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Thursday, 04 February 2016 01:12
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Economic growth simply isn’t creating enough jobs


Though the current debate over MGNREGA centres around the BJP not taking the UPA flagship programme seriously till now—prime minister Modi’s ill-advised barb on this being a monument to UPA’s incompetence added to the problem—this is missing the point since funding fell even during UPA years. From Rs 40,100 crore in FY11, it fell to Rs 30,287 crore in FY13 and person days of employment fell from 284 crore in FY10 to 219 crore in FY12. Even at its peak, MGNREGA created just 1.2 crore full-time jobs—based on 250 days of work per person per year—or 2-3% of total employment; though that’s reasonable since it is an unemployment insurance, not an employment scheme. You could save money by giving cash—30-40% of funds are spent on materials while the assets created are of doubtful value—to those availing of the scheme, but paying out cash instead of demanding work would mean several times more claimants for the dole.

The real problem, however, is that India is simply not creating the number of jobs it needs. A Crisil report points out that employment elasticity for non-agricultural jobs fell from 0.52% in 1999-2004 to 0.38% in the high- growth period of 2004-11—that is, while every 1% rise in GDP growth resulted in a 0.52% hike in jobs earlier, this fell to 0.38% later. Based on the 240 million non-agricultural jobs in 2011, this means each 1% GDP growth generated just 9 lakh jobs—a 7% GDP, therefore, means just 6.4 million jobs while India needs 10-12 million each year. The crux of the problem is that industry is simply not creating enough jobs, and as more work gets mechanised, this will get worse. According to Crisil, the employment elasticity of industry has fallen from 0.78 in 1999-2004 to 0.57 in 2004-11. That means government policy has to focus on stimulating employment-intensive sectors like leather, gems & jewellery and textiles and ready-made garments where, sadly, India seems to be losing competitiveness. The other policy intervention has to be stimulating construction—employment elasticity has risen from 0.84% to 1.15% in this sector—either by way of low-cost housing or roads; the biggest source of additional employment creation in the Vajpayee years was the highway programme. Right now, going by Crisil’s estimates, as compared to the 52 million non-agricultural jobs created in the 2004- 2011 period, the next seven years ending 2018 will see only 38 million non-agricultural jobs getting created; as a result, while 37 million people were able to move off the farm in the first period, 12 million will have to move to the farm in the second period. That will make MGNREGA a permanent feature on India’s economic landscape for many years to come, and explains why the BJP is now calling MGNREGA a ‘cause of national pride and celebration’.


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