The other side of India's jobs story

The bigger problem is the nature of employment, rather than unemployment, and the realistic solution could be fostering farm-related enterprises

The official figures say unemployment is less than 3 per cent. The Centre for Monitoring Indian Economy, using a different definition, puts it closer to 7 per cent. These may be correct in a technical sense, but are the wrong numbers to focus on.

Because only about 58 per cent of our population in the working age group of a billion people, actually works. This is up from 52 per cent, but a lot of the increase is of women doing unpaid work, or people falling back on farming. In any case, it was around 65 per cent in the past, about the level in many countries. China’s figure is more than 70 per cent. For various reasons, tens of millions of mostly women have stopped looking for work, and dropped out of the labour market.
 

Employment in agriculture still involves close to half our workforce. While there are variations, farm incomes are invariably low, because too many people produce too little. We don’t need 250 million people to produce what our agriculture does.
 

China produces two-and-a-half times as much with 175 million people in agriculture. If our agriculture were properly organised, anything up to 100 million workers could progressively leave our farms without the agricultural output suffering. Income per head would then go up for those who remain in agriculture.
 

So why are so many excess numbers engaged in farming? Because they have nowhere else to go. All of them couldn’t possibly be fully employed. It is a sign of widespread under-employment that 155 million have registered themselves under the rural employment guarantee scheme.
 

Taking the surplus workers on farms, the numbers that have dropped out of the labour market, and the increase in the number of women doing unpaid work, anything up to 200 million could be either working, or working more productively, if the labour market offered them suitable opportunities. Household incomes would see a sharp increase—since it is mostly women in the working age group who have either opted out or are doing unpaid work. It is in this context that focusing on a 3 per cent unemployment figure is the wrong thing to do.

Elements of the mosaic
 

Open unemployment is most serious among the educated young. Meanwhile, the fortunate ones at the top end of the market mostly work for a regular salary. That’s close to a quarter of the total numbers employed. The rest of the workforce consists of casual labourers, self-employed people, and those on contract. They are semi-skilled or skilled trades people on construction sites, in our mandis and retail markets, and people plying traditional crafts or more contemporary ones in small establishments.
 

There are two elements that we don’t see enough of in this mosaic. One is women, as already mentioned. The other is large-scale factory employment, which hasn’t grown the way it has in other countries—largely because of mistaken policies pursued over the years, which are only slowly being unwound.
 

The message from the numbers is that our bigger problem is the nature of employment, rather than unemployment. And that so much of it is of low value, providing low incomes. We have moved most people off the poverty line, but in their place we have hundreds of millions who live uncertain lives on the edge, with no margin of safety.
 

Changing this requires, first and most important, a better educated workforce. But though we have almost universalised school enrolment, we offer little quality education. Education should be given some of the money being poured into the physical infrastructure, especially ego projects like the bullet train, budgeted to cost well over a trillion rupees.

Inter-state migration
 

There are signs of change in this otherwise grim picture. States like Tamil Nadu and Kerala are into a population transition because their total fertility rate has fallen well below the replacement level of 2.1 births per woman. In Tamil Nadu, Kerala and even West Bengal, it is now about the same level as the 1.5 average in the European Union. These states see their populations about to shrink, and a scarcity of workers. This spells opportunity for workers in the heartland states to migrate south.
 

Most people are not aware of the scale of this inter-state migration. The 2011 Census put the figure at 41 million. It would be more now. Workers who migrate to Chennai from Bihar can get a daily wage of Rs 850 or more. This is similar to the wages which until now were offered only in Kerala. On a monthly basis, most migrants in these states earn more than the minimum wage; some even get what would qualify as a living wage.
 

There is a similar picture in states like Punjab, Gujarat and Maharashtra, even Rajasthan — as we saw during the Covid shutdown, when millions of migrants in these states had to find their way back to their villages further east. Uttarakhand today has a higher consumption level than Maharashtra because of remittances sent by migrants from Garhwal and Kumaon who work in and around Delhi. And so, down the geographical spine of the country, states face a labour shortage. Surplus labour from further east gets absorbed here by the tens of millions.
 

Migration has its costs. Migrant workers usually live in poor conditions. They have almost always left their families behind in the village, where their wives look after old parents and children grow up without a father. These are not ideal social conditions. But the situation in the heartland would be far more distressing without migration.

Organised sector growth
 

The more straightforward good-news story is the growth of the organised sector. The numbers here are still modest. But if you look at the employees provident fund organisation, its contributing membership has been growing rapidly, from about 45 million a few years ago to a current figure of 75.6 million, as reported on the EPFO website.
 

As with a lot of data, EPFO data too is sometimes contradictory. But taking the number as given accounts for nearly 30 per cent of the non-agricultural workforce. The net annual addition to PF subscriber numbers is said to be running at 12 and 13 million. At that rate, we could have half the non-farm workforce in the organised sector, with PF membership, in the next five or seven years. That would bring about a qualitative change in our labour market, and potentially drive up wages in even the unorganised sector.
 

Meanwhile, the percentage of workers engaged in agriculture, high across the country, has fallen substantially in some states, signalling another transition. Kerala and Punjab are close to the Chinese level of having only about a quarter of their workers engaged in agriculture. Haryana has less than 30 per cent. Even in West Bengal, only a third of workers are on farms.
 

The twist is that most of the people who have moved out of farming have not gone to work in factories, as in other countries. Instead, they have gone into the unorganised labour market, with all its uncertainties. One must assume that they are earning more than they would have on the farm, or they would not have moved out.
 

