India's jobs problem PDF Print E-mail
Wednesday, 08 January 2014 00:00
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We’re back to forcing workers into agriculture jobs

Given the dramatic slowing of jobs creation over the past decade—61 million jobs got created between FY00 and FY05 versus less than 16 million between FY05 and FY12—it is obvious jobs growth is going to remain a hot election issue. But while political parties focus on just one part of the problem—the lack of economic growth—this is perhaps the lesser part of the problem. If overall employment elasticity is 0.19, this means around 9 lakh jobs get created with every 1 percentage point hike in GDP growth—a slip in growth rates from 9% to 5% therefore means around 3.5-4 million less jobs are being generated each year.

That’s unfortunate, but as a Crisil study points out, even if growth restarts, things are unlikely to get much better as employment elasticity is coming down quite dramatically. So, Crisil calculations show that while a total of 15 million new jobs got created in the FY05 to FY12 period, the important part of this was that the growth was achieved by the creation of 52 million new non-agriculture jobs and the destruction of 37 million agriculture jobs. In the next 7 year period, however, Crisil projects the jobs market reverting to an earlier era where, when not enough non-agriculture jobs were created, people had no option but to find employment in agriculture—since there are enough people employed in agriculture, adding more people just means disguising what is actually unemployment. According to Crisil, between FY12 and FY19, just 38 million new jobs will get created in industry and services versus the 52 million in the previous 7 years. Since roughly 50 million new people are likely to want jobs, this means 12 million will have no option but to get disguised unemployment in agriculture.

While it is difficult to point to that one problem that caused employment intensity to fall—it fell from 0.78 in FY00-05 to 0.57 in FY05-12 for industry and from 0.35 to 0.26 for services—the overall solution lies in making labour employment more attractive. To the extent rigid labour laws, or even MGNREGA for that matter, make employment more expensive, these have to be addressed. The discussion paper on manufacturing zones added another dimension to the problem by pointing to how difficult it is to set up industry—a total of 70 laws need to be complied with, needing 100 returns to be filed every year. It also talked of more flexible labour laws, including an insurance scheme that would provide unemployment dole for a few months during which workers could be re-skilled and re-employed elsewhere. Fixing this is critical since, even if growth returns, and if it takes place in sectors—like IT—that require less workers, growth is going to be quite non-inclusive. While 5.9 workers were required to create R10 lakh of real output in hotels and restaurants in FY12, Crisil points out, the number was a mere 1.4 for financial services. At the end of the day, the solution lies in getting India’s manufacturing sector’s share of GDP up to around 25% by 2025, up from 16% right now—this will create 100 million jobs. To reach this number, to put things in perspective, requires manufacturing to start growing at around 14% a year for the next decade—it grew by 9.2% per year over the last 5 years, 8.1% over the last 10 years and minus 0.3% over April-October FY14. No matter which coalition comes to power later in the year, this is going to be its biggest challenge.


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