Jobs, jobs and more jobs is what India needs

Feb 13, 2015

- By Vivek Kaul

Vivek Kaul
Buried somewhere in the last financial year's Economic Survey are some very disturbing data points, which the pink papers do not like to talk about. The usual news reports that you will read in the business newspapers published in the country are about professional colleges (MBA/Engineering) being flush with jobs.

None of the newspapers get into detail about how bad the overall job scenario in India is. The fact of the matter is that we just aren't creating enough jobs for the youth who are entering the workforce every year.

The Economic Survey points out that between 1999-2000 and 2004-2005 the employment as measured by the usual status method increased from 398 million to 457.9 million. This was the period when the Bhartiya Janata Party led National Democratic Alliance was in power.

After this, the job growth just came to a complete standstill. Between 2004-2005 to 2009-2010, the employment increased by just 1.1 million to 459 million. The first term of the Congress led United Progressive Alliance was a period of jobless growth, despite the gross domestic product(GDP) registering solid growth. So, the size of the overall economy was growing but the jobs weren't.

The situation improved over the next two years. Between 2009-2010 and 2011-2012, the number of employed individuals increased by 13.9 million to 472.9 million. Hence, the employment growth between 2004-2005 and 2011-2012 was at a minuscule 0.5% per year. In comparison, the employment growth was at 2.8% per year between 1999-2000 and 2004-2005.

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Mihir S Sharma in Restart-The Last Chance for the Indian Economy looks at the data over a longer time frame and comes up with a similar conclusion: "In the years from 1972 to 1983-not celebrated as a time of overwhelming prosperity-the total number of jobs in the economy nevertheless grew by 2.3 percent a year. In the years between liberalization in 1991 and today, jobs have grown at an average of 1.6 percent a year."

The trouble is that this is not enough. "13 million Indians will join the workforce every year from now on till 2030...But, if these young people have to absorbed, then jobs must grow at least 3 per cent a year-almost twice the rate at which they have since liberalization. This is simply not happening. In other words, one out of every two youngsters who starts looking for a job next year won't find one," writes Sharma.

What makes the scenario worse is that as per the last census nearly 47 million Indians under the age of 25 have been looking for a job, and not been able to find one.

So what is the way out? The Economic Survey provides what looks like an answer. As it points out: "The defining challenge in India today is that of generating employment and growth. Jobs are created by firms when firms invest and grow. Hence it is important to create an environment that is conducive for firms to invest...The ultimate goal of economic policy is to create a sustained renaissance of high growth in which hundreds of millions of good quality jobs are created. Good quality jobs are created by high productivity firms, so this agenda is critically about how firms are created, how firms grow, and how firms achieve high productivity."

Theoretically the above paragraph makes perfect sense. But there are several problems with it. India grew at the rate of 7.4% per year between 2004-2005 and 2011-2012. Despite this the job growth came to a standstill. Between 1999-2000 and 2004-2005 the economic growth was around 6% per year. Nevertheless, jobs grew at a much faster rate than they grew between 2004-2005 and 2011-2012.

So, faster economic growth does not always create jobs. Further, the Economic Survey talks about highly productive firms creating quality jobs. The question is what portion of Indian firms are highly productive or want to achieve high productivity. A significant portion of big Indian firms are essentially run by crony capitalists who are more interested in short term gains rather than building a highly productive organization.

Then there is the question of labour laws as well. Sharma provides a comparison between Bangladesh and India, and how the countries stack up when it comes to their respective textile industries. As he writes: "Before the expansion of trade thanks to new international rules in the twenty-first century, India made $10 billion from textile exports, and Bangladesh $8 billion. Today India makes $12 billion-and Bangladesh $21 billion."

So what happened here? The textile industry, explains Sharma, needs to turnaround big orders quickly and efficiently. "Really long assembly lines still matter in textiles: in some cases, 100 people can sequentially work to make a pair of trousers in least time. In Bangladesh, the average number of people in a factory is between 300 and 400; in the South Indian textiles hub of Tirupur, it's around 50," writes Sharma.

Why is there such a huge differential is a question worth asking? The answer lies in the surfeit of labour laws that firms in this country need to follow. And this ensures that most Indian textile firms start small and continue to remain small.

In their book India's Tryst with Destiny, Jagdish Bhagwati and Arvind Panagariya point out that 92.4% of the workers in this sector work with small firms which have forty-nine or less workers. Now compare this to China where large and medium firms make up around 87.7% of the employment in the apparel sector.

In fact, the Indian Constitution allows both the central as well as state governments to pass labour laws. This has led to a surfeit of labour laws. As Bhagwati and Panagariya point out: "The ministry of labour lists as many as fifty-two independent Central government Acts in the area of labour. According to Amit Mitra (the finance minister of West Bengal and a former business lobbyist), there exist another 150 state-level laws in India. This count places the total number of labour laws in India at approximately 200."

What leads to further trouble is that these laws are not consistent with one another. This has led to a situation where "you cannot implement Indian labour laws 100 per cent without violating 20 per cent of them," write Bhagwati and Panagariya.

This explains why Indian textile firms continue to remain small and not enough jobs are created in the process. As Bhagwati and Panagariya write "As the firm size rises from six regular workers towards 100, at no point between these two thresholds is the saving in manufacturing costs sufficiently large to pay for the extra cost of satisfying the laws".

In fact, the textile sector is an excellent representation of the overall Indian business. Businesses which have less than 10 workers, employ more than 90% of India's workers. What this clearly tells us is that the government of India needs to start simplifying its labour laws. At the same time this needs to trickle down to the level of state governments as well.

Sharma summarizes it best when he says: "[India] tried to protect workers instead of work; and it failed." And that needs to change.

