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Jobless growth spoiling our success story

A declining employment rate shows that our growth process is failing on inclusiveness, writes Saikat Neogi.

india Updated: Aug 13, 2007 03:06 IST
Saikat Neogi

For the first three decades after independence, India’s economy grew at an average rate of about 3.5 per cent. This was disparagingly labeled as the ‘Hindu rate of growth.’ Of late, the term has fallen in disuse, perhaps because the figure nearly doubled in the nineties to cross 8 per cent in the last three years.

This growth has made India the world’s fourth largest economy in terms of purchasing power parity. Foreign exchange reserves are at $222 billion; the total foreign direct investment has quadrupled to $26.5 billion in the last seven years. And India Inc is on a mergers and acquisitions spree abroad.

But this growth has also triggered a rise in urban-rural disparities. The divide, calculated as ratio of urban to rural per capita consumption, increased from 1.62 in 1993-94 to 1.91 in 2004-05. In other words, the high growth has made no difference to the lives of around 27 per cent Indians who live below the poverty line.

Jobless growth

A declining employment rate shows that our growth process is failing on inclusiveness. According to the NSS round of 2004-05, organised manufacturing employment, which increased from 6.1 million in 1981 to 6.9 million in 1997, declined to 6 million in 2003.

Even real wages have seen a constant decline. According to the Economic Census 2005, real wages in the triennium ending 2003-04 were 11 per cent lower than in 1995-96. In sharp contrast, labour productivity actually tripled between 1981-2003. Wages now account for only 15 per cent of the value addition in organised manufacturing, one of the lowest such ratios anywhere in the world. In a case study of employment trends in India, Jayati Ghosh et all say the benefits of increased labour productivity largely went to those deriving rent, interest and profit incomes, rather than to the workers.

Outside the organised sector, real wages for casual work have declined for most categories of workers. A staggering 394.9 million workers, or 86 per cent of India’s working population, work in the unorganised sector without any social security cover.

Agriculture crisis

After a good start with the green revolution in the late sixties, India today is facing a full-fledged agrarian crisis. Farmers’ suicides represent the most chilling manifestation of this crisis. In the 14 years leading up to 2003, for which government figures are available, around one lakh farmers have taken this extreme step, of which 70 per cent were between the age group of 20 and 45, their most productive years.

Low public investment and a credit squeeze in the agriculture sector have pushed lakhs of farmers into bankruptcy. While government investment in agriculture has fallen from 14.9 per cent in the first Five Year Plan to 5.2 per cent in the current plan, bank lending in this priority sector has declined from 20 per cent in 1980 to 9 per cent in 2003. This has had an adverse impact on the creation of rural infrastructure and the growth of farm output. The annual rate of growth of agriculture output declined from 3.19 per cent in 1980 to 2 per cent in 2005 and yield growth rate reduced to almost one-third in the same time period.

The biggest dampener in India’s unprecedented growth story is the decline in per capita foodgrains availability. From an all time high of 510 gm per capita per day in 1991, it has now dipped to an all time low of 422 gm, which is lower than that of 1954 (457 gm per capita per day), according to the Ministry of Agriculture figures.

Interventions like the National Rural Employment Guarantee Scheme are required but not enough to save the most vulnerable sections from the brink of starvation. More important than that would be policy interventions like more investment in agriculture and all round encouragement to labour intensive manufacturing sector. India’s ascendance will be obviously incomplete without including the bottom 20 per cent of its people in the country’s growth story.