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Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working

Aug 21, 2017

28

The prime minister Narendra Modi in his Independence Day speech made last week said: "The Government has launched several new initiatives in the employment related schemes and also in the manner in which the training is imparted for the development of human resource according to the needs of the 21st century. We have launched a massive program to provide collateral free loans to the youth. Our youth should become independent, he should get the employment, he should become the provider of employment. Over the past three years, 'Pradhanmantri Mudra Yojana' has led to millions and millions of youth becoming self-dependent. It's not just that, one youth is providing employment to one, two or three more people."

Adding to this, the Bhartiya Janata Party president Amit Shah recently said: "the youth have turned into job-creators from job-seekers". Dear Reader, I would request you to keep these points in your head, while I set the overall context of this piece. As I have written on several previous occasions in the past, one million Indians enter the workforce every month. That makes it 1.2 crore Indians a year. There is not enough work going around for all these young individuals entering the workforce every year.

While, it is not possible for the government to create jobs for such a huge number of people, it is possible that the government makes it easier for the private sector to create jobs. (I will not go into this, simply because this is a separate topic in itself and I guess I will deal with this on some other occasion).

Take a look at Table 1. This is a table that I have used on previous occasions as well. But I need to repeat it, in order to set the context for this piece.

Table 1: Percentage distribution of persons available for 12 months

What does Table 1 tell us? It tells us that only 60.6 per cent of the individuals who were looking for work all through the year, were able to find it. This basically means that nearly 40 out of every 100 Indians who are a part of the workforce and were looking for work all through the year, could not find regular work. In rural India, around half of the workforce wasn't able to find regular work through the year.

This table is at the heart of India's unemployment problem. Actually, we do not have an unemployment problem, what we have is an underemployment problem. There isn't enough work going from everyone who joins the workforce. The solution that prime minister Narendra Modi has to this is that India's youth should become self-dependent and seek self-employment. In the era of post-truth, this sounds like a terrific idea. But this is nothing more than marketing spin.

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Let's look at some data on this front. As the Report on the Fifth Annual Employment-Unemployment Survey, 2016, points out: "At the All India level, 46.6 per cent of the workers were found to be self-employed... followed by 32.8 per cent as casual labour. Only 17 per cent of the employed persons were wage/salary earners and the rest 3.7 per cent were contract workers."

The point being that nearly half of India's workforce is already self-employed. And they aren't doing well in comparison to those who have regular jobs. Take a look at Table 2.

Table 2: Self-employed/Regular wage salaried/Contract/Casual Workers
according to Average Monthly Earnings (in %)

What does Table 2 tell us? It tells us very clearly that self-employment is not as well-paying as a regular salaried job is. As is clear from the table nearly two-thirds of the self-employed make up to Rs 7,500 per month. In case of the regular salaried lot this is at a little over 38 per cent. Clearly, those with regular jobs make much more money on an average.

Further, only 4 per cent of the self-employed make Rs 20,000 or more during the course of a month. In comparison, more than 19 per cent of individuals with jobs make Rs 20,000 or more during the course of a month.

What Table 1 and Table 2 tell us is that India's youth have already taken to being self-employed. Hence, there is nothing new in Narendra Modi's idea. Further, it is clearly not working.

As Abhijit Banerjee and Esther Duflo write in Poor Economics: "The sheer number of business owners among the poor is impressive. After all, everything seems to militate against the poor being entrepreneurs. They have less capital of their own (almost by definition) and... little access to formal insurance, banks and other sources of inexpensive finance.... Another characteristic of the businesses of the poor and the near-poor is that, on average, they are not making much money."

The point here is that a large part of the workforce is not self-employed by choice but are self-employed because they have no other option. Banerjee and Duflo call them 'reluctant entrepreneurs'. The phrase summarises the situation very well.

Other than the reluctant entrepreneurs, more than 30 per cent of the workforce comprises casual labourers, who seek employment on an almost daily basis. The reluctant entrepreneurs and casual labourers looking for daily work essentially tell us that no one can really afford to stay unemployed.

Hence, the problem is not a lack of employment but a lack of employment which is productive enough.

Prime minister Modi talked about his government launching, "several new initiatives in the employment related schemes and also in the manner in which the training is imparted for the development of human resource according to the needs of the 21st century."

