How to revive job growth in the country

First, the government must increase public investment in social services. Second, it should introduce a multi-pronged industrial policy to reverse the poor manufacturing performance since 1991

The Centre made some efforts in the Union budget to promote jobs in the micro, small and medium enterprises (MSME) and in the construction sector (both rural and urban). It announced 2% interest subvention for MSMEs under the Goods and Services Tax (GST) on fresh or incremental loans. As far as the construction sector is concerned, under the Pradhan Mantri Awas Yojana (PMAY), the budget proposed 1.95 crore houses for eligible beneficiaries under the PMAY-Grameen scheme and 19.5 million houses under PMAY-Urban scheme between 2020 and 2022. Given the need for jobs, however, these actions may not suffice.

Between 2004-05 and 2011-12, about five million workers per annum left agriculture for non-farm sector jobs. Among these five million, about four (75%) were youth (15 to 29 years). This was a good news because it tightened the rural labour market, which resulted in real wages rising (it had been stagnant between 1996 and 2004 because of a rising number of workers in agriculture)(REUTERS)

The Periodic Labour Force Survey (PLFS of the National Sample Survey Office) confirmed slow job growth in the non-agriculture sectors, much slower than the number of those looking for work. Hence the rising unemployment rate, the highest in 45 years: from 2.2% in 2011-12 (NSSO) to 3.4% in 2015-16 (Labour Bureau), to 3.9% in 2016-17 (LB), and now 6.1% in 2017-18 (NSS-PLFS). Moreover, there is a massive rise in the youth open unemployment rate, particularly for educated youth: more than double for urban (male and female) and for rural females; and more than triple for rural males.

So where is the problem? Between 2004-05 and 2011-12, about five million workers per annum left agriculture for non-farm sector jobs. Among these five million, about four (75%) were youth (15 to 29 years). This was a good news because it tightened the rural labour market, which resulted in real wages rising (it had been stagnant between 1996 and 2004 because of a rising number of workers in agriculture).

However, there has been a slowdown in non-agricultural job creation post 2012. It is not credible to argue that MUDRA loans or Ola-Uber type jobs and the informal sector jobs are not captured by the government’s PLFS or the private surveys. For decades, these survey samples have been designed to take into account both jobs in the organised as well as the unorganised sector.

So where was the problem?

It is mainly in manufacturing and construction sector, and much less in modern services. India’s manufacturing growth slowed, so there was a manufacturing job decline in absolute terms post 2012. The PLFS shows that the share of manufacturing in employment has fallen from 8.1 to 7.7 % for rural males (2012 to 2018); 9.8 to 8.1% for or rural females.

This is significant, since over half of the manufacturing output in India is contributed by rural areas. Similarly, for urban females, the share of manufacturing in the employment pie fell from 28.7% to 25.2%, while the share of urban male stagnated at 22.4%. What is particularly worrying is that the five labour-intensive manufacturing sectors (food processing, textiles, garments, wood and furniture, leather and footwear), which account for 50% of total manufacturing employment, saw absolute job losses.

There was growth of jobs only in the services sector, thanks to the expansion of modern services (banking, financial services and insurance, logistics, airlines, telephones and communications, education, health) during the post-2012 period. While construction was a major employment generator between 2005 and 2012 (doubling its employment from 26 million to 51 million), it registered a much slower growth of jobs after 2012.

The country is in urgent need for a two-fold strategy to increase the number of jobs:

First, increase public investment in social services (health and education), because this will create jobs in the government. But limited investment in basic education is now a serious drag, because the human capital frontier for the new structural transformation has shifted further, thanks to the onset of the Fourth Industrial Revolution.

Second, India can reverse the poor manufacturing performance since 1991 with an industrial policy that has seven components: reverse inverted import duty structure in a range of manufactures that allows finished manufactured imports at low duty or no duty but discriminates against intermediates/raw materials imports for domestic manufacture; provide policy packages for labour-intensive manufactures; address the ‘missing middle’ by improved cluster development for micro, small and medium enterprises; target urban infrastructure development (through AMRUT); speed up the five industrial corridor development to enable India to engage in global value chains; prioritise mineral development as a foundation for domestic processing; and promote firm-level design capability and private Research and Development investment.

Finally, job growth in the construction sector will only revive if private investment revives. Unfortunately, there is little in the Union budget that might help revive private investment.

Santosh Mehrotra is professor of economics and chair, Centre for Labour, Jawaharlal Nehru University, and J Parida is assistant professor, economics, Central University, Punjab

The views expressed are personal