Macroeconomics

Expanding productive employment in India

  • Blog Post Date 20 January, 2014
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While India’s relatively high growth has not entirely been ‘jobless’, employment generation has been low, and mostly in the form of informal jobs. This column examines the employment experience of India, and says that the current thinking of Indian policymakers on employment is in line with the post-2015 global development agenda. The focus is on skill development, worker productivity and social protection.



Expanding productive employment is central for sustained poverty reduction and food security in low income countries, as labour is the main asset for a majority of the poor. However, despite its importance, productive employment has not been the focus of development thinking, particularly in the last two decades. It is important to place the employment issue at the centre of the national and international development agenda. One of the missing elements in the original agenda of the Millennium Development Goals (MDGs)1 in 2000 was the generation of productive employment. The objective of achieving “full and productive employment and decent work” was added to the MDGs in 2005 as one of the targets (target 1B) of the first MDG goal of eradicating extreme poverty and hunger. The International Labour Organization (ILO) has argued for upgradation of the target on productive employment to a central goal of the post-2015 MDG agenda (ILO 2012). This will provide an opportunity for enhanced focus on employment.

Employment and growth: The Indian experience

In a country like India with surplus labour, the importance of employment-oriented growth is well known (Himanshu 2011, Ravindran and Unni 2007). However, given the low levels of productivity and incomes, an over-emphasis on employment generation without any regard to productivity and incomes of workers is also not desirable. Therefore, the new employment generated has to be at increasing levels of productivity so that it does not assume a poverty perpetuating nature (Papola 2012). Table 1 provides Gross Domestic Product (GDP) growth, employment growth, productivity growth, and elasticity of employment with respect to GDP since the early 1970s. Employment elasticity to GDP is the ratio of the rate of growth of employment to rate of growth of GDP. The elasticity of employment has been declining continuously, from 0.52 in the 1970s to 0.02 in the second half of 2000s. Hence, while the relatively high growth in India has not been ‘jobless’, its employment content has been low and has declined sharply since the early 1980s.

Table 2 shows that the elasticity of employment with respect to GDP growth has been declining for the primary sector, manufacturing and services. In the last two decades, employment elasticity has been the highest for the construction sector as well as tertiary sectors such as financing, insurance, trade etc.

There are two other important trends: firstly, a ‘jobless growth’ phenomenon in organised manufacturing is observed, and secondly, the additional employment generated is mainly in the form of informal jobs. The Indian experience thus suggests the need for increase in both the quantity and quality of employment.

Table 1. GDP growth, employment, productivity and employment elasticity in India

Source: Derived from Papola (2012)

Table 2. Employment elasticity in India by sectors

Source: Derived from Papola (2012)

India’s plans for promoting productive employment

The broad vision for India and the fresh perspective of policymakers with regard to employment and growth are reflected in the 12th Five Year Plan (2012-2017), the theme of which is “faster, sustainable and more inclusive growth”. The 12th Plan draft report says that “Generation of productive and gainful employment with decent working conditions on a sufficient scale to absorb the growing labour force was a critical element in the Eleventh Plan strategy for achieving inclusive growth”. Out of the 25 targets, one target relates to employment as given below:

“Generate 50 million new work opportunities in the non-farm sector and provide skill certification to equivalent numbers”

The 12th Plan document on employment focuses, apart from quantity, on quality of employment and skill development. According to the document, there are four objectives for employment policy. First, employment opportunities have to be expanded, with a focus on the manufacturing sector. The government hopes to make the manufacturing sector an engine of growth, and expects to generate 100 million work opportunities in the sector by 2022. Services such as information technology, finance and banking, tourism, trade and transport etc. are also expected to be major generators of employment. Second, there is a need to simplify the regulatory framework, particularly some of the labour laws. Third, problems of unemployment among specific categories such as females, educated people, minorities, Scheduled castes/ Scheduled tribes and disabled people need to be addressed. The fourth and most important one is promoting skill development (12th Five Year Plan, Government of India 2012).

In India, levels of education and skills of workers are low. Even in 2009-2010, around 52% of total workers were either illiterate or educated up to primary level. Only about 17% had higher levels of education. Skill development is also low. Overall, only 10% of the workforce in the age group of 15-59 years received some form of vocational training.

India has to take advantage of the demographic dividend. The Prime Minister, Dr Manmohan Singh, indicated that the young population is an asset only if it is (a) educated (b) skilled and, (c) finds productive employment. The skill development mission2 was launched by the Government of India in 2010 with the aim of providing skills to at least 50 million people by the end of the 12th Plan period.

