Why Jobs in India Are Just Not Growing Fast Enough... - The 5 Minute WrapUp by Equitymaster
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Why Jobs in India Are Just Not Growing Fast Enough...

Jul 13, 2016
In this issue:
» Indian companies score on transparency
» Power companies asked to source from Coal India
» ...and more!
00:00
Radhika Pandit, Managing Editor of ValuePro

Compared to the US, Europe, and especially Japan, India is a much younger country. This has nothing to do with when the country was formed. By younger, I mean the Indian population is younger than its counterparts in the West.

India's demographic dividend is often seen as a big driver of India's growth going forward. But you see, this very demographic equation could prove to be a double-edged sword. India's young population can contribute to growth...provided there are enough jobs to employ them.

Unemployed youth is a dangerous phenomenon. We saw it lead to the Arab uprisings not so long ago. And rising youth unemployment is becoming a big problem in the West too.

Clearly, India needs to create sufficient jobs. Is that happening? An article in the Economic Times pointed out how stable and quality jobs are not growing fast enough. It also highlighted the employment trends in the Labour Bureau's quarterly surveys.

This survey covers eight employment intensive sectors. According to the Bureau, the average for the last eight quarters was just over 100,000 jobs per quarter (2013-15). This was lower than the 150,000 jobs created in the period 2011-13 and much lower than the 300,000 jobs per quarter in the period 2009-11.

Part of the jobs slowdown can be attributed to inflexible labour laws and the rise of automation. Since it is not easy to fire employees in India, companies increasingly prefer to hire less and ramp up automation instead. The automation trend is accelerating not just in manufacturing but in services sectors such as IT too.

One of the arguments for automation is that, even if it means a loss of jobs in one area, new jobs will be created somewhere else. This is quite true. The problem is that people do not always adapt so easily.

The other thing is that rising automation means there will be more focus on skilled labour in the country. But for people to make that shift will not be a smooth process. Also, the growth in skilled jobs is simply not fast enough to accommodate India's growing population.

The idea here is that there needs to be jobs for unskilled people too. They cannot be ignored completely, as Vivek Kaul, editor of Vivek Kaul's Diary, strongly asserts. Here's Vivek:

  • One of the fundamental points that Indian policymakers and politicians haven't understood since independence is that India needs to encourage manufacturing that employs low skilled and unskilled workers.

Vivek goes on to explain his point by citing the example of the textiles industry, which is a labour-intensive industry and a very important job creator in India. Here's Vivek again:

  • India has very few factories that actually employ more than 500 people. Now compare that with China. The largest garment manufacturing factories in China have a workforce of 30,000. In fact, even Bangladesh has garment manufacturing units with 10,000 workers. In India, the numbers rarely go beyond 1,000 workers. In fact, in India, the garment manufacturers prefer to split their workforce into many units, instead of employing a lot of workers at one unit. This basically comes from the fear of not being able to retrench workers.

    This leads to a situation where the Indian companies operating in the textiles sector do not have the economies of scale required to compete globally. One of the reasons the Indian companies cannot compete globally is because they can't hire and fire workers according to the demand for their products.

The government has taken some steps, such as introducing fixed-term contracts that allow companies to employ workers for a finite period and not permanently. But Vivek believes there is still room for more structural changes if labour-intensive industries such as textiles are to increase worker intake in the future.

We cannot help but agree.

Vivek he has more such insights up his sleeve. And we can't wait to reveal them to you. Trust me, you want to watch this space...

Do you also agree that unskilled labour is as important as skilled labour to drive India's economic growth? Let us know your comments or share your views in the Equitymaster Club.

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03:01 Chart of the day

Finally, in a gloomy economic climate, India Inc has something to cheer about. Indian companies are the most transparent among BRICS nations, as per a survey by Transparency International. As most large companies are following globally accepted and recognised accounting standards that disclose key financials of all subsidiaries, India has managed to beat other emerging countries on the transparency front. In fact, nine of the ten most transparent firms in emerging markets are from India. This includes the likes of telecom major Bharti Airtel, Tata Group companies Tata Motors, Tata Steel, Tata Global Beverages, Tata Chemicals, Tata Communications and TCS, Mahindra & Mahindra and Wipro.

India's arch rival China has scored the lowest among BRIC nations. The 37 Chinese companies considered for the survey includes large state run firms such as China Shipping Group and China Minmetals Corp as well as new-age internet giants such as Alibaba Group Holding Ltd and Tencent Holdings Ltd. What's appalling is that three Chinese firms including auto-parts maker Wanxiang Group scored zero pointing towards a weak commitment to meet transparency norms as per Transparency International.

Indian Companies Score On Transparency

04:09

India's coal production has swung from deficit to glut in a matter of three years. The slowdown in offtake by power generation companies has further added to the surplus. Therefore, the government has asked power plants to procure their coal requirements from Coal India's e-auction instead of buying coal at a 40% premium under the Memorandum of Understanding scheme started in 2013. The power plants can also source their coal needs from coal linkage auctions to be conducted by the state governments that will be allotted linkages by Coal India.

In 2013, the government had resorted to coal rationing scheme in the wake of a severe coal shortage wherein Coal India was struggling to sign Fuel Supply Agreements (FSA) with power plants. While the situation has reversed completely, the government does not want to take chances with a pick-up in investment climate that would require coal supplies higher than that produced by Coal India and its subsidiaries. Therefore, instead of entering binding long term fuel supply agreements, the government is trying to build a market-based mechanism for coal supply in the country. This mechanism is likely to be a win-win situation for both Coal India and the user industries.

