14 Mar
India needs to eliminate the mismatch between its growth and employment by formulating data-backed comprehensive policy best-suited to its economic situation and demographic dividend
Recovering from the Covid shock the Indian economy is showing great resilience and we are now witnessing a V-Shaped recovery. The GDP growth for the fourth quarter is likely to be positive and for the entire year 2020-21, it should be in the region of -7 per cent. The following year promises a growth rate of anywhere ranging from 10-12 per cent at current prices but even then the economy would just be back to the pre-covid level by March’22. The biggest issue that has been thrown up has been that of unemployment. Large scale unemployment was a result of the covid crisis. Even before that, unemployment was becoming an important issue that needed a policy framework to tackle. India is reaping the demographic dividend with the median age being 28.4 years and also about 8-10 million new entrants are entering the labour force every year. The magnitude of the problem is clear. The CMIE (Centre for Monitoring Indian Economy) comes out with data for unemployment and their data shows that the unemployment rate went as high as 23.5 per cent during the first two months of lockdown. The position is much better today with the February data shows that the overall unemployment rate in India is 6.9 per cent (7.74 per cent in urban and 6.55 per cent in rural). One of the main objectives of the twelfth five-year plan (2012-17) was the generation of decent and productive employment in the non-agriculture sector. The employment policy in India has so far laid emphasis on self-employment whereas a much more comprehensive analysis of the problem and a policy prescription is required.
It is high time India follows the footsteps of several other countries which have a comprehensive national employment policy. The policy emphasis in various countries is different according to their economic situation. East and South-East Asian countries like Singapore, Indonesia or Philippines have policies geared towards global integration as a core element of growth and employment. African countries have focused on employment friendly anti-poverty strategies while some of the Arab countries have moved from active labour market policies which were limited to young college graduates to more comprehensive policies addressing other employment challenges faced by the region. Many countries in Eastern and Central Europe have also formulated comprehensive national employment policies which include steps like improving employment services, promoting skills training and other ways to develop human capital. Latin American countries like Brazil and Argentina have also focused on the informal economy. India has to understand the needs of its own population and the economy and evolve a national economic policy that will answer the challenges the countries faces.
If we analyze the employment scenario in India it throws up certain interesting highlights. The first is that even as GDP growth rates have risen the relationship between growth and employment generation has become weaker over time. In the 1970s and 1980s when GDP growth was around 3-4 per cent, employment growth was around 2 per cent per annum. However, after the 1991 reforms and particularly in the 2000s the GDP growth has accelerated to 7 per cent but employment growth has slowed down to 1 per cent per annum. Thus it is clear that growth by itself will not lead to higher employment generation but specific policy interventions would be required. The philosophy behind the current budget of the Union Government is that growth has to be focused on and all other things will follow. However, looking at the trend over the last 40 years, this may not be true and there is an urgent need for a National Employment Policy. Another point to note is that most of the manufacturing sector is becoming increasingly capital intensive meaning that more manufacturing may not necessarily lead to more employment. Further, it is disturbing to note that though labour productivity in organized manufacturing has increased by six times over the past three decades the wages have increased by only 1.5 times. The result is that the labour share of income in organized manufacturing has fallen down to about 10 per cent. It may also be further pointed out that the labour participation rate of women has declined in recent years and is currently at a low level of 27 per cent.
We have in India policies both at the central and state level which relate to industries, agriculture, skill development, tourism and education and each of them is connected to the issue of unemployment. Industrial policies talked about generating more investment and there are incentives for this. However, it is important to link the incentives in an industrial policy more to the generation of employment than merely the figure of money invested. Similarly, policies relating to an increase in productivity of agriculture aim to free labour from the agriculture sector to move to the non-agriculture sector. Major policy intervention in rural areas has been the MGNREGA policy (Mahatma Gandhi National Rural Employment Guarantee Assurance) which seeks to employ all job seekers. This scheme was a great asset in the time of Covid. Policies related to skill development and tourism create demand for such persons. Above all the education policy is important for determining the type of human capital that is produced. The education policy should come out with young boys and girls who are employable and suitably equipped with domain knowledge as well as soft skills.
Even though all the above-mentioned policies correlate with the generation of employment, there is no doubt that we need a national economic policy that would have a vision in consonance with the overall growth objectives of the nation and be responsive to all the challenges and opportunities. We must be clear that a national employment policy is much more than merely a job creation programme because it has to take into account the whole range of social and economic issues and consider every aspect of the economy. It has to bring together all these schemes, policies, programmes and institutions which influence the demand and supply of labour and the functioning of the labour markets. Decent work has to be provided in which international labour standards, social protection and workers fundamental rights are given as much weightage as is given to job creation. The national employment policy will have to tackle the very important issue of huge informal sector employment, jobless growth, the threat of automation and the changing nature of new jobs along with the gender parity issue.
We must evolve a national employment policy that will bring about a synergy between various sectors of the economy and focus on education and skill development. It should also endeavour to enhance the labour participation rate of women. The crucial problem of disguised unemployment in our agriculture sector needs urgent attention to make productive use of each person as also the issue of underemployment which is persistent in the Indian economy and is highlighted by the fact that even PhD students apply for a class four level job in government.
The most important thing for any sustained policy intervention for employment requires data about the number and category of people looking for jobs and matching them with the demand for jobs in various sectors of the economy. The policy will have to lay adequate emphasis on developing an effective labour market information system that will identify skill shortages, training needs and available employment opportunities. We need to evolve employment portals rather than have the existing moribund employment exchanges at the national and state level.
If India has to become truly Atma Nirbhar and if we have to make the 21st century an Indian one then it is imperative that we focus on the crucial problem of unemployment and evolve a national employment strategy that attends to all aspects of supply and demand of labour across all sectors.
