India’s employment conundrum

The Asian Age.  | M Suresh Babu and Sai Chandan Kotu

Increased subscription base of Employees Provident Fund Office (EPFO) has been used to substantiate the claim of a turnaround in employment growth.

Job growth from the corporate filings too fell sharply after 2011-12, up until FY15, and has recovered since then, but the pace of the recovery has been too small. (Representational image)

Even though claims of jobless growth might be exaggerated, the reality is that the economy has been facing a slowdown in the growth of ‘regular’ jobs in recent years.

The last two rounds of National Sample Survey Office data in five-year frequency show that the net annual addition to regular jobs was roughly two-and-a-half million between 2004-05 and 2011-12 and this slowed down to one and a half million between 2011-12 and 2016.

Data from the Annual Survey of Industries and the Centre for Monitoring Indian Economy (CMIE) also confirm the picture. Job growth from the corporate filings too fell sharply after 2011-12, up until FY15, and has recovered since then, but the pace of the recovery has been too small. The pace of this recovery has been a matter of debate in recent times, with some pointing to a remarkable turnaround in recent times.

Increased subscription base of Employees Provident Fund Office (EPFO) has been used to substantiate the claim of a turnaround in employment growth. This turnaround looks counterintuitive as we find a steady decline in workers having some form of social security from 2011 to 2016 and then a big increase in 2017. What drives such an increase is not clear from the existing analysis.

To elaborate, the share of regular workers with some form of social security has also declined during the period 2004 to 2011. In 2004-05, 50 per cent of the regular workers had some form of social security. This, however, declined to 45 per cent in 2011-12 and further fell to 38 per cent in 2016. In fact in an era of increasing casualisation, the share of regular workers with at least written contracts fell from 45 per cent in 2004-05 to 38 per cent in 2011-12 and further to 30 per cent in 2016. This points to the poor quality of the employment generated as lack of contracts increases the vulnerability of the workers. Thus the increase in the subscriber base of EPFO from 2017 to 2018 can be seen as a penetration of social security among the regular workers, but not new jobs being created.

Further, the participation of female workforce in India has been an issue for some time now. It declined sharply during the period of fastest economic growth, from 2004-05 to 2011-12. This is accompanied by an increase in the number of women who were “attending to domestic duties” as per the five-year NSSO surveys in the year preceding them. The share of women attending to domestic duties was higher in urban than in rural, but there was higher rise in the share of women in domestic duties in rural India.

According to the official stance there are three drivers of job creation (a) increased road construction, (b) small finance provisioning under MUDRA and (c) improved investment climate leading to higher investments. But the contribution of all the three seems to be exaggerated.

Surjit Bhalla, member of the Economic Advisory Council to the PM (PMEAC), claims that the increase in road construction has been a major driver of jobs and argues that an estimated 1.7 million to 3 million jobs in construction of roads alone were created. But the estimates suffer from two inherent problems; one is the fact that the majority of the workforce involved in road construction is low-skilled and less educated, and that being the case, the majority of them might simply be rural agricultural workers who have been displaced from their jobs due to the acute agricultural distress in the rural economy.

This rural crisis has been a result of the major disturbances created in the rural economy through demonetisation, back-to-back droughts and falling prices. As road construction is mainly in the rural areas the resulting jobs are temporary jobs for the workers displaced by the rural distress. Thus the jobs created are not new employment in a strict sense.

Second, the above mentioned numbers are arrived by assuming a linear relationship between job creation and road construction. The argument is that between 2009-10 and 2011-12, an 8.3 per cent increase in road construction led to the creation of 1.2 million jobs. Then the same rate is used to predict the job creation in 2017-18, which might lead to an exaggeration of the numbers as the effect of a percent increase might be very much different in 2017-18 than between 2009-12 due to the improvements in road construction technology and associated factors. As a result, jobs created will be much lower than the estimated 3 million.  

MUDRA scheme started in 2015 is also cited as a possible reason for the growth in jobs. This scheme tries to finance small and micro enterprises through banks. As per the scheme small and micro enterprises may seek a loan of up to `10 lakh to develop their business. The amount sanctioned is said to have been almost doubled since it started.

However, the average loan size is about Rs 45,000, which limits the possibility of investment in production ventures, which are employment-creating. When we consider the organised manufacturing sector for 2015-16 (the first year of the scheme), we find that the number of workers and total persons engaged slightly fell from 2014-15 for the small enterprises.

The performance of the firms in the subsequent two years cannot be any better due to the dual disturbances of demonetisation and GST which are said to have greater impact on small and micro enterprises. The other factor cited is the growth in private investments due to the business-friendly initiatives by the government. But private investments have seen a steady decline, and cannot be seen as a contributor to jobs growth. The slowdown in investments has structural roots. The banking crisis in the country has made bankers wary of lending and companies tend to be cautious about fresh investments.  

Finally as claimed by the official stance that India only requires 7-8 million jobs every year is a gross underestimation as more graduates and agricultural workforce shift to construction and other low skilled employment. The absorbing capacity of engineering graduates in the economy too has not been impressive. As a result there will be a huge employment deficit even if 7-8 million jobs are created annually.

Official numbers point to a huge increase in employment creation pointing to excess jobs in the economy. But this is definitely not the case right now. There is some fallacy in the official claims on job creation.

(Authors are with the Department of Humanities and Social Sciences, IIT Madras. The views expressed are personal)