Shining India - Dismal on Employment Front

The Indian planning has failed to comprehend, let alone, provide a reliable guide to combat the underlying causes for the persistence of mass unemployment over six decades and this is despite of an impressive rise in growth of GDP.

This handicap is doubled by its omission to spell out the instrumentality essential for the successful implementation of the policy. One is constrained to say it is erudite but empty when it comes to its core concern, ie, to enrich India with widespread and rewarding productive employment.

To better understand our challenges on the employment front it is necessary to peep into the past record of employment policy, implementation and lessons.

The first serious and sizeable assault on unemployment was initiated in the mid-1950’s during the second plan.  It was P.C. Mahalanobis who was summoned to duty by J.L. Nehru who pinpointed that the overriding objective of our planned development must be to solve the unemployment problem at the earliest since this can be the most powerful weapon to combat the evils of Poverty. His views were later supported by economists like K.N. Raj and Amartya Sen among others.

Again, he also intended to contain exodus of the rural unemployed to urban areas as also to avert premature urbanisation. His idea was that

Demographic trends in India indicate that the growth rate of our working population during upcoming years will be growing at a tremendous pace and unless the government policies support otherwise, there will be an increase in the level of unemployment, which should not be allowed to materialise in a severely unemployed country like ours.

 

Unemployment not only entails high human costs, it could also lead to some serious social disruption and put enormous strain on the fabric of the society. More importantly, the youth of this country, being the most valuable asset/resource, there can be no greater shame than to let it go waste for the lack of will and determination. Future generations will question us about the opportunities lost.

 

Economic reforms of 1991 aimed at putting the economy on a sustained and rapid growth path through greater participation in international division of labour and private capital movements, and greater reliance on private initiative and markets, and the consequent shift to market-friendly policy regime.

 

Employment Trends

The Labour Force Surveys conducted by the National Sample Survey Organisation (NSSO) point to deceleration in the growth of employment from 2.23 per cent per annum in pre-reform era (1987-88 to 1993-94) to less than one per cent in post-reform period (1993-94 to 1999-2000).

While the organised sector has witnessed stagnancy of employment at 2.8 crore, a large number of jobs have been informalised which has raised the concern of many.

Although there is no empirical evidence to suggest specific causes for it, there is a general impression that globalisation-necessitating adoption of capital intensive technologies could be one of the major reasons for these unusual phenomena. It is also often expressed that outdated labour laws are also partly responsible for the tardy growth in employment.

Whatever growth has been there, it has been entirely in the unorganised sector where employment has gone up from 34.6 crore to 36.9 crore.

Further, the results of the NSSO surveys show that around 30% workers are living below the poverty line. This indicates that the productivity as well as income level of the workers working in various industries are very poor and require a substantial step up. This possibly is due to the new entrants being pushed into the labour market in the unorganised sector, which at present is not able to absorb them. Excess supply of labour is resulting in low productivity, low wages and poor social security. Keeping this in view, the concept of decent work aiming at high quality employment by raising productivity and income level is being advocated in various forum including the International Labour Organisation.

 

 

Shifts in the Development Strategy in the economic policy reforms:

 

Economic Policy Reforms of 1991 resulted into the emergence of the Indian economy out of the low growth equilibrium. The growth rate of aggregate GDP that got stuck around 3.5 per cent per annum for thirty years till 1980-81 rose to 5.7 per cent per annum in the decade of the 1980’s.

 

However, this coincided with unsustainable fiscal and external deficits leading to the macro-economic crisis of 1990. The combined external (balance of payments) and internal (fiscal) crisis provided the necessity as well as an opportunity to correct the inefficiencies in the public policy framework that was directly responsible for India's inferior economic performance since independence. The result was a strong dose of macroeconomic stabilisation as also microeconomic structural adjustment-oriented policy reforms.

Meeting The Challenge

The Government of India had evolved a multi-pronged strategy to meet the challenges of globalisation by raising production, productivity and employment. Stepping up annual growth from around 6% to 8% during the 10th Plan with emphasis on sectors with potential to generate employment and better spread of income.

