On january 26, 2009, 80,000 jobs in the United States were lost in one day. More than 4.4 million American jobs have already been lost since December 2007 and there are 12.5 million unemployed in the US today. The world’s largest economy shrank by 6.2 per cent in the fourth quarter of 2008. According to a report by the International Labour Organisation, the global unemployment rate could rise to 6.5 per cent, or 30 million jobless people, in 2009.
Though the impact of the global crisis was not taken into account by India initially, it is clearly concerned with the rising number of jobless in the last few months. Rising unemployment could be an important election issue. Many factories in India are closing down with export orders cancelled. Official figures for unemployment in the last three months are as high as 500,000 workers. The numbers would increase if we count the job losses in the unorganised sector. Not only have export industries like diamond cutting, textiles, handicrafts, carpets, sports goods and leather been directly hit but information technology, hospitality, tourism and financial services have also been afflicted by the slowdown. In most cases, cutting jobs seems to be the only way to remain afloat. There is no safety net for the average worker here which can take care of children’s education, healthcare, nutrition and other essential expenses.
Already, due to slack external demand and now with domestic demand also declining, the industrial growth rate has fallen and manufacturing growth has shrunk. The Index of Industrial Production (IIP) contracted by 0.5 per cent in January 2009 and manufacturing contracted by 0.8 per cent. Overall, the IIP between January 2007-08 to January 2008-09 has come down by more than half (from 8.7 to 3 per cent). It means job openings in manufacturing are not expanding.
Laying off workers in small- and medium-scale enterprises has been going on for some time. Reserve Bank data up to March 2007 indicate that there were 1.14 lakh sick small and micro enterprises, and between 2006 and 2008, 280 units closed down and rendered 12,000 people jobless.
The latest news on the agricultural front is also not promising. There’s a 2.2 per cent decline in agricultural growth in the third quarter of 2008. With 58 per cent of the labour force dependent on agriculture, it would mean a slump in farming jobs.
The fastest growing services sector is also in trouble. The growth rate for 2008-09 has been revised to 21.2 per cent as compared to an average growth rate of more than 30 per cent recorded over the last few years. The latest protectionist stance by the US on outsourcing of services abroad by American firms is also going to contribute to the number of educated unemployed in India.
According to a recent study by the Associated Chambers of Commerce and Industry (Assocham), employment generation in the top six sectors, which include finance, fell from 35 per cent in the first quarter to 15.8 per cent in the second and 10.8 per cent in the third quarter. In the financial sector the share of job creation dropped from 7 per cent in the first quarter to 2 per cent in third quarter.
The financial sector, though not as closely linked with the global economy as in the EU, is dependent on global capital. Even though Indian banks have had a small exposure to sub-prime loans and toxic assets, India has been impacted in indirect ways like global liquidity drying up and shrinking Western markets. Not only capital inflows slowed to a trickle, there was also capital flight from the Indian stock market. All this knocked off more than 50 percentage points of the stock market index in less than a year. Recently, after the downgrade of India’s sovereign credit rating by Standard & Poor’s, more FIIs have been fleeing Indian shores causing the precipitous fall in the value of the rupee against the dollar though there has been a slight respite recently with Sensex gaining 412 points. The low rupee means high import costs of essential raw materials and equipment.
It is the youth who will suffer most because they will find it difficult to get their first jobs. As it is, job opportunities in the public sector have been declining and now the private sector is facing a severe crisis, curbing recruitment. In the present scenario, emphasis on retraining workers and vocational training of students is important in order to facilitate the movement of the labour force to new jobs in sectors not afflicted by the slowdown. Extension of the National Rural Employment Guarantee Act to urban areas would help. But revival of demand by the government should be top priority for job creation.
Jayshree Sengupta is the author of A Nation in Transition: Understanding the Indian Economy.