| COLUMN |
October 29 2007
FOR long, critics of economic reforms have taunted India's rapid GDP growth in recent years as jobless growth. Economic liberalisation, they say, has not helped the country tackle the daunting challenge of massive, widespread unemployment.
Indeed, by making it easier for the employers to fire the staff, it has only worsened the problem. Under their pressure, all governments have scrupulously avoided any major change in India's notoriously stringent labour laws.
Faster gowth
Is the criticism valid? And, have the present laws served the working class well? Some recent data throw light on these issues. Like much else in India, the picture here also is too complicated for a definitive statement. A few salient features, however, are fairly clear.
The overall picture is that jobs in India are growing faster than ever before, and experts have forecast full employment two or three years down the road. The flip side is that most of the new jobs are in the unorganised sector, with low productivity and low incomes. Well-paying jobs have, in fact, become relatively fewer and harder to come by. And the blame goes to labour-friendly laws, not economic reforms.
Thus, India may be lagging behind China in many ways, but it has outpaced the Communist giant in creating the maximum number of jobs among the BRIC nations. India generated more than 11 million new jobs every year during 2000 and 2005-higher than Brazil, Russia and China, according to Employment Outlook 2007, released by the Organisation of Economic Cooperation and Development (OECD).
The OECD report said India generated 11.3 million net new jobs per year on an average during this period, higher than 7 million in China, 2.7 million in Brazil and 0.7 million in Russia. India also had the lowest percentage of jobless people among the BRIC nations. India's unemployment rate stood at 6 per cent in 2005, compared with China's 8.3 per cent, Russia's 7.9 per cent and Brazil's 9.3 per cent. But the employment to population ratio was also lowest in India, at 50.5 per cent in 2005, compared with 66-71 per cent in the other three countries.
What takes the elation out of these statistics is what may be called casualisation of labour. While there are more jobs to go around, their quality is usually quite poor. Employment in the informal sector is over 90 per cent of total employment in India, compared with 45 per cent in Brazil and 53 per cent in China, says OECD. While 56 per cent of those employed today are self-employed, another 29 per cent fall under the category of 'casual employment'; just 15 per cent are 'regular' employees. This proportion has changed little since 1990.
Survey
Indeed, it is the low-paying jobs that have been proliferating fastest. According to National Sample Survey Organisation (NSSO) 61st Round (2004-05), almost all additional jobs were in the less productive informal and unorganised sectors. Between 1990 and 2005, unorganised sector employment has expanded by about 53 million, its share in total employment rising from 92 per cent in the early 1980s to 94 per cent in 2004-05. About half the new jobs and greatest employment elasticity (1.52) were seen in agriculture and allied services, which is the slowest growing segment of the economy. In manufacturing, over 90 per cent firms have less than 10 employees, compared to about 5 per cent in China.
On the other hand, employment in the more productive (and better paying) organised sector has remained unchanged at around 27 million between 1990 and 2005.
Income growth is contingent on productivity improvements. But labour productivity growth has fallen, according to the OECD's Economic Survey of India, from 4.36 per cent per annum during the 1990s to 3.76 per cent in the 2000s.
Much of the productivity gains may be on account of better technology. And it is the formal or organised sector that is becoming more capital intensive. Between 1998 and 2004, fixed assets per employee rose by 21 per cent in firms with 100 or more workers, while it fell by 14 per cent in smaller firms.
Productivity gap
The productivity gap between the organised and the unorganised sectors is widening, even as the share of the organised sector in total employment is declining. So, while productivity in the informal agricultural and non-agricultural sector was Rs 27,958 in 2003 (at 1999-00 prices), the share of those employed here rose from 92.6 per cent in 1993 to 94 per cent in 2003. In the overall formal sector, where productivity was Rs 308,099 in 2003 (at 1999-00 prices), by contrast, the share of those employed fell from 7.4 to 6 per cent. And within this, while private sector productivity (Rs 431,699) was higher than that of the public sector (Rs 319,883), the share of those employed in the organised private sector fell from 2.1 to 1.9 per cent. In short, better jobs are becoming scarcer.
In the informal sector that dominates the employment scene, as productivity is low, so are incomes. It is unsurprising, therefore, that the August 2007 Report of the National Commission for Enterprises in the Unorganised Sector (NCEUS) concludes that while absolute poverty has declined, average incomes continue to be very low, with 77per cent of the population showing consumption expenditure of under Rs 20 (50 cents) per day. The World Bank says that about 80per cent of Indians live on less than Rs 80 ($2) per day.
On the face of it, it may seem odd that in a country famous for low-cost skilled labour, companies should prefer to employ more capital than labour; that despite the rapid GDP growth, the proportion of jobs in the formal, organised sector should be falling.
Blame it on India's economic policies that have discouraged larger firms and labour laws that encourage the use of capital despite the abundance of labour. Sample just a few facts.
There is a plethora of laws (47 Central, over 170 State laws) relating to workers, leading to confusion and inconvenience. The employer requires prior government permission for lay-off, retrenchment and for closure of undertaking employing more than 100 people. Such permission is never given.
Restructuring
These laws prevent the companies from adjusting their labour force in response to fluctuations in demand. Their restructuring is hampered because they may need to shed certain activity permanently or close a plant. Companies that become terminally sick and beyond redemption are not allowed to be closed down and relocate their capital and other assets. It is a cruel irony that these laws operate only to the benefit of the fortunate few the organised sector (6 per cent of the total), while the real toilers are literally abandoned to their fate.
This emphasis on job security has acted as a strong disincentive for creation of job opportunities in the organised sector. At the same time, it has depressed wages by forcing firms to remain small. About 87 per cent of manufacturing employment in the country, for instance, takes place in tiny workshops that employ fewer than 10 persons each, and these firms produce just a third of the manufacturing output. As productivity per employee is low, wages are low, too. As a result of falling productivity, the total share of labour in the value added in industry has fallen, from 36 per cent in the early 1990s to 31 per cent in 1999-00, and further to 29 per cent in 2003-04.
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