Which are the top sectors that generate employment in India?

New Delhi: India’s liberalization in 1991 was premised on the idea that it would make local industries more competitive, helping them capture world markets, which in turn would enable millions of Indian workers to move away from low-productivity farm jobs to high-productivity factory jobs.

A quarter century later, how far has that dream been realized?

Data from the KLEMS India database on employment and productivity published recently by the Reserve Bank of India (RBI) shows that a part of the promise has indeed been met. Millions of workers have indeed left farm jobs for non-farm jobs, and the pace of this transition seems to have picked up since the mid-2000s when the economy’s growth engine also picked up pace.

However, the data also shows that the nature of job creation has been quite skewed in the post-liberalization era. While the pace of non-farm job creation in the post liberalization era (at 3.39% per annum) is similar to the pace of job creation in the decade immediately preceding liberalization (at 3.59% per annum), the growth of jobs in the post-liberalization era has been very narrowly concentrated in a few sectors.

Nearly a third of new jobs added in the Indian economy in the post-liberalization era have been in the construction sector alone, the data shows. The construction sector was a major job-creator even in the 1980s but its share in new jobs was much smaller then.

Since 1990-91, the construction sector added almost as many new non-farm jobs as the next four top job-generating sectors—trade, miscellaneous services, transport and storage, and education—put together. While the construction boom in the country has helped people seeking an exit from farm jobs to find an alternative, it has not helped them move to a very productive job. As the accompanying table shows, construction has among the lowest productivity among the top job-generating sectors.

To be sure, the sector’s productivity level is about 58% higher than in the farm sector (agriculture, hunting, forestry, and fishing). The construction sector’s productivity is also higher than that in the gems and jewellery and hotels and restaurants sectors. Nonetheless, the construction sector stands out because it is the only sector among the major employers in the country which has witnessed a decline in productivity over the past few years, even as it has added more and more workers to its ranks. One reason for this could be the low level of labour quality (measured in terms of education and experience of workers) in the construction sector, the KLEMS database suggests.

Thus, while the farm sector has indeed shrunk, the transformation of the economy has been limited by the paucity of productive jobs and the lack of skilled workers.

One caveat worth noting here is that several figures from the KLEMS database have been estimated using interpolations (or extrapolations) from past data on employment and output. Thus, one should not read too much into year-on-year changes. Nonetheless, the database provides a fair sense of broad long-run trends in India’s labour market.

In other Asian economies, which witnessed a transition from low-productivity jobs to high-productivity jobs, the manufacturing sector played a big role in that transition. In India, the role of the manufacturing sector has been very limited.

Even as the construction and services sectors expanded their share in the total employment pie, the share of manufacturing has remained nearly the same as it was three decades ago.

Manufacturing accounted for a tenth of total employment in the 1980s, and continues to account for about a tenth of total employment today. Within manufacturing, the share of labour-intensive industries such as textiles and leather has actually shrunk over the past few decades.

Some economists such as Pranab Bardhan of the University of California, Berkeley have argued that India’s taxation regime has harmed workers by subsidizing investments in capital rather than in labour, and that they should be replaced with labour subsidies.

It remains to be seen whether India’s political class has the will and imagination to implement policies that aid investments in people rather than in machines at a time when automation and artificial intelligence are threatening jobs across the world.

Dipti Jain from Bengaluru contributed to this story.

This is the first of a two-part data journalism series on India’s jobs challenge. The second part will examine the skill and education deficits in India’s labour market.