Predictions of a below-normal monsoon have fanned concerns about economic growth, which has already slowed in the face of global recession. While the effect of a poor monsoon on the growth rate may be marginal, the real impact could be on employment, given that a majority of the population depends on agriculture for a livelihood.
Coupled with slower employment generation and job losses in manufacturing and export-intensive sectors, highlighted by surveys of the Labour Bureau, this may be the biggest challenge facing the finance minister as he presents the first budget of the United Progressive Alliance government’s second stint.
Even though Labour Bureau reports have shown a marginal improvement in the last quarter of fiscal 2009, these still imply a loss of a quarter of a million jobs in the course of the economic downturn. In the absence of full job surveys by the National Sample Survey Organisation, these are the only credible official estimates available. However, reports from industry associations suggest the situation is worse than suggested by the Labour Bureau. This has to be seen in the larger backdrop of slower job creation by the organized sector in the last decade.
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So far, this hasn’t been much of a concern, at least on the employment front, because job losses were restricted to the organized sector, and primarily export-intensive industries. The farm sector remained insulated, thanks largely to the continued good run of monsoons in the past four years. That is why predictions of a below-normal monsoon look worrisome. The challenge is not only to restore growth to normal, but also to bolster demand in the rural economy that’s bound to flag, certainly making primary commodities costlier.
The challenges are, then, twofold and need to be tackled simultaneously. The challenge lies not only in immediate measures to revive job growth, but also in a shift in an economic strategy that’s also employment-intensive. In the short run, an urgent intervention in the form of an expanded National Rural Employment Guarantee Scheme (NREGS) may not be a matter of choice. It will be essential to expand the NREGS net to urban areas as well as increasing the job entitlement of households from the present 100 days. Given that the non-farm sector may be required to provide a cushion to the large force of distressed workers, the fiscal stimulus may also have to be directed at small and medium industries. More importantly, the stimulus should provide adequate capital and fiscal incentives to industries and services directly affected by the downturn, apart from measures to stir demand in these sectors.
But the budget should also look at the long-term risk of our demographic dividend being eroded. Almost two-thirds of our population is in the working age group. The challenge is not only to create adequate jobs for the labour force entering the market for the first time but also to ensure that such employment is productive and gainful with adequate social security. As clearly brought out by the National Commission on Employment in Unorganised Sector in its various reports, the quality of jobs created has steadily declined. The slowing and, in some cases, decline in the wages of regular workers is not only worrisome, it also suggests a need to focus more on the quality of jobs created. The wage share of the organized sector has halved after the 1980s and now among the world’s lowest.
The budget should focus on creating sustainable long-term institutional mechanisms to stimulate job growth. This not only requires creating demand through fiscal and budgetary measures but also a concerted effort in creating a skilled, job-ready labour force. Both require a long-term perspective and may not yield dividends in the short run, but a move towards removing institutional bottlenecks and reforming labour laws to provide for social security without compromising on growth will be an integral part of the strategy. It is high time our policies treated jobs as an integral input to the growth process rather than the outcome of growth. The budget is a good opportunity to signal intentions of working towards such an economic paradigm, but only one part of the strategy to stimulate job growth.
This has to be mainstreamed in the overall growth strategy, which has so far been lacking, even though the growth rate in the last five years has been impressive. The decline in employment elasticity of a majority of the sectoral drivers of growth is a grim reminder of the failure of growth to translate into job creation and improvements in the quality of life. A precondition of inclusive growth is that output growth accompany job growth. Because, on the one hand, rapidly expanding employment with increased output reduces the burden of redistributive justice through state intervention; on the other, if this employment is “gainful”, it also contributes to national product, making the task of boosting growth with redistributive justice easier. There cannot be a better time than this to initiate an agenda for inclusive growth.
Himanshu is assistant professor at Jawaharlal Nehru University and visiting fellow at Centre de Sciences Humaines, New Delhi.
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