Reasons for jobless growth of Indian Economy
Why organized manufacturing sector’s jobless growth a matter of serious concern?
- Potential to provide large employment: Manufacturing sector can be said the only sector which has the potential to provide large scale employment as agriculture sector attained saturation point and services sector requires skills.
- Reaping the benefits of demographic dividend: Contribution of manufacturing sector is inevitable if benefits of demographic dividend is to be reaped by the economy otherwise it may be transformed into demographic disaster.
- Huge unemployment: Jobless growth will push already high figure of unemployment in the economy.
- Rising inequality: According to a report by Oxfam, India’s richest 1% hold more than four-times the wealth held by 70% of the country’s population. Due to jobless growth in organized manufacturing sector, this gap may become much broader.
Reasons for jobless growth:
Services sector:
India’s economic growth since the 1990s has largely been on account of an expansion of the services Sector, in which exports are seen as having played an important role but between 1999-00 and 2004-05, employment in the tertiary sector increased by only 22 per cent, whereas GDP at constant prices contributed by the services sector expanded by 44 per cent. Tertiary sector employment in 2009-10 amounted to only 25 per cent of the work force, despite the fact that around 55 per cent of GDP came from this sector.
Agriculture sector:
According to the National Sample Survey Office’s (NSSO’s) periodic labor force survey (PLFS) report showed a collapse in agricultural jobs as a key reason behind rising unemployment, particularly in the rural parts of the country. The proportion of people, in the working age group, employed in agriculture fell by 8 percentage points for rural men and 9.3 percentage points for rural women, an analysis of the NSSO’s PLFS report for 2017-18.
Productivity across all sectors:
A large share of India’s workforce is employed in low productivity activities with low levels of remuneration. This is especially true of the informal sector where wages can be one twentieth of those in firms producing the same goods or services but in the formal sector.
Manufacturing sector:
Work Opportunities that are lost in traditional agriculture have to be replaced by work opportunities in some other sector. In the normal course it is the secondary sectors (manufacturing, electricity and construction) that grow much faster than agriculture during transition of an economy.
However, in the post reform period the growth of manufacturing industries has been constrained by competition from imports. Thus, in the medium term, the ability of Manufacturing Sector to replace the work opportunities lost in traditional agriculture is rather limited over the years.
Role of MSMEs:
The MSME sector in India is one of the country’s biggest providers of jobs, right from workers to middle management levels. However, larger companies have sufficient funding to install machinery and automation, which small scale industries do not. The small scale businesses are mostly oneperson shows, with the entrepreneur running their company with some assistants and workers. Even marketing is usually done by the entrepreneur. This owner runs a low-cost operation, as profits derive from low-cost of operations. So even though MSMEs had the potential but unable to tap it due to multiple constraints.
Employment elasticity:
Employment elasticity is a measure of the percentage change in employment associated with a 1 percentage point change in economic growth. The employment elasticity indicates the ability of an economy to generate employment opportunities for its population as per cent of its growth (development) process. The aggregate employment elasticity estimates for India vary from 0.18 (arc elasticity) to 0.20 (point elasticity) during the post reform period (1993-94 to 2011-12). In India there is very low employment elasticity means economic growth does not leads to needed employment generation.
Import-oriented economy:
India did not move from the import-substituting phases of its economic development to an export-oriented development strategy and hence failed to witness a strong growth in the labour-intensive segment of the manufacturing sector.
If India would have followed Labour intensive goods export-led model like Southeast Asian countries, it would have created many jobs in the MSME sector. Opening up of the economy lead to the availability of cheap capital goods from abroad.