Prolonged unemployment leads to unemployability and frustration and misery lead to hatred of the lucky ones, if not militancy. In a fast changing technological society where acquired skills become irrelevant and obsolete very soon, the challenge is to keep oneself ready to change and learn newer skills. Knowledge is power.

In future, as there is going to be a greater demand for labour possessing skills and multi-skills, there is need to have higher investment in skill development, training and modernization of training system.

Impact on Employment:

 

The wage labourers both in agriculture and non-agriculture constitute the largest segment of poor in the country. Their income and consumption level is thus determined by the level of employment and wages, any change in these variables also bring a change in their income level directly.

 

During the post-reforms era there has been this significant reduction in the public expenditure which has brought down the level of employment.

The reform statics on unemployment rate during pre and post-reforms period support this observation.

·        Between Pre-Reforms era (1978-78 to 1990-91) the usual status data shows that there has been a declining trend in the unemployment rate. However, in the post-reforms era(between 1990-91 to 1993-94) Unemployment rate for males increased from 1.3% and 2.2% to 2% and 3.1% in 1993-94.

 

·     The decline in employment has occurred mainly in secondary and tertiary employment in the rural sector. The percentage of male workers in secondary and tertiary sector has declined between this period. For instance, in the tertiary sector the decline is evident with employment rate of 7% in 90-91 to 5.6% in 93-94.

 

·      The impact of NEP was mainly on the rural non-farm sector and urban sector. Obviously there was a reverse movement of workers from rural non-farm sector to agriculture. This is very much reflected in the increase in the percentage of male workers in agriculture from 71.10% in 90-91 to 74.1% 93-94, due to reversal of cut in public expenditure in the rural areas.

 

·     The rate of growth of employment in the organised sector of the (public and private taken together) dropped from than 1.7 % p.a. in late 1980’s to 1.2% in 91-92 and 0.6 % in 92-93.

 

·     Within the organised industrial sector in the post-reforms period the employment in private sector either remained stagnant or increased marginally but the same has declined in the public sector enterprise from 2.2% p.a. in pre-reforms period, i.e. 1981-90 to 1.2% in post-reforms period i.e. 1990-92.

 

Although the economic growth has improved over the reforms period, unemployment, inequality and poverty have not declined. On the contrary, employment growth has declined in spite of higher economic growth.

 

This can be taken as a conclusive proof of the point, I, wish to rise that the reforms have not succeeded in achieving equitable development in India. The macro policies have not been pro-employment and pro-poor in the post-reform period in India. Therefore, there is need to have pro-poor macro policies.

 

Some of the other points that I feel worth mentioning are quoted as follows:

 

Firstly, Not only, the reforms and pro-poor, pro-employment policies are required but also,  sequencing of reforms is also very important. Priority should be given to policies that improve employment growth. Accordingly, priority to public investment in physical (irrigation, roads, communications, transport, electricity, etc.) and human infrastructure (health, education, etc.) is considered important for equitable growth. Also, priority to rapid growth in agriculture and the rural non-farm sector is important for employment generation and poverty reduction.

 

Secondly, talking on the theoretical grounds, a structural change in any economy should follow the Agriculture-Industry-Service sequence i.e. primary sector-secondary sector and finally the tertiary sector, but in India GDP shares have jumped from agriculture to services without concentrating much on manufacturing activities.

For instance, the share of employment of  manufacturing sector in Malaysia is 50 per cent, in Korea 62 per cent and in China 31 per cent whereas in India it is only 22 per cent while the share of agriculture is more than 60 per cent, even after 62 years of independence and 18 years of some concrete economic reforms.

Therefore it is often felt, there is need to develop industry to improve employment. Jumping to services is not the permanent and a sustainable solution. A high agriculture growth of four per cent and industry growth of more than 10 per cent are needed for better structural changes.

In India, growth acceleration has been significant in the service sectors. These include trade, hotels, transport, communication services, financing, insurance, real estate and business services. Importance should have been given first to agriculture, manufacturing, rural infrastructure, etc., in reforms for better employment, incomes and equity.

