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The irony of it all: growth led to lower job creation

The irony of it all: growth led to lower job creation

New Delhi: Don’t blame the slowdown for the lack of jobs; blame rapid growth of the past decade.

That’s the conclusion of a 391-page, yet-to-be-released report called The Challenge of Employment in India—An Informal Economy Perspective, prepared by the National Commission for Enterprises in the Unorganized Sector (NCEUS), a government body which has been wound up since.

The Indian economy’s rapid expansion has actually widened inequality, shrunk job opportunities and reduced wages, according to the report, which says “the benefits (of growth) seem to have bypassed the overwhelming majority of India’s population".

According to the report, the rate of growth in employment—a proxy for job creation—has actually fallen from 2.03% in 1993 to 1.85% in 2005.

It also shows that the share of employment in the so-called formal or organized sector, too, fell to 5.8% in 2004-05 from 7.3% in 1993-94. Employment in the sector fell 1.9%, from 27.18 million in 1993 to 26.64 million in 2006. It had peaked in 1997 to 28.24 million.

Analysts say this poses a tough challenge to policy planners looking to achieve inclusive growth (or growth for everyone) at a time when the global economic slowdown is taking a toll on firms, especially those in the business of exports.

India’s exports fell 33%, to $11.5 billion (Rs56,695 crore today), in March against the same month a year ago. And according to the labour ministry, about half-a-million people lost their jobs between October and December last year—largely in export-oriented firms.

Creating jobs will be a significant and critical challenge for the new government that will take charge of the country’s destiny in a fortnight. According to the report, 4.27% of India’s 457 million workers are severely underemployed (out of work for at least three-and-a-half days a week), and another 5.10% are underemployed (have a job for between half-a-day and three days a week). Around 1.78% have part-time jobs.

It also said that 93% of the 457 million workers are employed by enterprises in the unorganized sector and that most of these workers are poor and vulnerable.

The report, which was presented to Prime Minister Manmohan Singh on 30 April, is pending release due to Election Commission restrictions on government announcements before the completion of the polling process.

On Thursday, at a seminar organized by the Institute for Human Development in New Delhi, several policy analysts got a preview of the report, but few conclusive plans emerged on how to tackle the issues.

“In the organized sector, job creation has been zero and labour market inflexibility has hardly been a factor in determining employment growth in the formal sector," Arjun Sengupta, former chairman of NCEUS and a member of Rajya Sabha, said. “If we are expecting the market economy to look after the problem, it won’t be correct. We need a well-designed policy to address this issue."

The report highlights structural weaknesses in India’s labour market, such as illiteracy and lack of skill development, suggesting that the country needs an employment strategy to meet “the twin challenges of quantity and quality" and enforcing a uniform national minium wage.

As a strategy to expand employment, the commission stressed the importance of expanding the scope of employment programmes, such as the National Rural Employment Guarantee Scheme to urban areas, and easing access to credit and raw materials for enterprises that employ less than 10 people.

The commission also suggested amending the Industrial Disputes Act to allow an employer to retrench staff without seeking the mandatory government permission, if the employer chooses to hike its contribution towards compensation and unemployment insurance. It said the country needs a national labour code that specifies minimum wages, working hours and labour standards

NCEUS has also said that the government has been more focused on creating a “special playing field", such as promoting special economic zones for large corporates than offering a level playing field for all. It added that although the informal sector’s contribution to the rate of growth is twice that of the formal sector, it remains unprotected and vulnerable to job losses.

“If inclusive growth is the objective, we need to shift focus from formal to informal sector given its size," said K.P. Kannan, a former commission member.

That won’t be an easy change, said an expert, because India looks at issues related to employment through the prism of manufacturing growth and its contribution towards gross domestic product (GDP). “Unfortunately, we tend to go where the GDP (is) than where the people are. Employment is not a focus, but a result of GDP growth," said Abhijit Sen, a member of the Planning Commission.

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