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Jobless growth in India: an analysis

According to the labour ministry's 27th Quarterly Employment Survey of eight employment intensive industries –textile,leather,metals,automobile,gems,Transport,IT/BPO and handloom and powerloom) there are 43000 job losses in the first quarter of FY 2015-16.At the Peak these sector added 1.1 million jobs in 2010.

Key Trends in Job Creation in Last Few years

• During the last decade (2001-11), the growth rate of the labour force (2.23 per cent) was significantly higher than the growth rate of employment (1.4 per cent), which itself was several-fold less than the growth rate of the economy. According to Census 2011, the average growth rate of the economy was 7.7 per cent per annum, when it was only 1.8 per cent for employment.

• 66th round of the National Sample Survey Office (NSSO) data on employment in 2011 revealed that between 2004-05 and 2009-10, only 1 million jobs were added per year; in a period when the economy averaged a record 8.43% growth annually.

• An Indian Labour Bureau survey of 2015 showed that 2,000 companies in eight sampled industries generated all of one lakh jobs, a fall from the four lakh generated in 2014, even though growth in 2014 was lower than in 2015.

• A HDFC Bank report on India’s tapering jobs growth says that “employment elasticity” in the economy is now close to zero – for every one point rise in GDP, jobs grow only 0.15. Fifteen years ago, it was 0.39

Reasons behind the Jobless growth

• In India, growth is attributed to service sector, whereby both employment and wages have seen a rise. But as figures say, the biggest employing sector in India is the Agriculture sector, employing 45% of the population but contributing 15% to the GDP, whereas Service sector is the biggest contributor to the GDP but employs less than 30%. IT and Financial services are drivers of service sector growth in last 2 decades however both of these sector are not employment intensive.Thus contributing to jobless growth in India.

• Labour –intensive manufacturing sector did not become the engine of growth in India. In fact, it was the knowledge-intensive services sector which along with some segments of capital intensive manufacturing was the engines of growth in India. But these sectors by their nature were not employment-intensive.

• Stagnation in manufacturing output and employment and contraction of labour-intensive segment of the formal manufacturing sector: (Due to)

(a) Excess rigidity in the formal manufacturing labour market and rigid labour regulationshas created disincentives for employers to create jobs

(b) Industrial Disputes Act has lowered employment in organized manufacturing by about 25% (World Bank Study)

(c) Stringent employment protection legislation has pushed employers towards more capital intensive modes of production, than warranted by existing costs of labour relative to capital

Therefore, the nature of the trade regime in India is still biased towards capital-intensive manufacturing.

• The nature of Indian manufacturing is not employment-friendly. Most of them are automated and any employment is highly skilled. Thus they Have contribute to growth, but not necessarily to employment.

• The labour intensity of MSME is four times higher than that of large firms. - but they are not treated well in India they have poor access to credit and they are plagued by many serious problems which has limited there growth potential.

• Impediments to entrepreneurial growth in small firms (such as high costs of formalisation) along with a long history of small scale reservation policy which has prohibited the entry of large scale units in labour intensive industries.

• The tax incentives, subsidies, depreciation allowance all are solely linked to the amount invested and not to the number of jobs created.

• Sluggish process in education and skill levels of workers.

 What Should be done to reverse the Phenomenon of Jobless growth

• The need of the hour is to make livelihood creation central to development strategies rather than just projecting it as natural fallout of growth. It needs to be accepted that organized manufacturing is no longer the answer to generate large-scale employment, as it was in the past

• First of all Labour Laws should be reformed as due to the stringent Labour Laws Corporates  in India are preferring Capital intensive mode of Production in a country where labour is abundant .

• Encouraging people’s entrepreneurial instincts — whether they create mom-and-pop undertakings countrywide, or deliver results under the Startup India or Stand-up India missions — will generate sustainable outcomes.

• The education system needs to be revamped to create the desired skill-sets. At present, the education system is failing miserably in delivering even whatever it is designed to.

• Job Intensive sector like Food Processing Should be promoted.

• MUDRA scheme should be expanded as it can be a game changer for MSME sector and this sector has a potential to create required jobs in India.