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Can’t get jobs till rural India blooms PDF Print E-mail
Thursday, 01 June 2017 04:35
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Vital to get terms of trade back in agriculture’s favour; govt right to focus on housing/roads, sectors like apparel

Housing will create lots of jobs but, paradoxically, demonetisation dealt it a big blow; the ill-conceived moves on cattle/ buffalo slaughter will also hit jobs

 

Trust journalists to get it wrong. Stories about layoffs in the IT sector were conflated with fears of robots replacing humans in certain kind of jobs and exaggerated to the point of suggesting the sector’s years of job creation were behind it. Naturally, this was contested—ex-TCS chief N Chandrasekaran, currently Tata Group chairman, wrote an article pointing out that the story of lack of jobs creation in a business newspaper was next to an advertisement looking for UX/UI designers, full stack web developers, data scientists, data visualisers and Java coders!

What has got lost, in the bargain, is the story of a definite slowing in employment intensity—employment per one million rupees of turnover—not just in the IT industry, but in the entire economy. Faced with this reality, not surprisingly, the government has also changed its narrative. Even if India’s manufacturing sector grew to Chinese levels, NITI Aayog member Bibek Debroy pointed out at a FICCI meeting a few weeks ago, it wouldn’t give India anywhere near the kind of jobs it needed.

Not surprising since, as Crisil pointed out, the jobs-intensity in manufacturing is down a fourth—from 0.78 in 2000-05, employment elasticity in manufacturing fell to 0.57 in 2005-12. So, Debroy talked of the need to create more employment in the informal sector.

While the government has put together a task force to see how India can get better data on jobs creation, the narrative now includes converting job-seekers to job-creators through more loans to entrepreneurs through the Mudra scheme—according to data presented at the government’s 3rd anniversary, 7.45 crore people got `3.2 lakh crore loans under this. While that would suggest India has already fixed its jobs-creation problem, the fact that the government is still worried means it doesn’t believe its own rhetoric.

Under normal circumstances, policies aimed at getting GDP growth up would help—FY17 GDP grew 7.1% vs 8% in FY16—but that helps only if the growth is in job-creating sectors. While the IT and financial services sector, Crisil pointed out, employ 1-2 people per one million rupees of real value added, this is 9 for education and recreation services, and it is 12.2 for construction. Manish Sabharwal of Teamlease points to a nine-fold increase in the number of sales/customer-service/logistics posts he is being asked to fill over the past three years in consumption-driven services.

To that extent, government policy is broadly in the right direction. In the last three years, for instance, there has been a lot of emphasis on getting investment up in roads and railways; the interest-subvention schemes on housing are also the right policy. While it is rural roads more than expressways that will create jobs—expressways tend to be quite capital-intensive—demonetisation has really dampened the potential of the housing sector since it is primarily cash-driven. As Q4FY17 GDP data shows, demonetisation also hit manufacturing very hard, and the brunt was probably borne by the informal sector—construction growth fell from 6% in Q4FY16 to minus 3.7% in Q4FY17.

Since the bulk of India’s work force is in agriculture, it is important to get growth back here. Apart from the monsoon-driven revival, there have been no structural reforms to really boost growth. Indeed, ensuring greater food processing will also push jobs growth. In this context, given the 3 million employed in the leather industry, the spate of curbs on cattle/buffalo slaughter is certain to hit employment.

In macro-terms, it is important to bring the terms of trade back in favour of agriculture since it is only then that true demand can return to this sector. S Mahendra Dev and N Chandrasekhara Rao had estimated the terms of trade for farmers had worsened from 100.15 in 2009-10 to 95.55 in 2013-14.

While the government is having a problem with comprehensive labour reform, this is probably the biggest reason for slow jobs growth. In the absence of that, sectoral initiatives will have to be pushed in employment-intensive sectors. One such was worked on by CEA Arvind Subramanian and textiles secretary Rashmi Verma for apparel. It included lower interest-bearing loans, higher rates of duty drawback given to exporters, including the sector under Section 80JJAA to allow it to get tax benefits, allowing fixed-term employment, etc. The plan was to created one crore direct and indirect jobs and $30 billion additional exports in three years—this has yet to yield full results, but the ministry estimates 7.5 lakh extra jobs were created last year.

The budget announced a similar scheme would be created for the leather and footwear industries—how this pans out, however, needs to be seen given the turmoil in the sector. Labour laws, as Subramanian and Verma point out, are at the heart of everything. Around 78% of Indian apparel firms, they say, employ less than 50 workers and just 10% have more than 500 workers—the comparable numbers in China are 15% and 28%—and that is what leads to poorer quality and competitiveness, and poor jobs-creation.

 

 

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