Self-employment is up again

Written by C Rangarajan | Padma Iyer Kaul | Updated: Jun 29 2009, 08:11am hrs
The first half of the current decade saw India perform reasonably well on the growth front. Even more impressive was the fact that this growth had translated itself into jobs. The 61st round of the NSSO quinquennial survey, which covered the period 1999-00 to 2004-05, revealed that 60 million jobs had been created in these five years. India was among the top performers in growth rate of workforce and created the largest number of jobs in absolute terms.

The aggregate picture relating to the employment scenario as it emerges from the 61st round data reveals that:

* The annual growth rate of workforce increased from about 1% in 1993-94 to 1999-00 to 2.9% in 1999-00 to 2004-05, resulting in an incremental employment of 60 million.

* There was a substantial jump in elasticity of employment from 0.15 in the period 1993-94 to 1999-00 to 0.48 in the period from 1999-00 to 2004-05.

* Agriculture accounted for a large percentage of this increased employment.

* A significant increase in employment has also taken place in the informal sector where generally the level of wages is low and the working conditions poor. This has implications for the quality of employment.

The NSSO 61st round has rich cross sectional data that can be used to analyse the growth-employment linkage. We use it to study 14 major states (which cover 90% of the population).

The first half of the current decade (1999-00 to 2004-05) found most states in our analysis performed well in terms of SDP growth. Six states (AP, Gujarat, Haryana, Karnataka, Kerala and West Bengal) had a growth rate higher than the all-India average of 6.01%. Among other states, except for MP and Punjab, all had managed growth rates between 4 and 6%.

The workforce growth rate also showed an increase over the previous period and all the 14 states had positive workforce growth rates. In 10 of 14 states the workforce growth rates more than doubled in the second period while in the remaining four (Bihar, Gujarat, Kerala, Punjab), growth rates showed less improvement. A striking feature of the employment scenario is the wide variations in workforce growth rates among states in the second period, ranging from a high rate of 5.61% in Haryana to 1.29% in Kerala. In terms of distribution, one state has workforce growth rates in excess of 4% (Haryana), 10 states fall in the range of 2-4% and three states (AP, Kerala, Tamil Nadu) have growth rates below 2%. On the whole, a strong employment growth is seen in the 61st round, which has a reasonably high positive correlation between changes in SDP and changes in employment, with the correlation coefficient being 0.52.

The NSS data on the activity status of workforce gives useful insights into the quality of employment generated. Usually economic development involves transition from self-employed/casual status to RWS (Regular Wage and Salaried) status, which approximates organised employment. At the all India level, the previous trend of decline in the self-employed category has now been reversed. Cutting across the rural-urban divide, the share of self-employed workers has increased sharply from 53% to 56% with an offsetting decline in the share of casual labourers from 33% to 28%. The share of the RWS workers increased marginally. This trend is replicated in most states. Despite widespread concern on increasing informalisation of employment, the positive growth rates in the RWS segment both in the 55th and 61st round (for most states) indicate job creation in the organised sector. An interesting development in the 61st round was the negative growth rates in casual workforce in six states. In these states, the workforce shifted primarily to the self employed segment rather than the RWS.

At the aggregate level, a sectoral decomposition of workforce growth in states shows highest rates in the industry sector at 5.86%, followed by the service sector at 4.01% and the agriculture & allied sector at 1.54%. This pattern is replicated in most states in the period 1999-00 to 2004-05.

At the all-India level, agricultures share in workforce has been steadily declining. In the period from 1993-94 to 2004-05, it declined from 64% to 56% . The states replicate the all-India trend and show declines of similar order, with no exceptions. The employment performance in terms of growth rates of workforce in the agricultural sector was comparatively weaker (to be expected with dependence on land), with the bulk of the states having growth rates below 1.6%. However, in this round there were wide variations in both the growth rate of SDP and workforce in agriculture.

In four states (Karnataka, Kerala, Tamil Nadu and Maharashtra) there was an absolute decline in SDP in agriculture and allied sectors in the second period. Workforce growth rates remained positive in Mahrashtra and Karnataka while in case of Kerala and Tamil Nadu, growth rates remained negative. In contrast, there were states like Gujarat, AP, Bihar and Orissa where above average performance in agriculture SDP co-existed with below average employment performance. There were also states like Haryana, Rajasthan and West Bengal where both SDP in agriculture and workforce in agriculture had growth rates above the all-India average. In general 61st round data reveals a weak correlation between change in output and change in employment in the agricultural sector.

The structural shift of workforce from agriculture to industry sector was clearly visible in the statewise data. A comparison of the 55th and 61st rounds shows that almost all the states improved their share of workforce in the secondary sector by two percentage points. The exceptions are Karnataka, Kerala and West Bengal. The SDP growth rates in the industry sector continued to remain healthy in the 61st round. The factor that stands out prominently is the very high workforce growth rates in the industry sector. Haryana was the best performer at 9.12% and Kerala the worst at 1.96%. Notably in 11 out of the 14 states, growth rate of workforce outstripped SDP growth rate (exceptions were Karnataka, Kerala, and West Bengal). An analysis of the sub sectors shows that the growth rates of workforce in mining and construction were higher than the growth rate in the manufacturing sub sector.

The all-India share of the service sector in workforce had increased in the 61st round. Only in the case of three states (Gujarat, Haryana and UP), the share had declined. In the services sector, all the states displayed positive growth rates in workforce ranging from 2.15% to 7.37% in the 61st round. The service sector employment performance was quite strong and 12 states had workforce growth rates in excess of 3%. Disaggregation of workforce growth rates within the service sector shows that fastest growing sub sectors were finance, transport, trade and public administration.

To sum up, in the period 1999-00 to 2004-05, all states other than Kerala, Tamil Nadu and AP exhibited good performance as far as employment growth was concerned. In all states, SDP and workforce growth rates moved in the same direction in the non-agriculture sector and notwithstanding some interstate variations, we find a positive correlation between the two as per the 61st round NSS data.Wide interstate variations in SDP and workforce growth rates make generalisations difficult. However the data does reveal that in the non-agriculture sector a positive growth in output is a necessary condition for a positive growth in employment.

C Rangarajan is MP, Rajya Sabha and former RBI governor. Padma Iyer Kaul and Seema are director and senior research officer of the Economic Advisory Council to the Prime Minister, respectively