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  • OUTLOOK ARENA  >>   VIEWS ON NEWS >>  APRIL 8, 2004

    The unemployment dilemma
    MYSTOCKS | FREE NEWSLETTER

    The Indian economy may be near an inflection point where the GDP growth of the economy may move out of the 5%-6% orbit and move in to the 7%-8% orbit in the medium to long term. At least this is what a section of policymakers have led us to believe. While the government's contention may be true to an extent, a lot more has to be done in order to realise this dream. A decade of reforms and competitive pressures has matured India Inc. and consequently the Indian economy. Therefore, it is now in a position to compete with global players in both manufacturing and services sectors.

    Well, you may ask what is missing at this stage? The answer, we have been hinting at in quiet a few of our views in the past, lies in significantly improving the investment scenario in the country, both domestic and foreign. The importance of investments cannot be emphasized enough. They have an indirect impact that helps any economy to sustain high growth consistently. We are talking about the benefit of employment here. Investments create employment, which in turn creates a consumer class, which spurs demand further, thus helping maintain the demand, which is vital for economic growth.

            Growth per annum (%)
    (m) 1983 1993-94 1999-2000 1983 to 1994 1994 to 2000
    Population 718 894 1004 2.0 2.0
    Labour force 261 336 363 2.4 1.3
    Work force 240 316 337 2.7 1.1
    Unemployment rate (%) 8.3 6.0 7.3    
    No. of unemployed 22 20 27 -0.1 4.7

    Source: Planning Commission

    In the Indian scenario, employment has been very sensitive issue and has been the key poll plank by almost all political parties. Let us look at the employment scenario existing in the country in the last 17 years ending 2000. The table above shows that while the unemployment rate fell between 1983-1994, the trend reversed in the following decade. The Planning Commission envisages that GDP growth in the tenth plan period (2002 - 2007) at an average of 8%. While this may sound good, it still is not good enough from the employment perspective. The table below indicates the expected trend in population age groups in the next few years.

    Age distribution in percentage
    Age group 2001 2006 2011 2016
    0-14 35.6 32.5 29.7 27.1
    15-59 58.2 60.4 62.5 64
    60+ 6.2 7.1 7.8 8.9
    All age groups 100 100 100 100
    Population (m) 1,027 1,134 1,194 1,266

    Source: Planning Commission

    The commission has indicated that, despite an average 8% growth, the unemployment rate is expected to go up to 9.8% from the current base of 9.2%. This is because, while the growth in employment would stand at 1.7% in the tenth plan, the labour force growth would be higher at 1.8%. This presents a worrying picture to the state planners, as lack of adequate employment opportunities may stifle the economic growth of the country. The commission has suggested various measures to completely eliminate this problem. They include:

    • Reforms in the agricultural sector.

    • Promotion of food processing industry.

    • Promotion of village level small-scale industries.

    • Reforms in the small and medium scale industries segment.

    While these suggestions are exhaustive (not elaborated here) and the reader can view the same on the following link http://planningcommission.nic.in/plans/planrel/fiveyr/10th/volume1/v1_ch5.pdf, the crux is that the commission has advocated the promotion of more labour intensive industries in order to tackle the unemployment issue. These measures will help generate additional employment in the country apart from what will be generated on a continual basis. The recommendation also calls for higher investments in all these sectors in order to generate the required level of employment. One aspect is certain that major reforms have to be conducted in the agricultural sector in order to generate employment in the same. This assumes a lot of relevance, as this sector is the largest employment generators in the country.

    The plan to tackle the unemployment issue seems to be in place. However in the Indian context, planning was never the issue, implementation sure was. If this plan has to be implemented a significant change in mind set is required. The track record of successive governments has not been too impressive in the Indian context. Also, Indian labour laws are one of the most archaic and also require to be amended, as this would encourage foreign investors in various sectors. Let us hope that unemployment is taken up as the most important issue in the Indian context because only if this issue is tackled, can India Shine on a consistent basis.

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