Dec 4, 2014

Does high economic growth translate into employment?

A recent report prepared by the consultancy firm PriceWater House for the Confederation of Indian Industry (CII) harps on the usual premise of boosting economic growth as the basis for job creation. Accordingly, it will still take 20 years to remove unemployment even if India grows at an annual growth rate of 9 per cent.

This is exactly what we were taught in our Economic 101 class. These textbooks have not been updated ever since these were written and prescribed for economic students. The ups and downs witnessed in the past ten years when economic growth peaked to 9.3 per cent between 2004-05 and 2009-10, and then subsequently slid to 5.3 per cent after 2010-11, and in both the periods unemployment soaring, only shows that return to high growth, if that happens, does not automatically translate to job creation.

Jobless growth is a real threat.

In the past decade, India’s annual GDP growth had been at an average of 7 per cent. Even between 2005 and 2009 when the average rate of growth was 8.5 to 9.3 per cent, a Planning Commission study shows that 14 crore people had left agriculture. Normally those who abandon farming should be joining the manufacturing sector. But even in the manufacturing sector, 5.3 crore jobs were lost. So where have these 14 crore people who quit farming and believed to trudge to the cities actually gone? My understanding is that most of these who abandoned agriculture actually stayed back in the village to become landless workers.

This is corroborated with the data coming from the National Sample Survey Organisation. The NSSO survey indicates that India's labour force was between 44.0 crore to 48.4 crore in 2011-12. The lower number indicates people who looked for work every day, while the higher points to those who joined the workforce at some point in the year. This means roughly 2.5 crore people who were looking for jobs remained unemployed. But more significantly, the NSSO tells us that only 18 per cent of those who got jobs were on a regular wage. The remaining were daily workers or contract labour or self-employed.

More recently, CRISIL, the global analytical company has in a study shown since 2007, over 3.7 crore farmers had abandoned agriculture and migrated into the cities to look for daily wage work. But in the two years – between 2012 and 2014 – when economic growth had remained sluggish, an estimated 1.5 crore have returned back to the villages in the absence of job opportunities. In other words, even the daily wage opportunities waned.

In the past ten years, when growth remained on an average pretty high – exceeding 7 per cent for the ten year period 2004-2014, only 1.5 crore jobs were created. In a country where more than 1 crore people join the employment queue every year, more than 15 crore jobs should have been created considering the high growth rate India witnessed. But with only 1.5 crore jobs created in ten years, or a mere 10 per cent of the expectation, the big question remains – will high growth result in more jobs as CII projects?

I think CII is completely off the mark. Its projection of a high growth to create more employment is aimed at seeking more financial sops and perks from the government. Let me explain. Between 2004-2005 and 2014-15, a ten year period of high economic growth averaging 7 per cent per year, the industry was given tax concessions to the tune of Rs 36-lakh-crore. These tax concessions are listed in the budget documents under the head Revenue Foregone. These massive tax concessions were doled out to the industry on the premise that it will increase industrial activity, increase exports and of course create more jobs.

Interestingly, when India was on a very high growth trajectory between 2004-05 and 2009-2010, industrial production had slumped to minus 7.20 per cent in Nov 2009. In the present year 2014, the industrial growth in the quarter ending Oct 2014, is at a paltry 2.5 per cent. Manufacturing sector on the other hand is completely in the dumps. Manufacturing sector has declined showing a growth of only 0.2 per cent in 2013-14, compared to 1.1 per cent growth a year earlier. The story of exports from India is also not cheering enough. By Oct 2014, exports from India contracted by 5 per cent due to a fall in shipments of engineering goods, gems and jewellery and pharmaceuticals. This has further widened the trade deficit indicating that more and more imports were coming in.

So if the industrial output has remained sluggish, the exports have not jumped as expected and the high growth has failed to translate into increased job opportunities, the question that needs to be asked is where has the Rs 36-lakh-crore incentive that was given to India Inc gone? If this huge subsidy given to corporate was instead invested in removing poverty, India could have easily wiped out poverty for the next 72 years. Any country that can remove poverty for 72 years will actually be able to make poverty history.

It’s therefore all a case of misplaced priorities. It is quite obvious that job creation comes in handy to seek massive financial and infrastructure support from the government. 

The only bright spot in India’s growth story is actually agriculture. In 2013-14, farmers produced a record harvest of 264.4 million tonnes of foodgrains. Production of oilseeds reached a record high of 34.5 million tonnes, a jump of 4.8 per cent. Maize production increased by 8.52 per cent to reach a level of 24.2 million tones. Pulses production reached an all-time high of 19.6 million tones, an increase of 7.10 per cent over the previous year. Cotton production too touched a record high.

But strangely, its agriculture that is on the chopping block. Not forgetting that agriculture is the biggest employer, with some 52 per cent of the population directly or indirectly involved with agriculture, the thrust of the PriceWater house report should have been on how to make agriculture more profitable by bringing more money into the hands of farmers. There is a desperate need to boost public and private investments into agriculture and by gradually turning the village landscape into smart villages, the entire rural economy can be revived. This will cut down on rural-urban migration and create permanent jobs rather than push farmers to abandon farming and become casual labour in the cities. #

Where are the jobs? DNA Mumbai, Dec 3, 2014.

रोजगारविहीन विकास की कहानी  Amar Ujala, Nov 28, 2014

1 comment:

Dr harsha said...

Sir, i have failed to understand one thing. If so many farmers have committed suicides, crores of them have left farming, then how the agriculture output has increased? This is really baffling to me