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Employment and growth face structural hurdles

SOME Indian banks have raised a new restriction for their depositors having savings accounts. For withdrawing cash up to a certain amount - rupees five to seven thousand - depositors have to make use of ATM services. They cannot withdraw such amounts through a cheque. That the ATM machines often get stuck or do not operate due to power failure is another matter, and no bank is willing to guarantee that such bottlenecks would not occur. Banks say they have switched to the new system for saving on costs of operation. Meaning that, for every cheque cashed on the counter the personnel involved in processing and cash delivery banks incur a cost which affects profitability. In other words, cutting down the use of living labour and substituting it with mechanical power is a part of banks' efficiency drive. Since cutting on wage cost is a condition for such efficiency, banks have a target of retrenching around 15 per cent of their existing employees, while a few hundred thousands have already been retrenched under a voluntary retirement scheme.

ATM operation is supported by programmes tailored to the needs of a specific type of operation. Software producers, and related firms known as Information Technology (IT) firms, supply these programmes, which is good business today. A wide variety of programmes are created by companies like Infosys, or Wipro, known for high profit and creation of good employment. Their main buyers are in the USA or Europe, mainly the former, and nearly four-fifths of the revenue they earn abroad comes in dollar. That is how software export has come to occupy a very high share of aggregate Indian exports.

IT industry has started going up after two years of lull. It had raised such high hopes about employment prospects that a very good proportion of the urban youth got specialise IT training and a few thousands actually got jobs with a good salary. In the process, supply of trained personnel overshot the demand for it in a big way. So much so that as many as 500 applications were sometimes received for one job. More banks are now computerising operations; many more industrial units are looking for the same; and various government agencies have fallen in line as well. Besides, a turnaround in the US economy seems to have started. Consequently, large IT firms have been recruiting more people. Industrial firms, most of whom are supposedly parts of what is now distinguished as old economy, are doing what banks are doing. Their workforce is on the decline, even when they make significant investment for additional capacity creation.

A somewhat paradoxical situation has thus been arising. Wipro, a large IT firm, has 24,265 employees now, while no large industrial firm except Tisco and Hindustan Lever has so many employees. Tisco, a steel giant has a workforce of 43,000, while TCS a largely IT firm in the same Tata family, has a workforce of 26,000, compared to 21,700 of Tata Motors. Of course, the number of employees in several IT firms is bigger because they have acquired other going firms. But that will not change the basic fact that old economy firms, mainly those in the manufacturing sector, no longer create significant employment, except when they create substantial new capacity by heavy investment.

Growth in worker productivity is the main reason. This is one way, and generally the most important way to prosperity, particularly of profit. In the developed economies, it is achieved mainly through technological innovation, while in India-type situations, it is cost-cutting with or without new technology. In India, new production capacity was created in a large-scale in the mid-nineties, and a good part of that has remained unutilised due to insufficient domestic demand. Since some demand growth has been taking place anyway, the excess capacity has now become smaller.

But, with the cumulative reduction in the number of workers, firms seem to have adopted a new strategy: Change technology wherever possible, and raise worker productivity thereby. Even otherwise, industrial investors find it risky to raise the number of workers, since even in good times like the current quarter, they are not sure how long these good days will continue.

Thus, all the growth in industrial output that is now being talked of is not generating any significant additional employment. Whatever additional employment is being created is coming mainly from service sub-sectors like trade and transport. Financial intermediaries are also making some recruitment here and there.

Of course, communication and information technology industry also is now generating some jobs, but that is almost wholly dependent upon the orders received from developed countries, USA in particular. Foreign firms place orders or otherwise outsource their production in India because of cheap labour.

Where then will new employment come from? Trade and transport have a limit beyond which these sectors cannot grow. Generally, they grow in step with industry. Industrial growth as such will trigger some growth in these sectors as well, but developing countries have to generate the lion's share of additional employment in industry, and increasingly shift labour force from agriculture.

As of now, a little less than two-thirds of all workers are in agriculture, while there is no need for extra manpower in that sector. Besides, agriculture shares around 26 per cent of the nation's income, while industry shares around as much. More than half the income comes from the services sector, a good proportion of which depends upon government expenditure.

So long as employment growth depends upon such a production structure, the scope for reducing unemployment will remain severely restricted. That cannot be a favourable condition for growth itself.

Expanding information and communication technology or increase in the number of jobs here may appear encouraging. That itself cannot ensure a bright future.