So while the employment situation provides massive challenges, there are signs of positive change. People from the poorer states are migrating to places where they get work at better wages. The organised sector of the job market appears to be growing quite rapidly, which means higher wages. And the numbers dependent on agriculture have come down in some states. These silver linings don’t  yet alter the structural nature of the national employment market. But future change may be more substantive, and come faster.

Catalyzing change
 

How could faster change be brought about?
 

The standard economic argument is that we need more labour-intensive factories to absorb surplus labour from agriculture. This has been the traditional route taken by most economies, but it may not happen in India on the scale required, although successive governments have tried to address the factors that are said to stand in the way of rapid manufacturing growth by undoing past policies or making up for past failures. They have changed labour laws, improved transport and other infrastructure, lowered tax rates, and offered incentives and subsidies to get new industries going.
 

So far, though, the share of manufacturing in the economy, and the share of labour engaged in manufacturing, have remained stubbornly static. Change may happen in the coming years, with foreign investors looking for an alternative to China as a manufacturing base, and given the increasing attractions of the large and growing Indian market. The government on its part has made clear that access to the Indian market depends on a manufacturing base being set up in the country.
 

But you don’t create enough industrial jobs by catering to only the domestic market. However big the home market may seem, the world market is bigger. You have to export, if enterprises are to acquire global scale and create mass employment.

But the great age of globalisation is winding down as country after country gets defensive and protective of home markets. In any case, an industrial policy that is outward-focused requires a different approach from the government’s present thrust, which is primarily on import substitution.
 

Second, industrial automation has reached a stage where you won’t create the same number of jobs as before, even in manufacturing sectors that are considered labour-intensive. Third, if you think cheap labour is your competitive advantage, countries like Bangladesh and even Vietnam offer still lower wages. And fourth, factory efficiency requires well-educated workers, and our school education system still lacks quality. There is also a fifth. You need an efficient infrastructure so that transport, electricity and other costs are low and competitive.
 

Of these, only the fifth has seen substantive change. Electricity shortages, once endemic, have disappeared. Work stoppages in terms of strikes and lockouts have become rare. Goods move much faster from factory to port by rail and on new highways. Our ports have substantially improved their efficiency. Customs procedures have gotten better. But the other constraints remain. So while there will be more industrial jobs in the foreseeable future, structural transformation remains over the horizon.
 

Meanwhile, Raghuram Rajan and Rohit Lamba, in their recent book titled Breaking the Mould, have argued that the future for India lies in services, not so much manufacturing. And by services they mean not barbers or Uber drivers but high-end services; the research-driven creation of intellectual property; giving birth thereby to the Indian equivalents of Apple. They recognise that this can be done only with high-quality education, especially scientific and technical education.
 

But it is hard to see India delivering what Dr Rajan wants from the education system. Or to see high-end services as the primary generators of additional employment.

The more realistic solution
 

If manufacturing and services are, at best, partial solutions, why not look to agriculture?
 

One of the reasons for low incomes in farming is that crop productivity per hectare in most crops is well below the best levels achieved in other countries. In almost all crops, India’s productivity compares poorly. So there is plenty of scope for increasing agricultural incomes by boosting productivity. More intensive agriculture is also more labour-intensive. And it should be possible to encourage the cultivation of more labour-intensive crops.
 

The most substantial way of increasing farm-related work is not on the farm itself but off it — by fostering enterprises that use crops to add value and create local employment.
 

A good example is the Sahyadri Farmer Producer Company in Maharashtra, which sources the supply of tomatoes, and creates local employment for sorting, grading and packing tomatoes, which Sahyadri then exports to some 42 countries.
Tomato prices are volatile, so Sahyadri offers farmers a price assurance that minimises market risk for farmers, without state intervention or subsidy.
 

Another example is Araku coffee, grown organically by tribals in the Eastern ghats near Vishakhapatnam, and exported as artisanal coffee. Researchers have calculated profits from Araku valley coffee at as much as Rs 2.3 lakh per hectare.
 

An even more impressive example of a successful agro enterprise is the Synthites group, located an hour from Kochi in Kerala. The company processes Kerala’s varied spices to create a range of products for use as food flavouring and in the perfume industry. Its success is such that Kerala can’t produce enough of the spices that Synthites needs for processing; so it imports raw spices from Vietnam.
 

In Maharashtra, there is also the story of Mahagrapes, set up in 1991 with 16 grape grower cooperative societies as members. A Mahagrapes team went out to explore the grape export market, and to study Chile’s success in the business. The lead was then picked up by Mahindra Agro, which is now the leading exporter of grapes and okra procured locally.
 

State governments should be doing far more to encourage the birth and growth of farmer producer companies. Building businesses and exports from our agricultural base is a surer way of creating large-scale employment in the places where the workers are. It is a more realistic solution for both the jobs and incomes problems than expecting 100 million agricultural workers to migrate to large factories in urban centres.

* Only about 58% of our population in the working age group actually works. Tens of millions of mostly women have stopped looking for work, and dropped out of the labour market


* Anything up to 200 million people could be either working, or working more productively, if the labour market offered them suitable opportunities


* Building businesses and exports from our agricultural base is a surer way of creating large-scale employment in the places where the workers are

(Excerpted and adapted from the BG Verghese Lecture delivered under the auspices of the Media Foundation, March 15, at India International Centre, New Delhi)