What’s the news?

• A recent report, SWI 2023, has brought to light the disconcerting disparity between India’s relentless pursuit of GDP growth and the stark reality of inadequate job creation.

Central idea

• In the realm of policy decisions, a fundamental question often arises: Should the focus be on accelerating economic growth or ensuring widespread employment opportunities? A recent report, India is Broken and the State of Working India 2023, draws insights on how India’s growth trajectory impacts employment, emphasizing the need to consider various social factors in this equation.

The State of Working India 2023 (SWI) Report

• SWI 2023, focusing on a long-term perspective, analyzes data from 1983 to 2023, emphasizing social identities like caste, gender, and religion.
• It highlights how GDP growth benefits are distributed unevenly among various segments of society.
• The quality of jobs created is a crucial aspect of distinguishing between regular-wage jobs and self-employment.

The relationship between economic growth and employment in India

• Job Creation Challenge: The report emphasizes that job creation remains one of India’s most significant macroeconomic challenges. Despite the pursuit of high GDP growth, the report suggests that the correlation between economic growth and employment generation has weakened over time.
• Weakening Employment Elasticity: Employment elasticity, which measures the extent to which employment grows when GDP grows by one unit, has consistently declined since the 1980s. This decline indicates that a 1% increase in GDP now results in less than a 1% increase in employment.
• Recent Trends: The period from 2017 to 2021 showed a notable improvement in employment. However, this improvement came with nuances. While employment numbers increased, it’s essential to distinguish between jobs created due to economic growth and those created out of necessity (self-employment).
• Quality of Jobs: The SWI 2023 report underscores the importance of considering the quality of jobs created. Not all employment opportunities are equal, and the report highlights the prevalence of self-employment, which often lacks regular wages and job security.
• Impact on Women: The changing employment landscape disproportionately affects women. Although women accounted for half of the lost employment during the specified period, they received only a third of the increase in formal employment. This shift also saw more individuals turning to self-employment due to economic distress.
• Uncorrelated Growth: The report’s broader takeaway is that over the long run, GDP growth and employment growth have been uncorrelated in India. This suggests that policies solely oriented towards achieving higher GDP growth rates may not necessarily lead to accelerated job creation.

The dominance of GDP growth

• For years, India’s national discourse has been dominated by the pursuit of high GDP growth rates as the primary indicator of economic progress.
• The belief has been that rapid economic growth will naturally lead to increased employment opportunities.
• However, recent developments challenge this conventional wisdom, prompting us to reconsider our priorities.

The US perspective

• In contrast to India’s GDP-centric approach, the United States, the world’s largest economy, places a strong emphasis on employment levels.
• The Chairman of the US Federal Reserve, Jay Powell, consistently highlights the importance of achieving full employment while maintaining price stability.

Why does India not prioritize employment to the same degree?

• Historical Perspective: India’s approach to economic development has been influenced by its post-independence history. When India gained independence in 1947, it faced widespread poverty, and economic growth was seen as a means to uplift the masses.
• Development Paradigm: India adopted a development paradigm that prioritized industrialization and capital-intensive sectors. The belief was that as industries expanded, they would naturally absorb labor.
• Policy Framework: India’s economic policies, especially since the 1991 economic reforms, have largely centered on liberalization, privatization, and globalization. These policies aimed to attract foreign investment and promote private sector growth, often with an emphasis on manufacturing and services. While these policies aimed at increasing overall economic output, they did not always address the issue of employment directly.
• Data Focus: Economic policymakers often rely on GDP growth as a quantifiable and easily measurable metric to gauge economic performance. Employment data can be more complex to collect and interpret, and the focus on GDP growth has made it the primary indicator of success.
• Political Considerations: Political leaders and parties have, at times, used the promise of high GDP growth as a way to gain popular support and demonstrate economic progress to the electorate. This political narrative has reinforced the emphasis on GDP growth.
• Globalization Trends: The global trend toward globalization and competitiveness has also influenced India’s priorities. The country has sought to position itself as a global economic player, and this often involves pursuing policies that align with international economic norms, including a focus on GDP growth.
• Lack of Comprehensive Social Safety Nets: India’s social safety nets and social security systems have historically been limited in coverage and effectiveness. As a result, there may be a perception that focusing on GDP growth is essential to lifting people out of poverty, as job opportunities are seen as the primary means of economic betterment.

A Framework for Change: Rethinking India’s Growth Strategy

• Promote labor-intensive manufacturing:
  • Encourage industries that have the potential for labor-intensive manufacturing, such as textiles, electronics assembly, and agro-processing.
  • Implement policies and incentives to attract investments in these sectors, as they can create a significant number of jobs.
• Invest in skill development and training.
  • Establish comprehensive skill development programs to enhance the employability of the workforce.
  • Collaborate with industries to design training programs that align with their specific needs, ensuring that workers are adequately prepared for available job opportunities.
• Support Micro, Small, and Medium Enterprises (MSMEs):
  • Provide targeted support to MSMEs, which often generate substantial employment.
  • Simplify regulations and reduce bureaucratic hurdles for MSMEs to encourage their growth.
• Green Manufacturing and Sustainable Industries:
  • Explore opportunities in green manufacturing and sustainable industries, aligning with global trends toward environmentally friendly practices.
  • Invest in renewable energy, eco-friendly technologies, and sustainable agriculture, which can create employment while contributing to environmental goals.
• Infrastructure Development in Rural Areas:
  • Develop infrastructure in rural areas to facilitate economic activities and job creation outside of urban centers.
  • Improve connectivity, transportation, and access to markets to boost rural employment opportunities.
• Focus on the formalization of jobs:
  • Implement policies that encourage the formalization of employment, including ensuring written contracts and providing benefits to workers.
  • Address labor market informality to improve job quality and security.
• Gender-Inclusive Policies:
  • Develop and enforce policies that promote gender equality in the workforce.
  • Encourage women’s participation in the labor market through initiatives such as affordable childcare facilities and measures to reduce workplace harassment.
• Social Safety Nets:
  • Strengthen social safety nets to provide a cushion for workers during periods of economic volatility.
  • Ensure that unemployment benefits, healthcare, and retirement provisions are accessible and effective.
• National Employment Policy:
  • Develop and implement a comprehensive national employment policy that outlines a long-term vision and strategy for job creation.
  • Address both the supply and demand sides of the labor market and promote the quantity and quality of employment.
• Global Trade and Export Promotion:
  • Actively engage in global trade and export promotion, which can stimulate economic growth and create jobs.
  • Identify and target export-oriented industries with growth potential.
• Decentralized Economic Development:
  • Promote economic decentralization by encouraging the development of regional and local economies.
  • Invest in infrastructure, skills, and entrepreneurship in underdeveloped regions to reduce regional disparities.

Conclusion

• The time has come for India to reconsider its economic priorities. While GDP growth remains important, a greater emphasis on job creation, especially quality employment, is crucial for sustainable and inclusive development. The findings of the SWI 2023 report offer a compelling case for Indian policymakers to shift their focus towards strategies that prioritize employment generation, ensuring that the benefits of growth are shared by all segments of society.