Slow Job Growth In India

• The Labour Bureau of the Ministry of Labour has compiled data for job creation in labour-intensive non-agricultural sectors each quarter since the 2008 global financial crisis.
• The latest figures show that 1.35 lakh jobs were created in 2015, the lowest figure since 2008, lower than the 4.9 lakh new jobs in 2014 and 12.5 lakh in 2009. Similarly, for the first time in any nationwide sample survey, the Labour Bureau’s Annual Employment-Unemployment Survey Report in 2013-2014 showed that underemployment remains a major problem.
• Only 60.5 per cent of persons aged 15 and above who were available for work for all the 12 months were able to get work during that year.
• More worrying is the fact that for the 7 million young people who are joining the labour force, the open unemployment rate is 10 times higher than that for those 30 years and above.
• Unemployment for 15- to 17-year-olds is 10.2 per cent and for 18- to 29-year-olds is 9.4 per cent in 2013, but 0.8 per cent for over- 30-year-olds
• While the employment elasticity of output has been falling since 2000, the good news is that 7.5 million new non-agricultural jobs were created annually between 1999-2000 and 2004-2005.
• An additional 7.5 million new industrial and service sector jobs were created annually between 2004-2005 and 2011-2012.

Analysis:

• Between 1999 - 2004 there was high growth in job creation in India. Increase in infrastructure investment was the main factor behind this growth. Starting with the Golden Quadrilateral Highway network which began construction in 2001, infrastructure investment picked up. As a result, the number of workers in construction rose from 17 million in 1999-2000 to 26 million in 2004-2005. Investment in infrastructure rose strongly thereafter, and during the 11th Five Year Plan, infrastructure investment in the public and private sector together grew by $475 billion. The result was that employment in construction jumped from 26 to 51 million in 2011-12, trebling from the turn of the century.
• But after 2004, there is decline in pace of job growth . This is because of the possible three reasons. First, while the share of organized sector jobs is increasing, most of the job increases are still taking place in the unorganized segment of industry and services, and in informal jobs.
• Second, while construction had been booming from 2000 to 2012, its growth dipped since 2012, and has begun to revive only since late 2015 as infrastructure investment revived. Since 2004-2005, for the first time in Indian history, 5 million agricultural workers have been leaving agriculture per annum. They are mostly absorbed in low-skilled construction employment. With infrastructure investment tapering off during the fiscal years 2012-2013, 2013-2014 and 2014-2015, construction employment growth is likely to have fallen sharply, compounding the already greater rural distress caused by drought in 2014 and 2015.
• Third, education enrolment levels of youth joining the labour force have been increasing every year since 2010 or so. As a result, secondary gross enrolment ratio has increased from 62 to 79 per cent between 2010 and 2014. The educated youth are unlikely to join agriculture and will look for non-agricultural jobs in urban areas. The revolution in rising expectations is already causing social movements.
• Government has taken some initiative to tackle this problem. Government is planning three schemes to counter the issue of job growth in India. First, the Ministry of Labour is finalising the scheme to offer to pay 8.33 per cent of the salary as contribution for a pension scheme for new employees getting formal sector jobs. The scheme will be applicable to those with salary up to Rs.15,000 per month. Second, the Ministry of Commerce is customising incentives for labour-intensive export sectors. It has already initiated an Interest Equalisation Scheme and the Merchandise Exports from India Scheme to support declining exports, given that exports have been declining for 15 months. In the Budget, the government also announced that 100 per cent FDI in food retail will be permitted on the condition that the goods have to be manufactured in India. Third, under the Stand Up India scheme, Scheduled Castes, Scheduled Tribes and women entrepreneurs will get support such as free pre-loan training and facilitating loan and marketing. There will be a Rs.10,000 crore refinance window to the Small Industries Development Bank of India (SIDBI), and the National Credit Guarantee Trustee Company will create a corpus of Rs.5,000 crore. SIDBI will engage with the Dalit Indian Chamber of Commerce and Industry and other institutions to take the scheme forward
• However, government schemes rarely create many jobs. International evidence is that when consumer demand grows consistently, whether from domestic or international markets, that is when jobs grow. That requires an industrial policy. Ease of doing business improvement and infrastructure investment increases should improve the economic environment. But they don’t necessarily add up to an industrial policy, which has been lacking in India ever since economic reforms began in 1991. The international evidence on incentives to employers for creating jobs (which is the idea behind the first scheme) is not promising, certainly not in creating jobs on the scale that India needs.
• Economic growth is meaningful only as long as it creates new non-agricultural jobs. Job growth leads to an increase in consumer demand which has the effect of sustaining GDP growth and reducing volatility in the output growth rate. India has already demonstrated an ability to generate at least 7.5 million new jobs annually over a 12-year period from 1999-2000 to 2011-2012 — or at least the same number as new entrants to the labour force. Going ahead, the revival of infrastructure investment will certainly create more construction jobs

By: Vishal