What steps can the government take to create more jobs? Post your comments or share your views in the Equitymaster Club.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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5 Responses to "Jobs, jobs and more jobs is what India needs"

Krishna

Feb 13, 2015

And Vivek and other sensible folks from Equity master can probably interact with the Tour ARRANGERS (Institutions like CII or Universities of those countries) to ensure that the right inputs are given during that tour. ANd if possible accompany these trips to elicit the right info and highlight them appropriately.

Like (2)

Krishna

Feb 13, 2015

Very Nice Vivek. Nicely articulated and put forward the point. If vested interests are set aside - the resolution and path forward is easy to do and implement at the ground level as well.

I think, the best way is to create a Fund (Travel LEARNING FUND) - for taking these politicians who TOM TOM their states /& Industrialists who from other states want to invest - to go on a trip to some of the competitive nations (arranged through a local University in that country) - who can make these people learn and then together enact sensible policies.

Handpicking right folks /Interested Industry champions will be important for making this succeed.
Enough Media coverage should be given before the money is spent on each trip....with a high expectations that the state is going to bring about significant changes to benefit that industry based on learnings from that trip. ...This will ensure that to avoid Media Hounding them -sensible growth policies will be created.

Like (2)

GOPALAN PARTHASARATHY

Feb 13, 2015

It is a great analysis and the data has been brought in to drive home the points and pains that emerge from India's demography and growth ahead. India is having a great combination of demand and supply sides to its growth but is having to choose an economic model of growth that is appropriate for the advantages Indian economy has. Demand Advantage 1: India's 'mobile literacy' and 'internet usage' existing and potential is opening big opportunities in e commerce (an attractive demand side of the story) 2. Growing middle class is opening big opportunities for unprecedented demand in housing, consumer goods and durables and services Supply Advantage 1.Reforms with political will (possible now) can provide a Policy environment conducive for investments domestic and foreign. 2. Efficiency of regulators can bring in benefits of competition and fair play. A clean administration makes improvement on the supply side including removal of bottlenecks like red tape, corrupt and inept bureaucracy, wasteful expenditure and dysfunctional legacy functions of the Government 3. Energy resources being taken out of license raj propel ease of supply side and encourage investments. Ad PM puts it it is 3-D, Democracy, Demography and Demand that come into play. But all this do not necessarily add up to employment growth overnight. Employment growth call for shifts in occupations between sectors as well. There are a few sectors that are starved of labour although there is deluge of unemployed youth in the country. Government has to bridge the supply demand gap in terms of skilled labour. Like Government offers land to the investors, it has to offer skilled labour to the investors. This is where investors meet the skilled unemployed youth of India. This is where Make in India is possible. This is where even farming becomes investor friendly. India needs to innovate the supply side a lot more than it has been doing. We need Smart Governments, not just honest Governments. The Smart Governments are those that are going to ask investor to plug in first and fund the project within a timeline. The world is full of money waiting to be channeled into economically stable markets which can afford a decent return on investment with protection to capital. India needs Tier 2 and 3 towns to become investor-savvy and provide access to resources without a glitch in exchange for employment of skilled unemployed youth. Given the standards of automation, digitalization of market and density of e-commerce that is gathering momentum, growth needs to be spread out well in terms of services for generation of jobs. Manufacturing has serious limitations also given the slackening global demand. Farming has opportunities both in terms of modernisation and upgrading the labour in terms of skills. We need new generation of educated farmers employing and rewarding a huge work force which is focused on providing food to the country and the world. We need much more hiring to happen in all security forces, State, Centre and the shared forces. Therefore generation of jobs has to be out of a very deftly woven fabric with weaving happening through the wheels of reforms, investment and catalysis by Government going beyond policy and embracing integrative actions on the ground. A nation of 2.4 billion feet can walk to become an economic giant of the century: but it is important that each step, however tender the feet could be in the beginning, has to happen in sync with a strategy that is ideal for India's advantages coming into play. May be the Government has a lot more to focus on, come to terms with and set out its business prioritizing actions over pronouncements. Somewhere a fatigue of statements is kicking in that too within the very first year of the much acclaimed tenure of NDA under the leadership of Mr Narendra Modi.

Like (2)

Jyothi

Feb 13, 2015

Everybody forgets the reason why India's textile industry got fragmented. nobody seems to remember that textile mills in Bombay and other places employed the largest number of workers in the organised sector. They played key roles in a number of political events as well as social development. The textile strike in Bombay, that crippled a whole social system, is completely out of everybody's recall. Even then, the industry still employs over 35 million people. It continues to be the second or third employer after farming and/or construction.

Obviously, labour laws will be duplicated, time wasted in sorting it out. But then that's the state of our democracy. Who thinks Bangladeshi businessmen don't face challenges? If everything as good for them, their exports should not have been $16 billion, it should have been $160 billion.

And why is that only when India tries to protect its workers that there is all this hue and cry from the media and experts? Every economy worth its name is doing that... and has always been doing that. The U.S did it in the 1930s. So, in that way, India is just starting.

So, what are the suggestions? Workers should be left to fend for themselves? Govt should protect work? what logic is this? Work gets re-defined with every generation and technology change. Then, what happens to the old generation workers? Dump them, like we have always been doing? Isn't it time to think differently?

Like (2)

vinod bajaj

Feb 13, 2015

I would like to point out too, that, the social situation has changed dramatically in India. The senior citizens can no more depend on their children. In fact they do not want to be a burden too.
In the absence of government "dole" and despite having paid considerable taxes, senior citizen need to work for a comfortable living.

So - How about decent jobs for retired professional?

Like (2)
  
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