The seeds of a bleak future

This episode of legislating bad laws and rolling back, means those issues will not be addressed for fear of sparking another agitation, writes Devangshu Datta

The repeal of the three farm laws leaves the economy worse off than before because of its political implications. Agriculture is inefficient, and needs reform. The laws, which are now to be repealed, were regressive. But this government, and the next, and the one after that, will hesitate to even mouth “agricultural reform”.

Agriculture contributes about 20 per cent to India’s gross domestic product (GDP). The contribution may have risen in 2020 when services and manufacturing and mining (also part of the primary sector) contracted. As the contribution of services and manufacturing rises again, those segments will grow quicker.

Around 43 per cent of the workforce was employed in agriculture in 2019, and there lies a major problem. If 43 per cent of the population shares 20 per cent of GDP, they get a thin slice of the cake. Any coherent plan for growth must involve ways to migrate surplus labour into faster growth areas.

This is hard and it is complicated further by a growing, young population. Indians are assumed to join the workforce at 15. There are a million or so of net additions to the workforce every month. That’s the so-called demographic dividend. Even if productivity per capita does not rise, the GDP may, simply due to growth in workforce.

A bulge at the lower end of the working-age population has played a large part in every historical growth story. It’s notable that in many cases, (Japan, Korea, China, Malaysia) the bulge has also been backed by higher productivity. Young populations have tended to be successively better educated, and technological developments have delivered productivity upgrades.

In order for all these positive outcomes to occur, there has to be productive work available, of course. Also, if the population isn’t better educated, productivity won’t rise. It also seems to help if there isn’t a gender imbalance in the workforce, and population. China has run into what it calls the “Bare Branches problem”, due to gender-ratio disparities — this leads to unrest, among other issues.

Back in 2014, the Bharatiya Janata Party’s (BJP’s) election motto and slogans revolved around Vikas and Acche Din. There was a commitment made in the election manifesto to create 10 million jobs per year, (mostly in manufacturing). The slogans were quietly shelved in 2019, when the BJP was seeking re-election, because it would have drawn attention to the absolute lack of delivery.  

Unemployment has risen through the past seven years. There have been several other disturbing developments on the employment front, exacerbated by the pandemic. Unemployment rose post-demonetisation and it spiked in the last 18 months with huge job losses. Gender disparities in the workforce also rose. India has always had an issue with gender ratios in general, and the pandemic has led to even fewer women being gainfully employed.

Labour participation has dropped. This means the number of people of working age, who have given up on even seeking employment, has gone up. Some 3 per cent of the workforce shifted back from services and manufacturing to agriculture in 2020-21. Essentially, after the lockdown and attendant job-losses, they reverse-migrated to the villages and started farming again. This means agricultural incomes will be sliced even thinner. The MGNREGA data points to rising rural unemployment, as well.

As of now, the Periodic Labour Force Survey and Centre for Monitoring Indian Economy data indicates roughly 9 per cent unemployment (that’s among people seeking work) and labour participation of about 27 per cent (which means three out of four persons between the ages of 15 and 60 are not seeking work), and 23 per cent unemployment in the 15-24 age group (which means young people seeking work are not finding any).

One may expect some of these to correct as the economy revives. But there’s also a long-term problem with productivity. Everyone, who was in school or college, has suffered a disruption, which will impact their skill-sets. The dream of a vibrant, highly skilled young workforce that is gender-equal now seems just that — a dream.

The agricultural sector will continue to suffer from the ills like tiny, subdivided plots, politically driven procurement and price-setting for minimum support price, which leads to poor crop choices, and monopsony at the mandi. This episode of legislating bad laws and rolling back, means those issues will not be addressed for fear of sparking another agitation.