How good does the data look on this front? As the Volume 2 of the Economic Survey of 2016-2017 points out: "For urban poor, Deendayal Antyodaya Yojana National Urban Livelihoods Mission (DAYNULM) imparts skill training for self and wage-employment through setting up self-employment ventures by providing credit at subsidized rates of interest. The government has now expanded the scope of DAY-NULM from 790 cities to 4,041 statutory towns in the country. So far, 8,37,764 beneficiaries have been skill-trained [and] 4,27,470 persons have been given employment."

The annual report of 2016-2017 of the Ministry of Skill Development and Entrepreneurship of the government of India makes an estimate about the number of people trained by different ministries during the course of the financial year. For the period April to December 2016, the number is at around 19.59 lakh. The annual target was set at 99.35 lakh. Given this, the gap between the target set and the target achieved is huge.

Another way of looking at this is that 1.2 crore Indians are entering the workforce every year. They have had an average education of around five years (i.e. they have passed primary school). Given this, they really don't have any work-related skillset. At best, they can add and subtract, and perhaps read a little.

Hence, they need to be trained or there need to be enough low skill jobs going around. Real estate and construction, the two sectors that can create these kind of jobs, are in a huge mess. This is something that can be sorted, but in order to do that some serious decisions on black money need to made. This includes cleaning up of political funding and the change in land usage regulations at state government level.

Take a look at the following graphic (Figure 1) reproduced from the annual report of the Ministry of Skill Development and Entrepreneurship.

Figure 1:

What Figure 1 tells us very clearly is that the scale that is needed to train people is simply not there. And this will lead to a substantial chunk of individuals entering the workforce looking for low end self-employment opportunities anyway, as has been the case in the past. Or people will continue to stick to agriculture.

Prime Minister Modi in his speech further said: "Over the past three years, 'Pradhanmantri Mudra Yojana' has led to millions and millions of youth becoming self-dependent. It's not just that, one youth is providing employment to one, two or three more people."

Let's look at this statement in some detail. Between April 2015 and August 11, 2017, the government gave out Mudra (Micro Units Development and Refinance Agency Bank) loans worth Rs 3.63 lakh crore to 8.7 crore individuals. This works out to an average loan of around Rs 41,724. There is no evidence until now whether this is working or not. Can a loan of a little under Rs 42,000 provide employment to one, two or three more people, is a question which hasn't been answered up until now.

The CEO of Mudra was asked by NDTV recently, as to how many jobs had the Mudra loans created. He said: "We are yet to make an assessment on that... We don't have a number right now, but I understand that NITI Aayog is making an effort to do that."Given this, Mudra loans making millions of youth self-dependent is presently nothing more than something that prime minister Modi likes to believe in.

While he is entitled to his beliefs, I would like to look at some data before concluding that Mudra loans are the answer to India's job crisis.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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14 Responses to "Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working"

allen peter

Sep 2, 2017

Kaul is right. Solution? - Reviving the construction sector will lead to rapid improvement in employment scenario. Also remove all tax incentives for capital investment( even with all these incentives they are not making additional investments) and provide incentives for job creation to the organised sector employer. Also look for FDI more vigorously. Educate people on need for family planning, respecting women, traffic rules and general civic sense in schools. Time spent on teaching writing and maths can be reduced.

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Sameer

Sep 1, 2017

Appreciable research.
A lot of people will "complain" that you are "criticizing" Modi. But then isn't he the PM of the country.
He won the election on the promise that give him "60 months" and he will turnaround the economy, create millions of employment and will deliver a lot of good stuff (black money, power, electricity, water, and many more) which the Kangress did not deliver in the 60 years.

40 of those 60 months are over (and Mumbai just got flooded again) only 20 to go. Nothing has changed on the ground - 20 months looks like an uphill task.

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manish

Aug 29, 2017

Utter crap. yes this government isnt perfect but your article are full of negativity the fact that close to 20 L youths were trained is not bad given that skill development was never the focus before and we too dependent on IT sector for job creation.

I wish equitymaster stops publishing such below par stuff, its almost like opposition mouthpiece when I read your articles , you seem to be unhappy with your own life

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R Sathyamurthy

Aug 24, 2017

Vivek Kaul is adept in using averages to make us believe that nothing this government is doing is worthy. I hope he wrote similar articles on what happened during the UPA's 10 year regime. The perverted view wants to have all achievements from a man with a vision in just about three years. If there is a skill gap of lacs and lacs of people, who is responsible for that? Does he mean to say in three years suddenly a child born in 2014 has become an adult and is not skilled enough for employment?

