Opinion
There is no discord over India’s growth and employment trends
Summary
- Barring a covid-induced aberration, employment has been growing in line with the economy’s rise.
By May, we will have learnt that India’s economy has grown by more than 7% annually in real terms over the last three years. If the Reserve Bank of India (RBI) turns out to be right in its expectation of 7% growth in the financial year beginning April 2024, then it will be the fourth year in a row of 7% or more growth. This is no mean achievement in a post-covid growth-challenged era in which countries are struggling to shake off their fiscal stimulus and its after-effects such as higher inflation.
The oft-heard counter is that the fruits of growth have not been evenly distributed and that employment generation in recent years has been disappointing. First, on inequality, it is important to consider government taxes and transfers. Cumulative direct transfers of government benefits, both in cash and kind, are more than ₹34 trillion, with hundreds of millions of beneficiaries. State governments offer their share of benefits as well. A systematic study of all government transfers and their impact on household purchasing power is needed before one can conclude that inequality has worsened.
When it comes to employment, we should let the data speak for itself. The RBI-KLEMS database now gives us more than 40 years of data to analyse economic growth, productivity growth, income shares, etc. The last year for which data is available is 2021-22.
Between 1997-98 and 2003-04, the economy created 51.3 million jobs. If reduced to an interval of five years between 1998-99 and 2003-04, it is 46.5 million. Agricultural employment went up during these two periods by around 13.8 million and 13.7 million, respectively. Between 2004 and 2014, employment growth was 27.9 million, split roughly as 18.5 million between 2003-04 and 2008-09 and 9.4 million between 2008-09 and 2013-14. Agricultural employment declined by about 38 million in the full 10-year period, split between the two periods at 14.6 million and 23.4 million, respectively. It is as it should be in an economy trying to move from being dominated by the primary sector to secondary and tertiary sectors. The compounded annual contraction rate (CACR) was (-)1.6%. The CACR was (-)1.2% between 2003-04 and 2008-09 and (-)2.0% between 2008-09 and 2013-14.
Between 2013-14 and 2021-22, the economy created 82.6 million jobs. But there is a twist in the tale. There was nearly a 40 million increase in farm employment in 2019-20 and 2020-21 taken together. Excluding that, employment growth creation is still an impressive 42.6 million in the eight years from 2013-14 to 2021-22. The huge bulge in farm employment in those two years reflects the covid-induced reverse migration. That this was an aberration can be gleaned from the fact that between 2013-14 and 2018-19, farm employment declined by 17.8 million, at an annual CACR of (-)1.7%. This downtrend resumed in 2021-22. Employment in agriculture fell by 1.5 million, reversing the trend of the previous two years. It is a reasonable guess that this continued in 2022-23 and 2023-24 as well.
Coming to manufacturing, between 1998-99 and 2003-04, employment growth was 7.3 million. In the 10 years between 2003-04 and 2013-14, it was about 5 million, and the split between the two five-year periods was 3.7 million and 1.3 million, respectively. There is a clear slowdown in manufacturing employment growth between 2008-09 and 2013-14. Between 2013-14 and 2018-19, employment growth in manufacturing declined by about half-a-million. So, it stands to reason that the decline in agricultural employment, which was of the order of 17.8 million, was absorbed by services and other sectors, given that the economy as a whole added 13.1 million jobs. Corporate balance sheet stress, particularly in manufacturing, showed up in the decline in the sector’s overall employment in the five-year period between 2013-14 and 2018-19. Encouragingly, that decline has reversed. In 2021-22 alone, manufacturing added 4.3 million jobs. The recently released Annual Survey of Industries for 2021-22 reinforces this. The revival of manufacturing employment is a good augury. It reflects the end of corporate balance sheet woes, the sector’s willingness to hire and the fruits of our infrastructure build-out.
The services sector added 33.1 million jobs between 2003-04 and 2013-14. But, in the eight years between 2013-14 and 2021-22, it has already added 41.1 million jobs. It must be noted that employment growth in manufacturing, services and agriculture and allied sectors won’t add up to total employment growth in the KLEMS database because it leaves out sectors like construction.
The message is that the employment creation engine was humming and in good health despite the balance sheet woes of the corporate sector before covid struck. That derailed it for a couple of years, but normal service appears to have resumed in 2021-22. Data for 2022-23 and 2023-24, once available, should confirm that.
Notwithstanding this encouraging picture, there is no gainsaying that creating skilled and more formal jobs, and jobs with social security benefits, is important. Much has been accomplished, but much remains to be done.
These are the author’s personal views.
