With hardly any new jobs created, for whom is India’s economy growing?

Quartz india
Quartz india

Tracking employment figures as a measure of the economy’s health is not very popular in India. This is unlike in developed countries where employment trends are observed and used to arrive at important policy decisions.

There are two reasons for this lack of interest in jobs data in India. First, the concept of employment is nebulous. Not every unemployed person records his or name in the category. Besides, as several activities are unorganised, disguised unemployment makes it hard to identify and quantify joblessness.

Second, Labour Bureau data—probably the only authentic representative source—comes with a lag of almost six months and covers eight sectors. This could lead to inaccurate assessment of the latest scenario.

The most recent statistics (pdf)—for the July-September 2015 quarter—point to higher employment at first glance. But, in fact, the April-September 2015 period, when 91,000 jobs were added, saw a decline compared to the preceding six months when 181,000 jobs were added.

If anything, the July-September quarter has seen the lowest job growth compared to the same quarters in 2009, 2011, and 2013, for which data is available.

This fall has been more in textiles and IT, the major job generators. Furthermore, the quantum of contract labour—temporary in nature—has come down relative to direct labour, where organisations employ.

What’s the reason?

Job creation has not kept pace with GDP growth.

With the index of industrial production (IIP) showing limited traction, there has been less demand for labour. While it is not jobless growth, employment numbers have not increased significantly either. This is a concern because one reason for stagnant consumer demand, besides high inflation, has been the absence of new jobs.

Public sector organisations have been recruiting gingerly—and most jobs have been replacements, rather than new ones. For the last three years, the central government’s headcount stood at 3.30 million, 3.50 million and 3.52 million. State-run banks registered a job growth of just 0.5% in fiscal 2015.

Private corporations have been no better. With sales under pressure in the last three years, focus has been on cost-cutting to protect margins. The salary bill, hence, has taken a hit, particularly in manufacturing. Information technology continues to perform satisfactorily, both in terms of headcount and pay packages. Financial services is better placed, though stock market-related jobs have been under pressure when the indices fell. Also, salary hikes have been modest, adding pressure on spending power, because food inflation remains high.

Agriculture remains whimsical, and two successive sub-normal monsoons in 2014 and 2015 have hit job growth. The Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) program provided relief to farmers during these two years. Importantly, the migration from rural to urban areas has not just created a problem on the farming front—because of fewer farm hands—but has also put pressure on urban job creation. Construction, especially, has borne the brunt, with no commensurate growth in private investment.

What can be done?

Employment generation must be the primary goal of any economy as this is the only way to bring about growth through sustained demand.

This has to take place in both the organized and unorganized sectors. Growth has been skewed, with the organised sector showing higher increases in income—if not jobs—through steeper salaries, combined with stock options. This has created inequality.

Consumption has reached saturation among these higher income groups. Although, demand has gone up for, say, higher-end automobiles and smart phones, which gets reflected in the higher value added while calculating GDP. But this is not self-sustaining.

Only more job creation and increase in purchasing power across sections can ensure sustained demand needed for high GDP growth. Focus on infrastructure will help as it creates jobs at the unorganised level. But it has to be sustained.

If job creation is not given priority, India faces the risk of stagnation just like in the developed world, albeit with a difference: there it is at a high per capita GDP level, which is not the case in India.

We welcome your comments at ideas.india@qz.com.

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