 

Thirdly, one of the important areas for priority should be physical and social infrastructure. There is need for greater public investment in infrastructure in rural and urban areas to create more employment. The Government’s policies on this ground has not yet  played a major role in providing education and health care facilities.

According to a study, Andhra Pradesh may join the rank of BIMARU States in education, going by the current progress. A sustained emphasis on education and health is needed in the next decade in many States for equitable development.

 

Fourthly, Experiences in the South East Asian and East Asian shows that globalisation with better initial conditions has increased employment and incomes for workers and led to equitable development.

India, I feel, should learn from China on agricultural growth, rural non-farm employment, public investment and human development. The impact of growth on poverty reduction is significant.

The elements of Chinese experience such as high and labour-releasing agricultural growth, favourable income distribution through broad-based agricultural growth, availability of infrastructure, higher levels of literacy and skills, inducements for the location of enterprises in rural areas and easy access to credit and inputs are very relevant to developing countries.

Those who support liberalisation say China's high economic growth and impact on poverty are due to economic reforms since 1978. However, initial conditions — that prevailed before the introduction of reforms — need to be taken into consideration. China's success is due to better initial conditions. It introduced land reforms and invested in infrastructure, health and education before introducing reforms. This led to high agriculture growth and better human development. Thus, the guru mantra for Chinese growth seems to be the fact that “reforms work better in a more egalitarian society.”

 

The investment rate in China is 35 to 44 per cent compared with 25 per cent in India. Infrastructure investment is 19 per cent of GDP compared to two per cent in India in the 1990s. Foreign direct investment also plays an important role in improving investment in China. One important debate in India relates to the impact of FDI particularly on retail chains of employment, which is too on the stage of bursting off in this times of recession.

 

Fifthly, development of technology is important for equitable development.

For example, the spread of the green revolution in the poorer States of India shows its potential for reducing regional disparities in development. Also, small farmers were benefited from technology. Since the gains from technology are widely distributed. Therefore, stepping up agricultural growth through biotechnology holds prospects for reducing regional and inter-personal disparities. The experience with information technology is equally encouraging and holds the prospect of raising productivity in agriculture and industry. There is an earnest need for the second phase of green revolution to exploit the potential from these emerging technologies for equity across households and regions.

 

Sixthly, it has been recognised that better governance is very important for equitable development. For better implementation of sectoral policies and poverty alleviation schemes such as National Rural Employment Gurantee Programmes and social security programmes, community participation and better governance are direly needed.

All over the world it is recognised that decentralisation in terms of transferring power to local councils is important for equitable development. However, governance has to be contextualised in relation to socio-economic environment.

 

Seventhly, equality of opportunities is extremely important. Even if we do not follow equitable distribution of assets as a policy measure, everyone should get equal opportunity for better education and health. Indian economy is on a high growth track. The country is the second fastest growing economies of the world. If the latest World Bank Report on the BRIC countries is to be believed India will overtake the chinese economy in the next five-seven year despite of the gloomy mood under recession world over.

While the Indian Government has implemented policies that unleashed the country's tremendous growth potential, it should also embark on a process of social transformation to end discrimination on the basis of caste, class and gender.

 

The Eighth lesson is having economic reforms in socio-economic environment. The rationale behind the ongoing economic reforms in India, and their consequences and prospects, has generally been discussed in the parlance of economics. However, the economic phenomena represent largely a superstructure, profoundly influenced by the underlying socio-political factors.

Economic reforms may not be sustainable if the burden falls disproportionately on the poorer sections. Therefore, there may be need for meaningful reforms in line with socio-political factors.

 

To conclude, there is need to operationalise plans for achieving equitable development through enhancing the employment opportunities in the upcoming years. The plan of action should cover priority areas such as agriculture, employment and social sectors. It should aim at removing economic and social deprivation across regions. Also it should have a provision for socially disadvantaged sections.

 

Thus, as it is the need of the hour, I, do here by advocate my points on the grounds aforesaid for the study on the comparative study of the employment policies adopted by the Indian government in the Post-Reforms era in India and to draw something concrete out of it.

 

Saurabh Malhotra

P.G.T. (Economics)