Jobless growth back to haunt UPA

add_main_imageOn 8 February, the Times of India published a news story quoting from a research paper published by the Institute of Applied Manpower Research (IAMR) on the vexing issue of employment generation in the Indian economy. Referring to the compelling phase of unprecedented growth (when the average increase was 9%) in the latter half of the last decade, the IAMR study said, “Employment in total and in non-agricultural sectors has not been growing. This jobless growth in recent years has been accompanied by growth in casualization and informalization.”

For the record, employment in the five-year period ended 2009-10 grew by one million, while economic growth over the same period averaged 8.7%. And, not to forget that in three of these years, 2005-06, 2006-07 and 2007-08, the growth was 9.5%, 9.6% and 9.3% respectively—an average rate of growth of 9.5%!NextMAds

And, of course, keep in mind that about 12 million people join the workforce every year; so leave alone taking care of the backlog of unemployment, by generating only 200,000 jobs a year, we are rapidly creating an army of the jobless and disgruntled.

Two issues stand out immediately. One, IAMR is not some independent think tank. Instead, it is attached to the Planning Commission, whose chairman is Prime Minister Manmohan Singh and deputy chairman is Montek Singh Ahluwalia (both of whom are economists of established repute). The conclusions of the research paper, Joblessness and Informalization: Challenges to Inclusive Growth in India—have therefore acquired an official tag about itself and hence meant to be taken seriously.

Second, at a personal level, the disclosure by a government think tank is a vindication. Two years ago, when I wrote about the jobless growth phenomenon and the casualization of the work force, sourced from the same data used by the think tank and supplied by the National Sample Survey Organisation (NSSO), sections of the government had reacted defensively in their efforts to rubbish the story. While those entrusted with the task of overseeing collection of official statistics incredibly questioned the veracity of the data, spin doctors came up with weak justifications and some powerful functionaries went into outright denial and disparaged the messenger.

Anyway the point here is not “I told you so”. That would be missing the wood for the trees. Instead, the argument is that in their haste to evade criticism on a politically sensitive issue like employment, the policy mandarins in government overlooked the warnings of a structural crisis in the economy.

The employment data was raising some fundamental questions about the nature of the growth process. It is indeed a matter of great pride the economy clocked this unprecedented pace, powering India to a near $2 trillion economy in the span of a decade. But it is also a matter of equal concern that it failed to generate either the expected or proportional level of employment.

It was raising fundamental questions about the sustainability of the growth process, and understanding this is not rocket science. Without employment, you can never walk the talk on inclusiveness. At the same time, providing employment to such a large number of people creates the basis for broad-based demand, a prerequisite to create a sustainable consumer economy—which at present, going by the latest projections of gross domestic product for 2012-13 disclosed last week, has run out of steam. The annual rate of growth of consumption in the economy is projected to drop from 9.3% in 2007-08 to 4.1% in 2012-13—that is less than half the rate it was five years ago.sixthMAds

So, the steep fall projected in the growth rate to a record low of 5% in the current fiscal year should not have come as a surprise if the policy planners had been paying heed to the warning signals from the economy and not trying to sweep things under the carpet.

Even now, the first response, presumably to keep up sentiments, is to suggest that there are problems with the data and that the final numbers would show an upward tick (that goes without saying as the provisional numbers get updated; it has happened consistently year-after-year and does not in any way suggest that there are problems with the data).

Instead, the policy planners should be revisiting the fundamentals of the growth strategy. Asking the fundamental question as to how it can be made sustainable. The solution is by walking the talk of the United Progressive Alliance’s rhetoric on inclusiveness.

But is the UPA willing to listen?

Anil Padmanabhan is deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com