I would love to ask Equitymaster to shunt this man out. He is full of negativity. May be Equitymaster is using this man to later on bring out a post to say "I told you so". This is EM way of insurance if things go wrong, I guess.

I can tell you, this man is bringing disrepute to EM.

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Pilgrim

Aug 23, 2017

Mr. Kaul will of course undertake any research required to whack NaMo with - and I daresay a lot of what he 'discovers' IS pretty accurate, especially about the government taking credit for other people's initiatives and tom-tomming dubious 'successes'. But that is the way of all management; who hasn't met the manager who does the same! 

But he is at least doing somethings, controversial or less than satisfactory, or too little (as in the matter of skills development/re-tooling). I'm sure even corruption is far from rooted out, even in his own party, but at least he speaks out against it. 
 
Which is more than the earlier bunch ever did; their silence was like a loud speaker announcement condoning corruption. And the regular 'voluntary declarations' of black money, followed not just by an amnesty from prosecution but almost national gratitude for declaring (a small portion!) of the black money, was the most clear signal - Carry on, chaps! There'll be another one soon! Lets see if we can do better! Jolly good show! 
 
Just my reaction to Mr. Kaul's constant fault finding with this government. They are far from faultless, especially in the social sphere, but it would be nice if Mr. Kaul occasionally employed his research-cum-analytical skills to find something positive too. 
 
(I know - that could raise the question - 'What?' ) 

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Tejas

Aug 22, 2017

Dear Vivek,

I read this article and and even agree that you might be right. However I feel that over the years , you have constantly criticizing the Government for this reason or that, which does not make anything right . You might be true, but if look at things from a different perspective, you might find that there are many things which are in the midst of change, be it airport or Metro . Sir in India, both the Govt and the People are cheats so prosperity will take some time coming.
Please note that despite your figures being right, India has far more chances today then ever before to make a change. Compare it with the India , in 2012 you might find that today despite all the false propganda, we are in a better place.
Pls note that I am neither an Optimist or a Pessimist , but a Realist. Sadly, Sir I believe you are becoming Pessimist.

Tejas

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NKB

Aug 22, 2017

If there are so many people under employed and willing to work how do we explain the fact that every industry IT, manufacturing, construction, agriculture etc... complain of lack of man power both skilled and unskilled. Perhaps the willingness to work full time is not as prevalent as assumed in this article.

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Peter

Aug 22, 2017

Interesting!

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Zain

Aug 22, 2017

Great article. However, I am 99% sure that it will fall on deaf ears. If the entire government is hell bent on routinely spreading - through influencing main media or through IT cells for Whatsapp/ FB/ twitter posts - false and/or misleading "information" about various issues (and unfortunately, misguided, blind supporters of some leaders treating that as universal truth and further spreading it on social media), how so ever you try to analyze and prove it otherwise, it will have very limited, if any, effect.

2 reasons

1. You don't have even a fraction of resources to communicate your messages to masses

2. "Cooking" so called facts is much easier than establishing veracity of it through long, painful research. So, by the time, you come up with a reasoned analysis, there would be 10 more "facts" cooked and spread.


Still, someone has to try and start countering (opposing only false premises/ "cooked facts") and thank you for being one of very few people trying to do so in today's "fear free" environment.

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Dristan

Aug 22, 2017

Mr Vivek Kaul,

I agree with you whole heartedly about the job situation problem .... no..... crisis.

Can you give me some information or write an article on two related aspects?

1. What specific industries can create how many jobs? I understand textiles and construction are big low-skill employers but how many people can they employ? For eg: how many jobs can be created in the leather industry, how many in the ancillary engineering industry, how many jobs in food processing, in the security/watchman industry, etc?

2. Given that time and consequently history is passing us by, what could be the social ramifications of such unemployment? I venture to say that one effect would be increased radicalization of youth by religious ideologies like taliban, rss, vhp, etc or political ideologies like Naxals, Maoists, etc. This will lead to increased terrorism and violence and consequently increased usurpization of powers by the state and increased intervention by the state into the private lives of individuals (maybe we are already there). Another effect would be increased crime simply due to the desperation of youth trying to survive. Still another effect could be the hammering down of wages relative to inflation. Another effect could be the mushrooming of private fly-by-night operators offering training and skills with nil placement prospects. Could you elucidate and let us know?

You have a nice and simple style of writing that brings out the essential hidden story behind the political and economic interplay's in India.

I and I am sure many readers would be interested in reading your analysis on the two points above.

Thanking you in advance.

Regards,

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