T N Ninan: Half a million will do

That is the number for job creation that India needs to achieve

There is no shortage of surveys on India’s employment situation at a time when the government has turned its attention to the challenge of creating enough jobs. Taken together, the surveys present different numbers but with a generally common message: that not enough new jobs are being created. As for a specific number, there is only one on which there seems to be complete agreement: that India needs to create a million new jobs every month, or 12 million in a year. This figure is probably obtained by looking at the annual increase in the country’s population, which has held steady at 18 million over two decades; and then at the working age population (15-64 years) being two-thirds of the total. Two-thirds of 18 million is 12 million.

 
However, there is no country in which the entire working age population is actually at work. The global average for what is called the labour force participation rate was 63 per cent in 2016. In India, the figure was 54 per cent (having dropped from 61 per cent in 1990), according to the World Bank. There could be cultural factors at work to explain India’s low numbers, because the issue is primarily the unusually low level of women’s participation in work outside the home: barely half the world average of 50 per cent. For men the Indian labour participation rate of 79 per cent is slightly higher than the world average.

 
Whether the explanation for India’s low labour participation rate is primarily cultural or not, the rate as it exists means that, in a 2017 population of perhaps 1,300 million, and a working age cohort of about 870 million, only 470 million would actually have been in the workforce (ie 36 per cent of the total population). Using these ratios, it would appear that while the total population has been growing at 18 million annually, the active labour force has to grow by only about 6.5 million. That is the number of new jobs that has to be created annually, not 12 million — assuming that the labour force participation rate remains what it is.

 

Creating 6.5 million additional jobs translates into employment growth of 1.4 per cent. Ordinarily speaking, that should not be difficult for an economy growing at 7 per cent. However, half the workforce is engaged in low-income agriculture, where per capita incomes are barely a sixth of what they are in non-agricultural occupations. The overwhelming majority of farms are now of uneconomic size, and support far too many people. Although the growth areas within agriculture (like horticulture) are more employment-intensive than crops like wheat and rice, it would be unreasonable to expect agriculture to support even more people than at present; even if there is more work available on farms, all it means is that fewer farm workers will be under-employed.

 
The new jobs therefore have to be in the manufacturing and service sectors. Creating all 6.5 million jobs in these two sectors translates into perhaps 2.8 per cent employment growth annually in the non-agricultural sectors. That looks like a stiff challenge but, in some helter-skelter fashion, the country has been managing to keep abreast of it, or the percentage of the workforce engaged in agriculture would not have been falling. However, as in so many countries, the issue is one of shifting from mostly low-income, part-time work (often as a self-employed person offering some service or other, out of lack of choice) to better quality and more assured employment. This is where the failure has been. The task has not become easier when industrial growth has been nothing to write home about, and when automation threatens to take away existing jobs. All the more reason, then, to not make the mountain look even bigger than it is by believing that the economy needs to create a million new jobs every month; it should be enough to get to about half that number.