Home / Opinion / Government limitations in job creation

The issue of employment is a subterranean rumble underlying the daily rhetoric of Indian politics. Frequently, it grows in volume to dominate the discourse. This is such a moment. The Congress reacted to the Narendra Modi government’s completion of three years in office with an attack revolving around its alleged failure to create enough jobs. Bharatiya Janata Party (BJP) president Amit Shah responded with practised whataboutism, noting that if the Congress had paid similar attention to the issue during its time in power, it would not have suffered such electoral reverses over the past few years. This may be true; it is certainly irrelevant. It is an apt time, however, to consider an important question: What effect can the government actually have on job creation?

One of Modi’s core campaign promises in the run-up to the 2014 election was creating jobs for the youth. His government has failed to deliver. Comprehensive employment data in India is sadly lacking. In its absence, quarterly employment surveys (QES) carried out by the government since 2008—suspect as they are—will have to do. They paint a bleak picture. These surveys look at eight sectors that are considered labour-intensive—six manufacturing and two services to begin with, and expanding to cover the entire manufacturing sector as of April 2016. In 2015 and 2016, this data showed average employment generation to be around 200,000 jobs a year. This is a precipitous decline from the 2009-11 period, when it was 950,000 jobs annually.

But 950,000 jobs annually is also inadequate given that there are 12 million new entrants in the workforce every year. Granted, the QES data does not include informal sector jobs—but employment in the formal and informal sectors is unlikely to be moving in vastly different directions. And the latter is not, in any case, a sustainable situation.

This jobless growth—much in the news this decade—is not a new phenomenon. A 2014 Reserve Bank of India paper by Sangita Misra and Anoop K. Suresh, Estimating Employment Elasticity Of Growth For The Indian Economy, threw up some interesting facts about India’s employment elasticity—the percentage change in employment associated with a one percentage point change in economic growth. Firstly, elasticity has been on the decline since the 1970s and 1980s. Secondly, overall employment elasticity is low. Thirdly, in manufacturing, elasticity is higher in the organized sector than in the unorganized sector. And fourthly, certain sectors in manufacturing, such as motor vehicles, electrical equipment and apparel, have relatively higher elasticity.

Given this, what can the government do? Increasing public investment to crowd in private investment—and thus boost job creation—has been much talked about in the current scenario where the twin balance-sheet problem has rendered the latter anaemic. But this has its limits. It is not a suitable solution for a slump in employment generation that spans decades, as in India. Technological changes, automation and geopolitical changes all complicate the issue: They herald structural economic shifts that no government can truly anticipate or compensate for.

Creating new doles or expanding old ones has been a go-to in Indian economic policy when times have been tough. The United Progressive Alliance government was particularly culpable in this regard. But this is sleight-of-hand at best and ruinous at worst; no one can pretend that the employment generated via, say, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is any sort of serious remedy.

There are, essentially, no quick fixes. This is not to say that governments aren’t culpable. But outside of immediate crises such as the great recession, effective policy prescriptions will be those that target long-term shifts in the policy environment and the scaffolding of the economy, leaving it to private capital and companies to respond to the changing nature of employment and production.

Factor market reforms would be a good place to start. In a World Bank research paper, A Detailed Anatomy Of Factor Misallocation In India, Gilles Duranton, Ejaz Ghani, Arti Grover Goswami and William Robert Kerr find that land allocation in the country is barely better than random. This in turn leads to financial misallocation, given that land is needed as collateral. Consequently, less efficient firms often have better access to land and capital than more efficient ones. Likewise, for all the hoopla schemes like Make in India and Startup India generate, labour reforms that enable enterprises in the informal sector—responsible for the bulk of manufacturing employment generation—to scale up, or enterprises with greater elasticity in the formal sector to respond swiftly to market shifts, will have deeper and more sustainable effects.

There are other areas where reforms are needed. For instance, the right to education Act might recognize a real problem, but it does nothing to address the quality of education—essential for later employability—that only policy and administrative overhauls at the state levels can address.

Admitting limitations and advocating long-term solutions with no immediate pay-offs does not, unfortunately, make for a good line in the cut and thrust of electoral politics. Regardless, this is the only way in which the government can sustainably help boost employment—Shah and the Congress’ theatrics notwithstanding.

Can the government create enough jobs for India’s increasing workforce? Tell us at views@livemint.com

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