Did the most dynamic period in Indian economic history also produce anaemic job growth?

Based on his reading of new data released by the National Sample Survey Organization at the end of June, my colleague Anil Padmanabhan set off an important national debate on whether the five years from fiscal years 2005 and 2010 saw jobless growth. The data showed that the proportion of workers in the total population fell in these years, which indicated that only two million jobs were created in those years.

The government’s chief statistician, T.C.A. Ananth, countered this claim in an article published in this newspaper. His view is that the number of people in the labour force has grown at only a modest pace because of several important social changes, especially the fact that more children are staying back in school, more women are withdrawing from the workforce and higher incomes are ensuring that more workers give up their subsidiary jobs.

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The debate is based on data on what people say about their work status rather than the actual number of new jobs generated in the economy. That’s because the way employment data is collected in India is very different from how it is collected in the developed economies, where firms provide regular information to government statisticians. Nearly nine out of 10 Indians work in the unorganized sector, where collecting information is impossibly difficult. Many tiny enterprises close down every year and millions are self-employed. It is hard to capture employment data from employers, as is the practice in more developed countries. So, our statisticians prefer to ask a random sample of households about their employment status once every five years.

We can thus only get approximations about the number of jobs being created in the Indian economy, and that makes the debates inevitable.

My own thumb rule is to look at prices when data on quantities is of indifferent quality. Jobless growth in a country with a rising population would inevitably mean that wages could be under pressure. There is no evidence of such wage compression. In fact, wages have been growing faster than inflation in most occupations at a time when the bargaining power of workers is weak due to the declining power of trade unions. Rising wages are one indication that job growth has been strong in recent years, or the demand for labour is more than keeping pace with the supply of labour.

The fear of jobless growth can also be tested against one slice of data that is collected from employers by the Central Statistical Organization. The Annual Survey of Industries (ASI) collects data from companies in the organized sector. The picture here is more reassuring. Job creation has been very strong between fiscal 2004 and fiscal 2009, according to an article by Bishwanath Goldar of the Institute of Economic Growth, which was published in February in the Economic and Political Weekly. He estimates that employment in the organized manufacturing sector grew on average at 7.5% a year in this period, thanks to the gradual reform of labour laws in many states.

In a subsequent critique of this theory, R. Nagaraj of the Indira Gandhi Institute of Development Research argued that the boom in job creation might merely be a recovery from the jobless growth of the 1990s, when Indian industry shed jobs in its bid to become more efficient and competitive.

The reasons could be debated, but the ASI numbers suggest that employment generation in organized manufacturing alone must have been in excess of three million. To that, we would have to add job creation in services and in the unorganized sector (the courier boys, drivers, maids and watchmen, for instance).

One good thing the debate sparked off in Mint has done is that job creation has once again become an important discussion point. The initial promise of economic reforms was that India would see a rapid growth in labour-intensive manufacturing, which will allow millions to escape farm work as happened in many other Asian countries such as South Korea, Taiwan, Thailand, Malaysia and China. That is also what Manmohan Singh would say in his early years as finance minister.

New jobs in factory were central to the dream of inclusive growth in the early 1990s, with the state acting as an enabler by creating a policy environment to encourage manufacturing as well as supporting the transition with higher investments in public goods and infrastructure. The axis dangerously shifted in this decade, and expensive entitlements have come to be seen as the primary means to achieve inclusion.

As this column had noted in May 2010, finance minister Manmohan Singh seemed to project a different idea of inclusive growth than Prime Minister Manmohan Singh does. The current jobs debate is a much-needed reminder about how far the government has drifted from its original position. A course correction is needed.

Niranjan Rajadhyaksha is executive editor of Mint. Comments are welcome at cafeeconomics@livemint.com