04:45

Indian stock markets had a volatile trading session today as they oscillated to either side of yesterday's close. The BSE Sensex was trading higher by 13 points at the time of writing. Losses were largely seen in auto, and consumer durables stocks, while metals and IT stocks managed to buck the trend. The BSE Midcap and the BSE Smallcap were not spared however as both were trading in the red at the time of writing.

04:55 Today's investment mantra

"Noah did not start building the Ark when it was raining." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Radhika Pandit (Research Analyst) and Madhu Gupta (Research Analyst).

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9 Responses to "Why Jobs in India Are Just Not Growing Fast Enough..."

Sarat Palat

Jul 16, 2016

Skilled and unskilled labour is the two side of the same coin. If the current trend of automation continuous skilled labour will also get affected. So the need of the hour is a population policy. Unless this is adopted we are leading to disaster.

Like 

Dr. D. Lakshmanan M.S., M.I.E., PhD

Jul 14, 2016

Because in India the facilitators are not showing keen interest to generate jobs as required. My studies revealed, in India agricultural, connecting rivers, construction of bridges and dams, increasing non conventional energies, planting trees, converting waste into wealth required at least 20 million people. We are wasting our man power and man hour by compelling rural people to migrate to urban areas. As our Mahatma told India is still living in rural. If our journey start towards this direction there would be no unemployment problems. JAIHIND

Like (1)

RAVI KATARI

Jul 13, 2016

Vivek is absolutely right. I ran a successful garment business but had to, as you said, split up into small units of under a 100 workers until the Govt came out with a scheme called MEE [Manufacturer exporters quota]. This assured the company of quotas provided he installed a minimum number of machines, workers etc. The more machines and workers the more quota you got. One fine morning they withdrew the scheme without any warning. However, you could not lay off the workers employed by you because of the scheme. Appeals to Govt fell on deaf ears and finally the courts also turned down the appeal saying that Govt knew best ! In the meanwhile, our competitors had a field day, and serious players from India also went abroad. Today there are machines that do the work of a dozen men. It's a nightmare in the making.

Like (1)

LOGANATHAN

Jul 13, 2016

1. Make in India program has completely vitiated the investment climate. Entrepreneurs are reluctant to make any new investment as they are scared of entry of multinationals, which will wipe out their plans.

2. The big industries operate at about 72% capacity. There is no need for expansion or further investment. Without any additional capital, they can take care of growth requirement for next 7 years. Only financial requirement will be working capital. However, we have seen only 2% increase in capacity utilization i.e., from 70% to 72% in the last two years. This reflects in the industrial employment scenario too.

3. Merchandise Exports are down by 18% from $ 310 Billon to $ 262 Billion. In other words, India's GDP has gone down by 2.5% on account of reduction in Exports. Obviously there has to corresponding reduction in the existing jobs. Hence there is direct and disguised job losses due to this factor, which is not reflected in any data.

4. Still there are new jobs created in IT/ITES sector, may be to the extent of 150,000 to 200,000 per annum

4. The new jobs data is quite deceptive. I doubt whether the vacancies on account of death, disability, retirement, VRS etc are fully backfilled. Let alone job losses on account of closures and retrenchment which cannot be backfilled.

Like (1)

Shankar K

Jul 13, 2016

I see huge diferrence in jobs being created & estimated people joining work force from two different articles. On 17th Jun'16 the article titled "India and the Fallacy of the Demographic Dividend" says India needs to create on average of one million jobs per month to meet the work force joining the pool. The article Why Jobs in India Are Just Not Growing Fast Enough... shows 1 lac jobs being created per quarter. There is no comparison between these two. Considering demographic dividends theory India appears to be in disastrous situation. Is this how we should understand?

Like (1)

Muneesh Chawla

Jul 13, 2016

Agree with the analysis. However, one important reason could also be the increasing global protectionism, and concerted efforts by countries like the US, Europe and others, to retain jobs at home and discourage outsourcing. As a result, BPO industry growth rates have declined significantly, and this industry was a key driver of skilled job growth in India.

Like (1)

Krishnan

Jul 13, 2016

A very good observation, we need to provide more job opportunities especially to unskilled to cut down on unemployment. This can be done by providing training in technical skills on the job. We dont need mass production of sub standard Engineering graduates.

Like (1)

Krishna Kumar

Jul 13, 2016

My comments on Radhika Pandit are as follows. India has a chance to become top manufacturing country or I would say India missed opportunity to become a top manufacturing country due to its bad policies. Some of the top manufacturing countries of my days like Metal Box, Nirlon , Hindustan Motors , API and many other companies have vanished. They vanished because of bad labour policies. Some of the states like Kerala and West Bengal have plundered manufacturing units to please labour union leaders.
One complete generation of people have grown up without manufacturing industries due to service sector boom. Having identified poor labour laws are the root cause the remedy also will take few decades because there needs to be cultural and attitude change.
Manufacturing jobs are boring and routine and labourers can be quickly convinced to go on strike and harass supervisors with current mindset of political leaders. If you check out Saudi Arabia's labour productivity and compare with India you will be shocked as no unionism exists there.

Like (1)

SJ

Jul 13, 2016

Some pleasantness amidst all the negativity with Equitymaster. Yes, employment of unskilled labour needs to be looked at. Manufacturing and Infrastructure are the industries that can employ unskilled labor with the requisite on the job training.

Also important is to check migration of rural people to cities. Villages are under served and in shabby state. Development in rural India by employing the rural people in village development initiatives can be another way to employ the unskilled. High GDP rates with bulgeoning economically weaker section isn't a well rounded growth plan. No matter how much people talk about Govt's failure to boost the economy as announced, well rounded development cannot happen by ignoring rural and the unskilled population.

Like (1)
  
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