India's Economy Leaves Job Growth in the Dust

For the last two decades, India has had one of the world's fastest-growing economies. Even in recent years, when the global recession and complacent policymaking have slowed progress, growth has remained a healthy 5 percent to 6 percent.

Recent surveys of employment patterns in the workforce, though, point to the disturbing fact that rapid growth over the last decade hasn't been accompanied by a spurt in jobs. If anything, the word "jobless" needs to be used as a caveat prefacing the words "Indian growth story" to better understand the nature of this country's triumphs and failures.

Recent studies have shown that in the five years between 2005 and 2010 fewer than 3 million new jobs were added to the economy. This is worrying when one considers that about 12 million people join the workforce every year. The malaise is particularly serious in the manufacturing sector, which shed as many as 5 million jobs between 2004 and 2005 and between 2009 and 2010 and has been unable to absorb the (to some extent desirable) exodus from agriculture in India's modernizing economy.

Without large-scale job creation, India's growth becomes, lower down, a fiction to millions of people looking for structured work and unable to find it. The problem becomes more pressing when one factors in India's prospective demographic "bulge" in the coming decades, as ever-increasing numbers of young people join the workforce every year before fertility rates fall and the population stabilizes around 2040 at about 1.5 billion. What some economists project as a ''demographic dividend" could turn out to be a period of crisis marked by steep unemployment and rising social unrest.

In a report in the Mail Today, SPS Pannu wrote:

Planning Commission figures reveal that while in other emerging economies like China, Brazil and South Africa the manufacturing sector has grown much faster than the GDP, this has not happened in India where the share of the manufacturing sector in GDP has stagnated at 16 per cent.

This has had a negative impact on India's global footprint. For instance, China has succeeded in transferring as many as 150 million people from agriculture to the manufacturing sector and has a 15 per cent share in world trade while India has a mere 1.4 per cent share. . . .

The Planning Commission is of the view that "India has not been able to fully leverage the opportunities provided by the dynamics of globalisation that resulted in a dramatic shift of manufacturing to developing countries over the last decade."

The economic survey for 2012-13 prepared by the country's chief economist Raghuram Rajan also states that India is creating jobs mainly in low-productivity construction and not formal jobs in manufacturing, which typically are higher productivity.

And a recent piece by Gaurav Choudhury and Zia Haq in the Hindustan Times drew on some of the same data:

Spinning new jobs, therefore, is critical for India's long-term socio-economic equilibrium.

Large corporations are important, but as many experts point out, they are, in a sense, incidental. The future lies in the estimated 40 million small, micro and medium enterprises that are spread across the dank tanneries of Mumbai's Dharavi slum township, in the room-sized waste-recycling units of outer Delhi and elsewhere in the country.

Put together, these grubby factories contribute towards half of India's factory output, 45% of exports and employ more than 60 million people (India's high-profile service sector employs no more than 40 million). "Every one percentage point growth in the manufacturing sector would create 20-30 million additional jobs," a senior government official, who did not wish to be identified, told HT.

It's clear that to make economic growth more inclusive (rather than relying on the current system of subsidies and extensive but flawed redistribution of resources), the Indian government needs to immediately provide a massive stimulus for manufacturing -- partly by cutting red tape and eliminating structural defects in the manufacturing sector, but also by improving the lamentable quality of public education. Indeed, India currently has far too many people who are functionally illiterate, compounding low job growth with the even more tragic problem, noted in this perceptive overview by Amy Kazmin, of "high unemployment coupled with labour shortages."

Some of these issues are addressed in a document called "The Manufacturing Plan: Strategies For Accelerating Growth of Manufacturing In India in the 12th Five Year Plan and Beyond" prepared last year by India's Planning Commission. An overview of this plan and an argument for an industrial policy directed by government was provided by Arun Maira, a member of the commission, in an essay called "New Manufacturing Policy: Why India needs a blueprint to boost manufacturing:"

The urgent question is, what is government's role in accelerating growth of manufacturing? Studies of the approaches taken by the countries mentioned, and the strategies adopted by others earlier, especially Japan and Germany, who continue to sustain their manufacturing strengths, reveal the nature of effective industrial policy.

Good industrial policy is not about micro-managing industry, which was the stifling way of India until the 1980s. Nor is it about "picking winners" - particular firms and technologies to bet on - a risky approach that has worked sometimes in other countries but failed often too. . . .

The role of government is to stimulate a vibrant eco-system of private and public producers, with the institutions that provide public goods such as education and business regulations.

Since an eco-system consists of several interacting policies and institutions, the participants in it must come together to understand what the constraints in it are and devise a way out of them. Deng Xiaoping described this process as, 'Feeling the stones underfoot as one crosses the stream'. . . .

Change is necessary in many areas for India's manufacturing sector to reach its goals: industrial relations, land acquisition, the regulatory framework and so on. These improvements must happen widely around the country, not only within the proposed New Investment and Manufacturing Zones, for the country to realise its ambitious overall growth and employment targets.

India's latest "National Manufacturing Policy" has set ambitious goals: the creation of 100 million new manufacturing jobs in the next decade and an increase in manufacturing's contribution to gross domestic product to 25 percent from 16 percent. Asit Ranjan Mishra and Amrit Raj noted the policy's main new emphasis in the business newspaper Mint:

Key to the policy is establishing national investment and manufacturing zones (NIMZs), proposed to be developed as greenfield industrial townships and benchmarked against the best manufacturing hubs in the world.

These zones will have at least 5,000 hectares each. Units in these zones will enjoy single-window clearance, a liberal exit policy, incentives including exemptions from capital gains tax, and incentives for green manufacturing and technology acquisitions.

But the plan's projected goals seem so optimistic as to be almost unachievable, as a recent paper on India's jobless growth situation makes clear:

In a context wherein the last decade of rapid economic growth, there has been almost no increase in the contribution of manufacturing to either output or employment in relative terms; the Manufacturing Plan’s target seems to be overly ambitious. Given also the threat of exports from manufacturing hubs like China, Thailand and Korea and opening up of free trade with Bangladesh which Indian domestic manufacturers are facing, there is a serious need to review industrial policies to be able to achieve the ambitious targets of the New Manufacturing Policy.

The writing, then, is on the wall. India needs a massive improvement in the manufacturing sector and much greater investment in education and skilled labor if its "demographic dividend" isn't to become a demographic crisis.

Chandrahas Choudhury, a novelist, is the New Delhi correspondent for World View.

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