While many progressive changes have taken place on the economic front, the share of India's population living off the land remains huge at 52 per cent. In fact, in most countries that have experienced modern development, the share of population dependent on agriculture is less than five to 10 per cent. Given the far-reaching nature of these changes, textbooks consider the share of the population dependent on agriculture as a yardstick of economic development. What is impeding a faster pace of structural transformation in India is the sluggish pace of productive job creation outside of agriculture.
For starters, India's rapid economic growth of 8.7 per cent per annum between 2004-05 and 2009-10 has had little impact on this process of structural transformation. The share of agriculture in total employment shrank from 57 per cent to 53 per cent over this period, with 15 million workers migrating to towns and cities for work. But the manufacturing and services sectors did not fully absorb them. Manufacturing shed five million jobs, while services employed only 3.5 million workers during this period. In fact, it was the pull of construction growth that led to workers moving out of agriculture*.
The limited impact of booming growth on employment generation is captured in an indicator called employment elasticity or the rate of change of employment per unit of gross domestic product (GDP) growth. This has been secularly declining in the 2000s from 0.44 from 1999-2000 to 2004-05 to a near-zero level of 0.01 from 2004-05 to 2009-10: "on account of which we can argue that the phenomenal growth India has achieved during the last five years was jobless growth"*. This prognosis of jobless growth cannot be dismissed lightly since it bears the official imprimatur of the think tank of the Planning Commission.
If a rapid pace of expansion is not employment-intensive, the problem is much worse when GDP growth has begun to nosedive. Just as the Twelfth Plan (2012-17) is kicking off, it has plunged from 6.2 per cent in 2011-12 to five per cent in 2012-13. If we apply the elasticity of employment of 0.19 used in the Plan document from past data to the GDP growth of five per cent, only 4.4 million employment opportunities are likely to have been generated this fiscal than the annual average of 6.7 million opportunities projected over the five-year period till 2016-17**.
Declining GDP growth clearly translates into fewer opportunities for gainful employment for those who leave the countryside to the towns and big cities for work. At a time when organised sector employment growth is sluggish, if not contracting, the brunt of adjustment is borne by the low-paying unorganised or informal sector that includes self-employment and casual odd jobbing. In contrast to the organised sector, work conditions in this sector are outside the pale of trade unionism or labour legislation. The rapidly proliferating construction jobs, for instance, are predominantly in the unorganised sector.
The limited productive employment outside agriculture, thus, raises serious questions over the quality of non-agricultural jobs being generated. As if all of this weren't bad enough, the Twelfth Plan document observes a trend of growing informality even within the organised sector. Informal employment in the organised sector has increased from 46.6 per cent in 2004-05 to 57.8 per cent in 2009-10. The upshot is that instead of agriculturists getting absorbed in manufacturing and services, what is happening is only a movement from the informal agricultural sector to the informal non-agricultural sector**.
The big policy challenge ahead is to address the questions posed by the Economic Survey. How many workers will industry and services have to absorb in the coming years? How many will they absorb if they continue creating jobs as they have in past? Creating more productive jobs is imperative if the farm to non-farm sector shift accelerates and the share of agriculture in employment goes further down from 52 per cent to, say, 40 per cent. But if fewer jobs are created outside agriculture, more will be forced to stay in this sector, increasing the pressure on land and lowering incomes.
In this milieu, there are no prizes for guessing that social strains are bound to intensify as income inequalities worsen even further. Manufacturing and services must become the engine of employment growth, so that modern economic development takes place. This calls for skill development on a massive scale. Labour law reform that encourages greater flexibility while providing a safety net for the unemployed is equally necessary. Jobless growth will only ensure that the demographic dividend becomes a demographic curse.
* Santosh Mehrotra, Ankita Gandhi, Partha Saha and Bimal Krishna Sahoo "Joblessness and Informalisation: Challenges to inclusive growth in India", Institute of Applied Manpower Research Occasional Paper, December 2012
See also Jayan Jose Thomas' "India's Labour Market during the 2000s: Surveying the Changes", Economic and Political Weekly, December 22, 2012
**Draft Twelfth Five-Year Plan 2012-17, Vol 3, Social Sector, Planning Commission
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See also Jayan Jose Thomas' "India's Labour Market during the 2000s: Surveying the Changes", Economic and Political Weekly, December 22, 2012
**Draft Twelfth Five-Year Plan 2012-17, Vol 3, Social Sector, Planning Commission
From the Ivory Tower makes research from the academic world accessible to all our readers