Modi Government is in Deep Denial Over India's 'Jobless Growth' Crisis

With the BJP winning in assembly polls on divisive and emotive issues, the government seems convinced all is well with the economy.

As Narendra Modi completes three years as prime minister, he must seriously worry about his government’s inability to meet the single biggest promise he had made in his election speeches in  2014 – providing jobs to new entrants in India’s labour market. I recall in several public rallies that Modi would pointedly tell new voters among the youth to give the BJP a chance to improve their lives as they finished their education and entered the labour market. “I cant do much about those in their fifties but I want to transform the lives of those in their twenties who are seeking new employment,” Modi had said.

If the NDA is judged on this metric alone, it has proved to be an utter failure. Indeed, this is borne out by its own data provided by the labour ministry. Just one comparative data point tells us the story of the sheer decline in organised sector jobs. During the three years from 2009 to 2011, when India’s GDP was still growing at an average 8.5%, the organised sector was producing on average 9.5 lakh new jobs every year. Bear in mind, even this was seen relatively as ‘jobless growth’. In the last two years, 2015 and 2016, the average employment generation has plummeted to less than 2 lakh jobs a year. This is less than 25% of the annual employment generated before 2011.

Why such a precipitous fall in employment growth in organised sectors such as textiles, metals, leather, gems and jewellery, IT and BPO, transport, automobiles and handlooms? The larger question must also centre around what is going wrong in these sectors, where India is supposed to have a competitive edge globally.

In 2015, when fresh employment generated in these 8 sectors collapsed to an all time low of 1.5 lakh jobs, the government was so alarmed by the development that it decided to review the methodology for data gathering. It expanded the scope of the organised industry from just eight manufacturing sectors to include some key services industries such as education, health and restaurants. This was clearly done to bump up the employment growth figures because the manufacturing sector was showing a very poor growth trend – around 1.5% annually – whereas the service sector was doing much better and growing at 7-8%. There seemed anecdotal evidence that employment in sectors such as health and education did not suffer during demonetisation.

So adding service sectors to the organised sector employment data has helped the government show a slight improvement in new jobs growth in 2016. New jobs generated increased from 1.55 lakh in 2015 to 2.31 lakhs in 2016. This is still only 25% of the organised sector jobs generated in 2009. More importantly, the new methodology helps the NDA government perpetuate another myth – that there was no significant job loss during the demonetisation quarter of October to December 2016. The labour ministry data surprisingly show across-the-board growth in jobs during this quarter, except in the construction sector where there is a marginal decline.

Prima facie, it is difficult to believe that industries were hiring when the economy was paralysed by notebandi for about four months. It is possible that the government was hiring in the education and health sectors, which might show a positive uptick. Otherwise the bulk of the organised industry was busy managing the new situation caused by demonetisation, with a fall in the sales of manufactured items nearly across the board.

So far we have only discussed the organised sector employment. The unorganised small manufacturers suffered a huge dent in both output and employment. Vrijesh Upadhyay, secretary general of the RSS affiliated Bharatiya Majdoor Sangh, told The Wire, “Even if you take 5 to 10 employees per unit which had shut down during that quarter in which 2.5 lakh units went out of production,  there would have been a huge employment loss.”

Employment numbers in the unorganised sector is difficult to estimate but economists are unanimous  there is a correlation between the trend in the organised and unorganised sectors. They can’t be moving in opposite directions. The government has often claimed that the unorganised sector jobs have in general grown much faster than the organised sector jobs. There is no real data to prove this. Besides, if organised sector employment growth has slowed by over 70% in four years, it is most unlikely that the unorganised sector jobs, which constitute over 85% of the total labour market, would have shown robust growth.  Clearly this has proved to be the Modi government’s single biggest failure.

What is even more worrying in the coming two to three years is a disastrous prognosis for the hitherto high employment generating sectors like IT and BPO. These two sectors alone employ about 4 million people today and the industry’s own estimate is upto 60% of this workforce will not be of any use with their present skill levels. Says Nasscom president R. Chandrashekhar, “A large part of the workforce will have to undergo retraining. Even after that there is no certainty of their absorption. Automation is impacting existing employment not only in IT and BPO but in a host of other manufacturing sectors like automobiles, engineering etc. We are conducting a joint study with FICCI on this.”

Vishal Sikka, CEO of Infosys, was more blunt when he hinted that more than half the current work force in the IT/ BPO sector may become redundant in a few years.

The situation is quite grim and there is a sense of denial about this in the government which is busy massaging economic data. At least, I haven’t heard anyone in the government seriously debating the future of employment in India’s organised manufacturing and services sector. Even less is discussed about the unorganised sector. With the kind of victories the BJP is securing in the assembly polls on divisive and emotive issues, the government seems convinced all is well with the economy. This is part of the problem now. Demonetisation is now being pitched as a mega success just because it didn’t harm the BJP in the elections. Modi actually believes that the informal sector is doing well supported by initiatives such as the Mudra Bank. Indeed, some economists in the government are already making convoluted arguments to outline the virtues of self-employment!

However, all of this is in the realm of faith and belief, with little data to back up various claims. Election victories in the first-past-the-post system cannot be used as a source of denial about ground realities.