Economy

India’s High Growth Rate Isn’t Translating to Job Creation

The number of jobs created in eight select industries in 2015 was 135,000. This was much worse than the 421,000 jobs created in 2014 and the 419,000 in 2013.

Credit: MBBSGuru Flick CC BY 2.0

While the years after 2010 were favourable when it comes to job creation, from last year it hasn’t been. Credit: MBBSGuru Flick CC BY 2.0

Here, when I use the shorthand “jobs” it means both jobs and livelihoods for self-employed people. In the farm sector, most “jobs” are livelihoods. In the non-farm sector too, outside of the organized sector, much of working opportunities come as self-employed livelihoods and not jobs as normally conceived. In the pre-industrial world, higher output and incomes were achieved by the natural growth of the work force, and was therefore limited. That was also the reason why populous regions had higher aggregate output – India, China, Egypt – and were the perennial target of raiders from poorer regions. The Industrial Revolution created a transformation in the productivity of labour aided by machines and education and the reallocation of labour from the farm to the non-farm sector. After the Second World War, former agrarian and colonial economies embarked on the path of industrialization with varying degrees of success.

Regions endowed by nature with abundance of minerals and rich agriculture prospered before the Industrial Revolution and afterwards; it helped propel economies like the US. However, material endowments did not always engender economic prosperity; and a lack of it did not foreclose the possibilities of economic growth. The tortured course of many African and Latin American countries rich in resources and poor in social organization was one side of the story. The rise of Japan and later South Korea as manufacturing giants with virtually no mineral wealth at home was the other end of it. Both India and China were slow to industrialize and to urbanize in the first few decades of the post-1950 era. In part the redistribution of farming land away from feudal landlords to the “tiller” or peasantry gave a window to rural populations to stay longer on the farm.

However, as education progressed and work opportunities in the better paying industrial and modern service sector emerged, the dynamics of labour reallocation away from the farm reasserted itself. In China the administration used the hukou or registration system to slow the pace of rural migration by denying migrants access to social benefits. Nevertheless urbanization climbed from less than 20% in 1978, the start of China’s economic reforms, to over 55% today.

The pace of urbanization in India was slower: From 23% in 1981 to 32% presently. In part it was due to the improvement in agrarian conditions in India in the decades after 1980, with high yielding varieties, improved access to water, crop diversification, rapid expansion of animal husbandry and better prices. However, it was also because educational attainments in India lagged China. Most importantly, jobs in the non-farm sector grew more slowly.

Less than halfway

That has changed in the past two-and-a-half decades. In 1991 many more children went to school and were literate than at Independence. But India was still less than halfway there. In the quarter century of reform, almost all our children go to school, drop-out rates in higher classes have fallen and gender-wise, progress is much closer to being even, than ever before. In rural India, even small holdings are mechanizing with hired-in services, as men find work away from the farm and animal husbandry and horticulture catering to urban markets has become as important an activity as raising grain once was.

Farming has also begun to lose net jobs/livelihoods. After climbing to a peak in 2004/05, the farm sector has lost 4.2 million jobs per year to 2011/12. The non-farm sector created 7.2 million jobs per year in this time period, thus resulting in an overall increase in jobs. Both trends showed acceleration between 2009/10 and 2011/12.

Further, the number of young people staying back in education rather than seeking jobs has increased dramatically amongst both boys and girls. These educated youngsters are and will continue to pour into the workforce. It is estimated that over 210 million jobs will have to be created by 2027/28 – roughly by 13 million a year – which given the track record of 2004/05 to 2011/12 – is certainly possible. However, for that to happen the economy has to pick up pace.

But what is the record of job creation since 2011/12? The anecdotal evidence is that it began to slow in 2012. The only reliable source is the sample survey which forms the basis of the Quarterly Employment Survey (QES) of eight select industries, published by the Labour Bureau and conducted by the NSSO covering about 2,000 units. It was started at the time of the global crisis in 2008. This is more-or-less, the only contemporary quality data on jobs, even if it is for eight select industries (including IT/BPO) as it permits inter-temporal comparison. For 2015-16 the QES is available up to December 2015. Employment is a lagging variable – that is, it tends to create jobs a bit after economic conditions improve. It is however the final arbiter of growth. Which is why, the mandate of the US Federal Reserve is “maximum employment with price stability”.

In terms of calendar year, the number of jobs created in these eight select industries in 2015 was 135,000. This was much worse than the 421,000 jobs created in 2014 and the 419,000 in 2013. It was even worse than the 321,000 in 2012, the year when the slowdown in job creation kicked in. For the record in the “good years” of 2010 and 2011 the number of jobs created was over 850,000 per annum. From this one can reasonably infer that we are not on the path that created 10 million non-farm jobs in 2010-11 and 2011-12, and are possibly quite a way short of it.

The government’s statistics department reports that the economy is growing at 7.6%, much above the 5.6% of 2012-13. It is difficult to understand what this headline growth figure of GDP is telling us. Has GDP growth picked up by nearly 2 percentage points, even as one does not see the effect in other critical output data and certainly not in the record of job creation?

What is the purpose of public policy? High GDP growth rate is not an end in itself. It is critical however, as it leads to creating jobs and improving the material well-being of the people. The QES data suggests that at this time we are not on this path. When jobs growth enters respectable terrain, only then can we surmise that growth has revived. Not before that. The miasma that the national accounts data has unfortunately drawn over our eyes must be cleared. It is today become a liability for the policy maker.

A serious challenge faces India, as does the opportunity. She has the opportunity to build on the economic strength accumulated and on the human energy and aspirations of her educated young. Failure is not an option. The external world is changing and the rules of the game are being re-written. The onus of making the transition to a more prosperous society rests on the heads of emerging countries. Those who nurture domestic economic and social stability, demonstrate determination and ability to implement decisions made, keep a level head and have a healthy scepticism for formulaic conventional wisdom will make the transition. Success is not inevitable, but it is conditional upon how we can creatively use (or lose) the opportunity that history offers us.

The author was Member, Planning Commission and Economic Advisory Council to Prime Minister