One of the disappointments in the post-reform period in India relates to the slow progress in labour-intensive manufacturing. The share of manufacturing employment in India was only 11% as compared to 30-40% in East Asian countries in 2009. Several studies have shown that services sector would be an unlikely destination for the millions of low-skilled job seekers. (Ramaswamy and Agarwal 2013, Ghose 2004) Manufacturing has the capability to absorb low-skilled workers because it has stronger backward linkages3, unlike the services sector.

Finally, social protection is also becoming an important area to be considered in the post-2015 development agenda. India is advocating a social floor4 for workers, particularly in the unorganised sector.

Concluding remarks

Employment is an important goal in the post-2015 international development agenda. At the global level, there is a demand to consider “productive and decent employment” as a central goal instead of a target within a goal, with respect to the MDGs. Also, social protection for workers is advocated.

The objective states in the 12th Five Year Plan of achieving “faster, sustainable and more inclusive growth” is in line with the thinking of the post-2015 development agenda at global level. The fresh perspective regarding employment and growth in India relates to shifting focus from quantity to quality, and skill development. The focus is also on the labour-intensive manufacturing sector so that workers can be shifted from agriculture to higher productivity sectors. Social protection for workers and improving productivity of workers are emphasised. Skill development for workers is given the highest priority for achieving faster and inclusive growth. This is also important for taking advantage of the demographic dividend in India.

This column is based on a paper that was published in the IDS Bulletin September 2013.

Notes:

  1. The Millennium Development Goals (MDG) are eight international development goals that were established following the Millennium Summit of the United Nations in 2000, following the adoption of the United Nations Millennium Declaration. All 189 United Nations member states committed to help achieve the MDGs by 2015. There are eight goals and 21 targets. These targets contain several indicators. http://www.undp.org/content/undp/en/home/mdgoverview/
  2. The Government of India launched a National Skill Development Mission in 2010, consisting of the following three institutions: (i) Prime Minister’s National Council on Skill Development, under the chairmanship of the Prime Minister, for policy direction and review of the spectrum of skill development efforts in country. (iii) National Skill Development Coordination Board, under the chairmanship of the Deputy Chairman of the Planning Commission of India, to enumerate strategies to implement the decisions of the Prime Minister’s Council. (iii) National Skill Development Corporation (NSDC) - a non-profit company under the Companies Act, 1956. The corporation is being funded by the trust, “National Skill Development Fund”. The corporation is expected to meet the skill training requirements of the labour market, including that of unorganised sector. The National Policy on Skill Development (NPSD), approved by the Government, has set a target for skilling 500 million persons by the year 2022.
  3. Backward linkage is a channel between a company and its suppliers for flow of information, material and money that creates an economic interdependence. The growth of an industry leads to growth of industries that supply inputs to it. For example, the cotton textile industry has backward linkages with the cotton raw material industry.
  4. The National Commission for Enterprises in the Unorganised Sector (NCEUS) recommended to the Government “to create a social floor and nobody is allowed to fall below that level as a matter of social priority and a bottom line of our developmental programmes”. The Report went on to state that the three pillars of the social floor envisaged by the Commission relate to universal minimum social security, setting a statutory National Minimum Wage and minimum conditions of work (for paid workers).

Further Reading

  • Ghose, Ajit, K. (2004), “The Employment Challenge in India”, Economic and Political Weekly, Vol.39, No.48.
  • GOI (2012), ‘Twelfth Five Year Plan (2012-17)’, Planning Commission, Government of India.
  • Himanshu (2011), “Employment Trends in India: A Reexamination”, Economic and Political weekly, Vol. 46, No.37.
  • ILO (2012), ‘Jobs and Livelihoods at the heart of the post-2015 development agenda’, ILO concept note for the post-2016 development agenda. http://www.ilo.org/global/about-the-ilo/media-centre/statements-and-speeches/WCMS_193483/lang--en/index.htm
  • NCEUS (2009), ‘The Challenge of Employment’, National Commission on Enterprises for Unorganized Sector, Academic Foundation, New Delhi
  • Papola, T.S. (2012), ‘Economic growth and employment linkages: The Indian experience’, Keynote paper presented at the 95th annual conference of the Indian Economic Association, Geetam University, Visakhapatnam, 27-29 December, 2012
  • Ravindran, G. And Jeemol Unni (2007), “Growth of Employment (1993-94 to 2004-05): Illusion of Inclusiveness?”, Economic and Political Weekly, Vol.42, No.3
  • Ramaswamy, K.V. and Tushar Agarwal (2013), ‘Service led growth, employment, skill and job quality: A study of manufacturing and service sectors in urban India’, in Dev, S.Mahendra (ed.), India Development Report 2012/13, Oxford University Press, New Delhi.
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