How to create jobs in India? The problem is getting harder to solve

Published: October 9, 2017 4:58:06 AM

The Labour Bureau’s Annual Employment Unemployment Survey (2015-16) is the most recent data source that provides a comprehensive picture of India’s employment scenario.

jobs, jobs in india, how to solve jobs problem in indiaAs of July 2015, the total number of workers by usual status (principal and subsidiary status) stood at 467.65 million, a decline from March 2014, when employment stood at 480.38 million.

By- Radhicka Kapoor

The Labour Bureau’s Annual Employment Unemployment Survey (2015-16) is the most recent data source that provides a comprehensive picture of India’s employment scenario. As of July 2015, the total number of workers by usual status (principal and subsidiary status) stood at 467.65 million, a decline from March 2014, when employment stood at 480.38 million. In the manufacturing sector specifically, employment declined from 51.4 million to 48.1 million. The only sector to have witnessed a significant increase in employment during this period was wholesale and retail trade, where employment increased from 43.7 million to 48.1 million.

Post 2015-16, we have no comprehensive data on employment from any official source. However, an analysis of India’s National Accounts Statistics (NAS), which reports key macroeconomic aggregates, indicates that the task of job creation is getting even harder than before. The NAS reports GDP by aggregating Private Final Consumption Expenditure (PFCE), Government Final Consumption Expenditure (GFCE), Gross Fixed Capital Formation (GFCF) and Net Exports.

Between 2015-16 and 2016-17, growth rate of GDP slowed down to 7.1%, as opposed to 8% in the previous year. While growth rates exceeding 7% are reflective of a fast-growing economy, the fact is that these numbers in India have largely been driven by consumption expenditure. In 2016-17, PFCE and GFCE accounted for 55% and 10% of GDP, respectively. GFCE, in particular, has risen sharply by 20.8% between 2015-16 and 2016-17, as opposed to 3% in the previous year. This highlights the importance of GFCE in boosting GDP growth during this period. On the other hand, investment, which plays a crucial role in a country’s growth and employment generation, has been steadily declining with GFCF falling from 32.5% of GDP in 2013-14 to 29.5% in 2016-17. Exports growth has also been slowing, suggesting that India cannot export its way to employment growth via labour-intensive manufacturing activities.

Growth driven by a consumption boom while investment is contracting is not sustainable. Given that this is happening in the absence of job creation, consumers may eventually cut back on their spending too. Further, there are fiscal limits to which government spending can also fuel growth. John Stuart Mill’s insight that ‘demand for commodities is not demand for labour’ seems to hold true in India as consumer demand has not translated into increased employment. Perhaps this is because ‘consumers’ don’t employ people, businesses do. For genuine economic recovery to take place, private investment needs to accelerate as this will create both jobs and healthy growth.

The NAS also reports that Gross Value Added (GVA) grew at 6.6% in 2016-17 as opposed to 7.9% in 2015-16. A sectoral breakdown of GVA reflects that the sectors which witnessed relatively faster growth were not employment-intensive. For instance, the sectors ‘financial, real estate and professional services’ and ‘public administration, defence and other services’ together accounted for close to 40% of GVA growth during this period, but less than 10% of total employment. On the other hand, agriculture employed close to half the workforce, but accounted for only 11.3% of GVA growth.

Let us look in detail at the manufacturing sector, which has been heralded as a beacon of job creation. Manufacturing accounted for 21.2% of GVA growth during 2015-16 and 2016-17, with its GVA growing at 7.9%. However, it accounted for a paltry 10.2% of total employment (2015-16). This disconnect between jobs and GVA growth can be explained as follows. In the NAS, the manufacturing sector is classified into two categories—private corporate sector (PCS) and the household sector. While there are methodological differences, these two groups loosely replace the classification of organised and unorganised sectors, respectively, in the earlier NAS series. Although we do not have disaggregated GVA data for PCS and household sector for 2016-17, data for previous years indicates that it is the PCS which accounts for a disproportionately large share of GVA (roughly 87%). Further, even within the PCS, much of the GVA growth has come from capital-intensive industries such as manufacture of coke, petroleum, rubber, chemical and related products and machinery and equipment. While the PCS has accounted for the lion’s share of GVA, it accounts for a significantly smaller share of employment as compared to the household manufacturing sector. There are no official estimates of employment for the PCS and household sector. However, using data from the recently released Annual Survey of Industries (2014-15) to proxy for employment in the PCS, and NSS’s Unincorporated Enterprise Survey of Non-Agricultural Enterprises (2015-16) to proxy for employment in the household sector, we find that employment in the former stood at approximately 13 million, compared to 36 million in the latter. Importantly, the pace of job creation in the PCS, which is where productive formal jobs lie, has been quite sluggish with just over 300,000 jobs being added between 2013-14 and 2014-15.

Looking at the different components of aggregate demand and GVA, it is evident that growth in India has not been employment-intensive. The nature of India’s industrial performance, in particular, has been such that labour-intensive industries and industries that can absorb large swathes of India’s low-skilled and unskilled workforce have not performed well. If the existing structural pattern persists, the challenge of job creation will only get harder. The urgency of accelerating growth and investment in sectors that have greater employment potential cannot be understated. The greater the delay in doing this, the more the jobs crisis will aggravate.

The author is Economist at ICRIER, working on manufacturing sector and labour issues in India

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