Given that around 7 million people get added to the work force each year, to cite figures from the World Bank’s latest World Development Report (WDR), India needs to add at least 35 million jobs over the next 5 years. Add to this the 26 million reduction in self-employed in the 2004-05 to 2009-10 period, and you’re talking of 60 million jobs, or double the jobs created in the last 5 years. That India is unequal to the task is best seen from the fact that, the WDR points out, there has been a sharp surge in the number of informal workers in the organised sector, from 32% in 2000 to 68% in 2010. That is, while just around a tenth of India’s workers are employed in the organised sector, the proportion of those who have informal work contracts is increasing by the day. Put it that way, and the typical response is that India needs to fix its labour laws—it also needs to get its vocational studies act together (http://goo.gl/nZ2kN), and that’s the point made by World Bank senior vice-president and chief economist Kaushik Basu on Monday.
Basu, however, also made other points worth examining. For one, WDR data show, urbanisation itself is a big driver of jobs, the faulty labour laws notwithstanding. More important, structural flaws in the corporate structure as well as the economy also hurt jobs creation—credit rating firm Crisil’s analysis shows that while just 5.7 million regular jobs were created in the 2004-05 to 2009-10 period, 18.6 million were created in the 5 year period before this. WDR data from the US shows that, if a company lasts 35 years, it becomes 10 times as productive and employs 10 times as many people—in India, however, the productivity of a 35-year old firm merely doubles and its headcount actually falls by a fourth (WDR calls this the ‘missing middle’). Part of the reason is bank credit not being available to SMEs in enough quantity and at reasonable interest rates in India. Two, though the WDR only alludes to it when it talks of paying attention “to the potential distortions that these programs may have on incentives to work”, the sharp rise in rural (and therefore in urban) wages is probably caused by the MGNREGA ramp-up as well as by the sharp hikes in minimum support prices for various crops—both increased dramatically over the past few years. When the WDR talks of South Korea abandoning development planning in 1996 and, in 2010, opting for a jobs strategy, the point to note is that this is a comprehensive strategy that involves not just labour laws, but also industrial credit, education and skilling, and not creating perverse incentives like MGNREGA.