Yes, India's Not Creating Enough Jobs. But It's Not Apocalyptic - Yet

There have been some scary apocalyptic stories about job losses in India - specifically, a prediction that seven million jobs will be lost by 2050. This projection was made in a study by a Delhi-based NGO called Prahar. At the outset, it would be useful to point out that the actual study has not been published yet and most media houses are running a press release made to the Press Trust of India. Further, this author could not find the website or any other information regarding Prahar. Thus, any conclusions made either in this article or in the original press release are of a preliminary nature. 

The press release quotes the Labour Bureau's data release that the rate of job creation has steadily decreased from 2011: India created only 1.35 lakh jobs in 2015 in comparison to 4.19 lakh in 2013 and 9 lakh in 2011. 

The report also states that 550 jobs have disappeared everyday for the past four years. The key figure of 7 million jobs lost by 2050 was presumably arrived at by an over-simplified extrapolation of 550 X 365 X 34 years. In a growing and dynamic macroeconomic situation such as India, such extrapolation is neither academically rigorous nor does it provide any practical insight; it merely is an alarmist declaration meant to amplify and highlight the fact that India is not creating jobs fast enough. 

Apart from the data excursions, the press report also ventures into the territory of causality and prescriptions. It claims that the rise in unemployment is due to sectors such as agriculture and SMEs, which contributes most to employment in India, are the worst affected and that the organised sector, which contributes to only 1% of jobs, gets a disproportionate amount of attention from policy makers. The report also rues the fact that the big multinationals in India are highly capital-intensive, while the SMEs are four times more labour intensive than the large firms.

India's slow rate of job creation is indeed a worrisome feature of its economy at present. This has come to be dubbed as jobless growth. Consider these statistics: only 1 million jobs per year were added between 2004-05 to 2009-10, while GDP growth rates reached historic peaks of 9% in three of those years. However, 55 million people joined the workforce during this period, which translates into a staggering job deficit of 50 million. Part of the reason for this, as correctly highlighted by the press release, is that Indian manufacturing tends to be capital - intensive and does not provide mass employment. 

In order to counter this, the release makes recommendations that "India needs to go back to the basics and protect sectors like farming, unorganised retail, micro and small enterprises...These sectors need support from the government not regulation. India needs smart villages and not smart cities in the 21st century". 

While it has identified the problem of jobless growth, the prescriptions seem to be entirely regressive in nature. Protecting the agricultural sector (whatever that may mean) cannot lead to meaningful employment. The agricultural sector in India does absorb more than half the workforce, but as any elementary analysis would inform, a lot of it is disguised unemployment. Also, as this brilliant EPW article by Deepankar Basu and Debarshi Das points out, agriculture has made the biggest negative contribution to aggregate employment elasticity of output in this decade (which means that the same amount of output growth creates fewer jobs than it used to) while manufacturing has made the biggest contribution. 

The SMEs may be labour-intensive in nature, but they also form one of the least productive sectors in the economy, which implies that their real wages would be extremely low. Finally, the romantic view of Indian villages as the economic backbone of India is flawed. It will never lead to the kind of mass employment that is desired in India. Several academic studies point out that there is a significant and positive relationship between urbanisation and job creation in developing economies. 

However, the low rate of job creation needs to be tackled, irrespective of the study's claims. Some of the things that can be done to increase the rate of job creation in India are: 

1. In order to ensure that producers are not unfairly biased towards capital-intensive methods of production, India needs to free up its labour laws. The labour laws in India are archaic, restrictive, and convoluted. This unintentionally incentivizes firms to stay small and remain in the informal sector. There's some hope here as the Modi government at the center can take a cue from the labour reforms initiated in Rajasthan. Big firms, which can achieve economies of scale, are the need of the hour to create jobs for the masses in India. 

2. India needs to focus on primary and secondary education and skills development. Often, the employment argument gets drowned in the numbers, while the quality of unemployment tends to get unnoticed. A skilled workforce has a better chance at finding higher paying employment. 

3. Work on ease of doing business: India has to foster a conducive environment for businesses. This does not merely imply creating Special Economic Zones for big firms or easing FDI regulations (though this can be important); it requires for firms of all sizes to be set up and the facilitation of business to run smoothly in India. The business environment is the toughest for small to medium enterprises, which might not have the political clout or the financial resources to wade through the encumbering regulatory environment. Again, the good news is that the present government is focused on improving the Ease of Doing Business ranking, which will translate to some ground level improvement in this regard. 

These are just few of the urgent reforms that need to be taken in order to increase employment opportunities. While the press release has been successful in highlighting the trend of a diminishing rate of job creation in India, its projections and policy recommendations should be taken with more than just a pinch of salt. 

(Anupam Manur is a Policy Analyst at the Takshashila Institution, an independent and non-partisan think tank and a school of public policy.)

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