 "Hiring image via Shutterstock")
The news flow of the past two weeks has been dominated by the goods and services tax (GST). One hurdle is past but there are other legislative hurdles. We also need details of tax rates to start scenario-building. Such details will be unclear for months. So, we might as well stop thinking about GST at the moment.
Instead, let's look at another area, employment, badly in need of reform. Official employment data are released with massive lags. Much of it is meaningless, since most of the workforce is outside the ambit of the organised and "official".
Timely employment data are obviously useful, given links to inflation and growth. I sometimes wonder how India's policymakers make decisions in its absence. This data is also useful for traders and investors. It's useful to sectors of expansion/contraction and employment data is also a sentiment indicator.
There is much talk of the 'demographic dividend', as India has a very high ratio of workforce (population aged 15-65) to retirees and children. But, the dividend will come only if that workforce is optimally harnessed. The 'dividend' could become a disaster if higher employment is not generated. A poor gender ratio potentially makes things worse.
There are roughly one million new workforce entrants every month. A consistently high rate of economic expansion would be required to generate enough employment to absorb them. Only China has managed this on such scales. By some estimates, India absorbs only about five million entrants to the workforce every year, leading to rising unemployment and perhaps, fuelling events like the so-called Vyapam deaths.
A root cause of low employment is badly drafted, complex labour laws, which also conflict with each other. Entrepreneurs try to get around these laws by hiring as few people as possible. The bad laws meant that even the long expansion of the 2005-2010 period did not result in higher employment. Nor can we expect much improvement on the legislative side. This requires state by state redrafting of laws and central redrafting, too. Rajasthan has done some rewriting but that lead has not been followed.
Employment has a direct relationship to gross domestic product (GDP) growth. But the relationship is not straightforward. GDP growth depends on per capita productivity and the number of people employed. Lots of low-end, low-productivity jobs might be created in slow growth economies. On the other hand, high-tech set ups with a few highly-productive people can often drive high growth with low employment.
In the absence of timely official employment data, we are forced to look at other sources. For the past few years, the Manpower Group has been conducting a quarterly employment survey, where it asks respondents across industries one question: "How do you anticipate total employment at your location to change in the next three months (to the end of September 2016 in this round) as compared to the current quarter?"
Respondents have generally been optimistic. The latest survey targets July-September 2016 with the question asked in end-June. The answers remain optimistic but less so than in any previous round since January-March 2014 - that is, since the last general elections.
All four regions project workforce expansion. But, the number of respondents expecting expansion is less. Year-on-year (y-o-y), the hiring outlook seems weaker in the east and the south and it has marginally improved in the north. Quarter-on-quarter (q-o-q), only the north seems to have improved hiring prospects compared to April-June 2016.
While every segment seems to be expecting expansion, y-o-y, prospects have weakened. Sectoral prospects seem strongest in services and in transportation & utilities industry. It seems especially bad for mining & construction, where hiring prospects are worse than at any time since July-September 2013. The Manpower group does similar surveys across 43 countries. India is by far, the leader when it comes to expectations and been the global leader in this respect for four quarters in a row. Global sentiment seems to be turning up, with 40 of the 43 nations surveyed expecting payroll growth in this quarter. This could tie into Indian expectations of revival in exports.
A survey like this is useful, though we don't know about the accuracy of expectations. It would be even more enlightening if the same respondents were asked if their hiring expectations in prior survey rounds had been met. Nonetheless, this survey is worth examining with an open mind.
