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India – The problem of jobless growth

The one issue that 25 years of economic reforms have been unable to address is adequate job creation

Photo: H.K. Rajashekar/India Today Group

Photo: H.K. Rajashekar/India Today Group

New Delhi: Few can dispute the fact that the first decade of this millennium saw the fastest rate of growth ever for the Indian economy. Even fewer would question the fact that this was also the period that witnessed an abnormally low rate of growth in job creation. Take the two together and what have you: jobless growth.

This piquant economic reality has been, by far, the one issue that 25 years of economic reforms has been unable to address. And as the Congress-led United Progressive Alliance (UPA) learnt the hard way, it can also hurt politically; jobless growth and allegations of corruption in public office were the two key factors exploited by the opposition to unseat the UPA in the 2014 general election.

It was during UPA’s tenure that the first serious debate on jobless growth came to a head. The trigger was the release of the 66th round of the National Sample Survey Office (NSSO) data on employment in 2011. It showed that between 2004-05 and 2009-10, only 1 million jobs were added per year; in a period when the economy averaged a record 8.43% growth annually.

In this period, 55 million people joined the labour force. So, another way of looking at it is that a staggering 50 million failed to find employment—a vexing political challenge indeed.

Worse, from the UPA’s point of view, the previous tenure of its principal political rival, the National Democratic Alliance (NDA) led by Atal Bihari Vajpayee, saw a substantially higher number of additions to the workforce. The NSSO data for that period, 1999-2000 to 2004-05, showed that the economy generated 62 million jobs.

C. Rangarajan, the then chairman of the Economic Advisory Council advising the prime minister, very candidly admitted as much. “The 66th round results do leave us with an unanswered question: How do we explain a decline in the labour force in a period where both population and GDP (gross domestic product) were growing strongly,” he wrote in a piece published by the Economic and Political Weekly.

Tempting as it may be to dump everything at the UPA’s door, the reality of lack of employment generation and its effects is far more complex than what is made out to be in the rhetorical exchanges following the disclosures. In fact, it is this penchant for pat solutions that has led to public policy failing to approach the problem of job creation holistically.

For one, more than the quantity, we should worry about the quality of employment being created. Even the big spurt in employment generated during the tenure of the NDA were low-end jobs concentrated in sectors such as construction—caused by the big boom in housing triggered by Yashwant Sinha’s budget incentive for home loans as well as the spurt in construction of roads (specifically the golden quadrilateral).

Second, the nature of Indian manufacturing (which is being bandied about as the one-stop solution to the jobs crisis) is not employment-friendly. Most of them are automated and any employment is highly skilled. Yes, they will contribute to growth, but not necessarily to employment.

Third, the education system needs to be revamped to create the desired skill-sets. At present, the education system is failing miserably in delivering even whatever it is designed to. An Annual Status of Education Report (ASER) published by the non-profit Pratham Education Foundation in 2014 revealed the following:

* Nationally, the proportion of students in Class III able to read at least a paragraph of a Class I textbook is still abysmally low. In 2013, only two out of five children could achieve this standard.

* Similarly, the proportion of children in Class V at the all-India level who could read a Class II textbook remained unchanged at the level of 47%.

* Nationally, only one in four children in Class V could solve a three-digit by one-digit division problem.

Fourth, Indians are generally risk-averse and hence not inclined to encourage entrepreneurship, often a more workable alternative to a salaried job. As an investment banker observed, at every stage of life—from school to college and finally in employment (ideally on a salary and, of course, guaranteed tenure)—the inherent objective of an average Indian, especially among the middle class, is to eliminate or at the least mitigate risk.

Clearly, there are structural fixes needed to address job creation in the Indian economy. But the challenge is what to do in the intervening period—given that 12 million join the labour force every year. The NDA may have hit on a stop-gap solution by pulling out all the stops with its focus on encouraging small enterprise—specifically targeting Dalits and women through the Stand Up India programme—by facilitating loans (lack of credit has been one of the biggest impediments facing potential entrepreneurs). The NDA is acutely aware of the risk of failure of its strategy.

With job creation likely to be a key issue in the next general election, especially in an aspirational India, politicians on both sides of the aisle are on notice.

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