25% of Chinese job growth comes from FDI

JOBS versus GROWTH-II

India has just a 3% share in local labour-intensive exports.

We will allow foreign investment only if it creates jobs" is the kind of comment Left party leaders have been making since the election results. Well, China's booming foreign inflows today account for a fourth of its annual employment growth, according to the Chinese Academy of Social Sciences.

In 1985, when China hardly had any foreign investment worth the name, this contribution, not unexpectedly, was zero. But by 1992, with FDI flows surging, China was getting $11 billion and the FDI-induced employment growth was 10 per cent of the total annual growth in jobs.

Much of this employment is generated by FDI in units that export out of the country. China, according to work done by economists TN Srinivasan and Suresh Tendulkar, has close to a fourth of the world's market for labour-intensive exports.

India, by contrast, the same study shows, has just a 3 per cent share in this market for incremental exports of labour-intensive products.

In the textiles sector where India has a very low export share, for instance, years of tax-breaks for small units discouraged larger units from coming up and stunted the country's ability to service large orders.

The share of big players is 93 per cent in the spinning sector, to cite one instance of the importance of large manufacturers, and India's share of global exports is 26 per cent.

In the weaving sector, larger players have only a 4 per cent share in local production, and their global share is a mere 3 per cent.

As in India, in China too, there has been a decline in employment in state-owned enterprises, from 103 million in 1990 to 68 million now.

But in China this was made up by the increase in urban private industrial employment, from 6 million to 42 million in the same period.

The biggest providers of jobs to new entrants as well as those rendered surplus in agriculture are the small town and village enterprise (TVEs) which, in 2003, provided employment to 136 million surplus rural workers.

In India, by contrast, small and medium-scale enterprises (or SMEs) are not creating the same pace of employment because they are hamstrung by high costs and poor infrastructure.

While net bank credit to the small-scale sector fell from 17.5 per cent of total bank credit in 1998 to 14.2 in 2001, just investing in a genset to deal with frequent power cuts locks up a sixth of the average small firm's capital.

While the Left parties in India are fundamentally averse to foreign investment, and to making life easier for the organised manufacturing sector (where wages are at least double those in the unorganised sector), the states of West Bengal and Kerala, where there have been Left-run governments, have the highest unemployment in the country; indeed even the highest growth in unemployment has been seen in these states.

At 21 per cent, Kerala had the country's highest unemployment rate in 1999-00, up from 15.5 in 1993-94. West Bengal has the next highest unemployment rate, growing from 10.1 per cent in 1993-94 to 15 in 1999-00. States like Gujarat, by contrast, have seen unemployment fall from 5.7 per cent to 4.6 per cent, and Haryana from 6.5 per cent to 4.8 per cent.

Interestingly, while a lot of emphasis is being placed on special employment programmes, their efficacy is low. While the money spent on such programmes rose from Rs 4,121 crore in 1990-91 to Rs 8,697 crore in 1999-00, the employment created remained stagnant at around 4.5-5 million.

In a rural work force of over 300 million, these numbers represent a 1.5 per cent share of jobs.