reflects the ?poor quality of jobs created.?

Seven out of ten South Asian workers are in vulnerable jobs with no social security and without a ?voice at work?. Vulnerable jobs make up for a whopping 77.2% of jobs in South Asia, followed by 72.9% in sub-Saharan Africa, 59% in South East Asia and 55.7% in East Asia . In 2008, as the turbulence in global financial and commodity markets continues, these jobs will be worst-affected, the ILO reckons.

In this context, there is a need to create jobs for the new entrants into the labour force as well as alternative employment opportunities for the ?vulnerable?. It is estimated that a quarter of India?s working poor?over 25 million people?are ?too vulnerable? in their current employment. Added to the 67 million that join the labour force during the Eleventh Plan period of 2007-12, it takes the number of new jobs required in the period to a formidable 92.3 million.

To achieve the ?employment for all? goal by 2012, employment growth has to rise to 3.9% annually and that too with a greater elasticity vis-?-vis the GDP growth. If employment elasticity rises to 0.41 in relation to GDP, the economy would need to grow at 9.6% to generate enough jobs for all. To achieve even 3% jobs growth, GDP would have to grow at 9.3% with agriculture, industry and services growing at 4%, 11% and 10%, respectively.

More importantly, the economic growth will have to be made more employment-intensive. ?At one level, the challenge is to understand what skills industry, services and modern agriculture needs. A lot of employers complain that even those with formal or higher education are unemployablee. So we need to bridge the skill mismatch on the supply side and increase training capacities,? an ILO official said.

The action plan

India has ratified the ILO?s Employment Policy Convention (No.122), which promotes full, productive and freely chosen employment for all women and men. As per the ILO framework, the employment policy needs to a ddress both demand and supply side issues with specific focus on developing macro economic and sectoral strategies, active labour market and skill development policies and developing enterprises that employ more labour than capital such as small and micro enterprises.

On a macro-economic level, the growth without jobs seen over the last two decades may be linked to Central and state-level policies that encourage capital investments. Ostensibly aimed at industrial growth, these policies, which include varying investment subsidies, have indirectly distorted the relative costs of capital and labour in the production process.

Between 1995-96 and 2003-04, money wages in industries rose by 36.6% while capital cost index fell 17%. This translates into a 55% negative shift in price of capital relative to labour. At the same time, lack of reforms in the country?s archaic labour laws have meant that employing workers beyond threshold numbers set in the laws invites inspector raj ?a bad idea for industry, even if to scale up operations.

The draft employment policy suggests moving away from across-the-board subsidies for attracting investments, to a package targeted at products and sectors that serve the employment objective. As an example, the possibility of employment subsidies for the handloom weaving and leather and footwear industries have been examined and found to be budgetarily feasible. Apart from employment subsidies, the National Employment policy will look to encourage the growth of labour-intensive sectors.

The share of the top five labour intensive industries ? food products, beverage and tobacco, leather, wood and furniture and apparel – in the manufacturing pie has declined from 1990-91 to 2003-04. Footwear, jewellery and textiles are the only such sectors to show growth.

Outside of manufacturing, construction and tourism sectors have been identified as having high growth and employment potential. Micro and Small enterprises, accounting for 67% of total employment as per the Economic Census of 1998, have been lagging behind the rest of the industry in growth as well as productivity term. Shortage of working capital for the units also lead to high mortality rates, leading to low quality jobs and minimal social protection.

Apart from simplifying rules and procedures that hamper MSEs? functioning, the employment policy will examine how greater linkages can be drawn between MSEs and larger businesses. The recommendations by the National Commission for Enterprises in the Unorganised Sector to improve access to finance for MSEs would also be looked into.

The supply side problem

Only 2% of India ?s youth (15-29 years) have had formal vocational training and about 8% have had non-formal training. That?s an alarming figure for a country banking on its ?demographic gift? to spur it into the league of super economic powers.

The total vocational training capacity of 2.5 million leaves more than 10 million of the 12.8 million new entrants in the labour force uncovered. Moreover, the training programmes are focused on the organized sector while 90% of the 457 million-strong workforce is in the unorganized sector.

To enhance capacity, setting up new institutions is the obvious key?by the government, by the private sector or through Public-Private Partnerships. A workshop on the PPP model was held last month for 8 states. Distance learning and e-learning methods will also be pursued. But the problem is not just the sheer scale of capacity building required.

?At the central government level alone, 17 different ministries handle skill development in their respective areas. State governments and the private sector have their own initiatives, but there is no co-ordination among these,? ILO?s Akiko Sakamoto pointed out at the recent consultation meeting.

?The weak system of quality assurance means that skill imparting standards differ for the same course offered by two organizations,? Sakamoto added. While the government has already embarked on a National Skill Development mission and an ambitious Skill Development Initiative, a National Skill Development Policy will be part of the employment policy.

?A skill development system for India should support diversity, while maintaining national coherence. To ensure better co-ordination and avoid overlaps among the initiatives by different ministries and states, it is envisaged to set up a National Skill Development Authority (NSDA),? Prasad said.

The plan is to set up a Labour market information system, so that the requirements of different sectors are better understood. Sector Skills Councils will recommend the appropriate qualifications and training required by their industries, which will be weaved into a National Vocational Qualifications Framework. To ensure quality of training, the NSDA will create a National Accreditation Council and empanel certification and assessment bodies for examining training centres.

A progressive increase in the funding of skill development programmes from 2% of GDP to 5% of GDP has been proposed by the Labour ministry, on the basis of an expert group report. Performance-based funding will be introduced to create incentives for training providers. ?The funding should be sustainable,? Prasad stressed.