[Burning Issue] Jobless growth in India

Why in news?

  • CMIE and labour Bureau data indicates that India continues to face the jobless growth problem

Jobs scenario in India

  • Multiple data sources clearly show that job opportunities in India are, at present, limited, with the average annual addition to regular jobs during 2012-16 falling to 1.5 million from 2.5 million in 2004-12.
  • Besides, job creation in India’s organized manufacturing sector experienced a sharp fall in 2012, later recovering only to a level considerably below any prior year during 2006-12.
  • Furthermore, the share of regular workers with any form of social security has declined from 45% in 2011-12 to 38% in 2016.

Reasons for Jobless Growth in India

1. India’s focus on higher education:

  • Indian Government since the second five-year plan focussed more on higher education rather than basic education (Unlike Southeast Asia). In order to create mass scale manufacturing jobs, the workforce should have some basic skills however in India because the focus was on higher education, we failed to create enough basic skilled workforce required for labour-intensive manufacturing.
  • When India adopted economic reforms in 1991, We had a pool of highly educated workforce but we had a shortage of labour force with basic skills,
  • This meant that India’s growth story of the last 2 decades was led by Few sectors in Service sector like IT, Banking, telecommunication etc because these sectors required highly educated workers which we had plenty.
  • However, these sectors are not labour intensive.  While the share of Service sector increased significantly in India’s GDP, however the share of services in the employment structure remained more or less stagnant.

2. 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.

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

  • Excess rigidity in the formal manufacturing labour market and rigid labour regulations has created disincentives for employers to create jobs
  • Industrial Disputes Act has lowered employment in organized manufacturing by about 25% (World Bank Study)
  • 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.

4. Slow Infrastructure Development

  • Infrastructural bottlenecks (especially in access to electricity)
  • Lack of backward and forward linkages between agriculture, industry and service sector has failed to create jobs.

5. Other impediments

  • 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.
  • Governance failure – no targeted interventions designed specifically for specific sectors and less focus on MSME.

How can we reverse the Jobless growth Phenomenon in India

1. Implement Niti Ayog action agenda

  • The Action Agenda has provided several good ideas for job creation, including labour law reforms at the state level, recognizing the difficult national political landscape as well as the wide cross-state variation in the nature of political constraints.
  • The AA has also identified labour-intensive sectors, such as apparel, electronics, food processing, gems and jewellery, financial services, and tourism, where employment needs to be encouraged.
  • Furthermore, the report emphasizes the role of exports in job creation and recommends establishing coastal employment zones (CEZs), similar to China’s special economic zones (SEZs)

2. An industrial and trade policy is needed.

  • The Department of Industrial Policy and Promotion (DIPP) is preparing an industrial policy. National Manufacturing Policy came in 2011, was not implemented fully.
  • While the DIPP is preparing the industrial policy document, it is essential that trade policy is consistent with such an industrial policy. Otherwise, the two may work at cross purposes and undermine each other’s objectives.
  • Excessive imports have been decimating Indian manufacturing.
  • An inverted duty structure has the following features: higher duty on intermediate goods compared to final finished goods, with the latter often enjoying concessional customs duty.
  • As a result, domestic manufacturers face high tariffs leading to higher raw material cost at home, emanating from the unfavourable inverted duty structure.
  • This has prevented many manufacturing sectors from growing since economic reforms began. This must be corrected.
  • The automobiles sector in India faced no inverted duty structure, and has thrived. India has become in the last decade one of the largest producers of vehicles of several kinds in the world now. Electronics faced an inverted duty structure, but due to changes made, electronics manufacturing has shown slow growth.

3. Special packages are needed for labour-intensive industries to create jobs

  • There are a number of labour-intensive manufacturing sectors in India such as food processing, leather and footwear, wood manufacturers and furniture, textiles and apparel and garments.
  • The apparel and garments sector received a package from the Government of India roughly a year back. The other labour intensive sectors have been ignored.
  • The nature of the package will need to be individually designed for each sector defined as quickly as possible.

4. Cluster development

  • There should be cluster development to support job creation in micro, small and medium enterprises (MSMEs).
  • Most of the unorganised sector employment is in MSMEs, which tend to be concentrated in specific geographic locations.
  • There are 1,350 modern industry clusters in India and an additional 4,000 traditional product manufacturing clusters, like handloom, handicraft and other traditional single product group clusters.
  • There is a cluster development programme of the Ministry of MSMEs, which need to be funded adequately and better designed to create more opportunities.

5. Align urban development with manufacturing clusters to create jobs.

  • The Ministry of Urban Development has a programme called AMRUT (Atal Mission for Rejuvenation and Urban Transformation) aimed at improving infrastructure for small towns. Infrastructure investment by the government creates many jobs.
  • The same intervention should be made in towns which have clusters of unorganised sector economic activities.
  • Hence an engagement between the Urban Development and MSME Ministries is necessary to attract more investment to industrial clusters and increase non-agricultural jobs.

6. More focus on women participation

  • Girls are losing out in jobs, or those with increasing education can’t find them, despite having gotten higher levels of education.
  • Secondary enrolment in the country rose from 58% to 85% in a matter of five years (2010-2015), with gender parity.
  • Skilling close to clusters is likely to create more number of jobs.
  • The problem with skilling programmes has been low placement after skilling is complete.
  • The availability of jobs close to where the skilling is conducted will also enhance the demand for skilling.

7. Public investments in health, education, police and judiciary

  • This can create many government jobs.
  • Public investment in the health sector has remained even in the last three years at 1.15% of GDP, despite the creation of the national health policy at the beginning of 2017.
  • The policy indicates that expenditure on health will rise to 2.5% of GDP by 2025.
  • Given the state of health and nutrition of the population, it is critical that public expenditure on health is increased immediately.
  • In the absence of greater public expenditure, the private sector in health keeps expanding, which raises the household costs on health without necessarily improving health outcomes, because the private sector does not spend on preventive and public health measures.
  • Preventive and public health have been in all countries the responsibility of government. More government expenditure in health means more jobs in government hospitals and better health outcomes.
  • Next important area should be Revitalising schools. Government schools should maintain education quality on par with private schools. Many new government jobs can be provided if more young people could be trained specially to become teachers for science and mathematics at the secondary and higher secondary levels in government schools.
  • The same applies to the police and the judiciary. All the vacancies in Police and judiciary should be filled immediately. More police and a larger judiciary can both reduce crime as well as speed up the process of justice for the ordinary citizen


India needs a new strategy to counter the phenomena of jobless growth. This requires manufacturing sector to play a dominant role. “MAKE IN INDIA” initiative a great step forward which will boost the manufacturing. Complementary schemes like Skill India, Startup India etc can enhance the skillsets and employment generation

The focus of economic policy must be the creation of jobs and creating an enabling policy for youth to take up entrepreneurship and create more jobs in the market. India does not need five companies worth 5000 crores turnover but needs 5000 companies of 5 crore turnover.

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