A perfect storm is brewing across India’s industrial complex, one that will truly test the country’s demographic dividend. Restructuring in many existing industries is leading to layoffs in thousands while a future in which new projects could be driven largely by automation and robots could put paid to the aspirations of millions of young men and women readying to join the workforce every year.
Simply put, we could be looking at a future in which there are just no new jobs.
As it is, investment proposals have been coming down while the latest numbers from the Reserve Bank of India show that manufacturing contracted for the first time in seven years, from a growth rate of 12.9% in 2009-10 to -3.7% in 2015-16. So far, the focus has been on injecting fresh capital investment under the assumption that this will automatically lead to job creation. But it is increasingly clear, that correlation is tenuous.
According to estimates by International Labour Organization (ILO), India’s employment elasticity, a common measure of how employment growth responds to GDP growth, hovered around 0.3 between 1991 and 2007. Basically, 1% of overall economic growth produced 0.3% of employment growth. That number has been coming down quite alarmingly since, and now stands at only about 0.15%.
Facing uncertain markets at home and abroad and saddled with low capacity utilization, most large Indian companies have been loath to invest in fresh capacities. Even in sectors where there has been fresh investment, net job creation has been negative. Thus, the $25 billion investment by Reliance Industries Ltd in its telecom operation Jio, hasn’t added to the overall number of jobs in the sector as the incumbents have been forced to restructure their operations to trim costs.
Looking ahead, there could be more layoffs coming as the fallout of Telenor India’s sale to Bharti Airtel and the impending merger of Idea Cellular with Vodafone’s India unit, take effect.
If consolidation is shrinking job prospects in sectors like telecom, in others like software services as well as banking, the change is much more structural. Artificial intelligence and machine coding along with a shift away from outsourcing by large US-based companies, have dimmed the prospects of Indian software firms forcing industry body Nasscom to defer its annual revenue forecast for the first time ever. Banking is going through a similar churn and layoffs have been a regular feature over the last two years.
Sadly, start-ups which were expected to pick up the slack in job creation stemming from changes in these sectors, are themselves in the doldrums now. In recent months, hundreds of people have been laid off in the consumer internet space and with venture capital firms taking a jaundiced view of keeping the funding spigot open. According to an analysis by Techcircle over 10,000 people have lost their jobs in the Indian startup ecosystem since August 2015.
Unfortunately, there is no end in sight to this trend. Even when the investment cycle in fresh manufacturing resumes, it is unlikely that it will be manpower intensive. Automation is driving shop floors across the world with robots replacing workers in the ratio of 1:7. Nor is this restricted to developed markets. In India, sales of robots for factories are increasing at a rapid pace with companies like Grey Orange which build them virtually reshaping the logistics industry.
The problem, of course, is that sectors that were traditionally large employers particularly at the blue- collar level, have also altered irrevocably. Thus, mining, once a mass employer, has undergone a comprehensive change with traditional small-scale and public sector mining being systematically replaced with large-scale, privately-owned mines that are hugely mechanised. According to Central Statistics Office (CSO) estimates, in 1994–95, 25 employees were needed to produce minerals worth Rs1 crore. By 2003–04, that number had fallen to just eight employees. The result has been a steady dip in the employment numbers in that sector even while production numbers have gone up. What’s worse, estimates point to a further fall in the employment potential of the sector.
One fall-out of the uncertain jobs situation has been the increased incidence of what are dubbed “non-standard forms of employment”, such as contract labour as well as part-time work. These place employees in a potentially vulnerable state, besides denying them legitimate benefits.
In such a scenario where jobs are scarce, social security in the form of unemployment benefits becomes the only way to maintain stability.
But as the example of Punjab shows us, having money without work can be a lethal cocktail.
Sundeep Khanna is a consulting editor at Mint and oversees the newsroom’s corporate coverage. The Corporate Outsider will look at current issues and trends in the corporate sector every week.
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