Losing the plot on jobs

Addressing a joint session of Parliament on Monday, President Pranab Mukherjee spelt out his government’s agenda for change, for better days ahead. It’s effect on the market was, of course, as expected; BSE Sensex breached the 25,000 mark. Did anyone wonder at the irony of a Congressman occupying Rashtrapati Bhavan speaking for a government that had so decidedly trounced his party into insignificance. And yet, his words carried the day, the very words that he would have uttered as finance minister. For it is not the message that is different but the author of that message; the President was merely the vessel in which it was carried. Natural enough, but the irony must have struck Mukherjee nonetheless.

The economic planks on which the NDA wishes the nation to ride into a rosy future are: fighting food inflation, increasing investment climate, and rationalisation and simplification of the tax regime. In the case of the last, you could have almost heard Chidambaram’s voice echoing in the hall. What makes the old message new is the perceived self-confidence of a Prime Minister keen to lift the economy up by its bootstraps.

Time will tell, of course. But it is possible that he will succeed where the UPA failed because he invests his office with the aura of success and steely determination. Perceptions and sentiment count a lot in inspiring investors to put their money where their mouth is. In the post-election programmes on television, business leaders waxed eloquent on the change around the corner --- an uptick in private investment, demand growth and, of course, employment.

That equation between investment and economic growth on the one side and jobs on the other has acquired among this country’s elites and talking heads on television channels the stolidity of an axiomatic proposition, an inevitability of night following day.

And yet the evidence from the past, the very past that so many of us yearn for (those halcyon days when India’s economy was vaulting over its own history of somnolence and a Hindu rate of growth), shatters that equation to bits.

Two years ago, a study titled, Joblessness and Informalisation: Challenges to Inclusive Growth by Santosh Mehrotra et al (Institute of Manpower Research, New Delhi 2012) ran an analysis of jobs and the past decade or so.

Its findings more or less bear out out the NSS findings on employment and unemployment of 2009 that the period of highest growth (2005-2010) had not lived up to the expectations of rising employment.

Only 2.76 million jobs were generated during the period of high growth. Compared to this, 60 million jobs were added between 1999-2000 and 2004-05. In manufacturing, there “was an absolute increase” in employment in the first half of the decade from 44 million in 1999-2000 to 56 million in 2004-05.

This was indeed the period of NDA rule if that is any consolation. But it was not the period of highest growth. That followed in the second half of the decade. In those five years, employment in manufacturing was dismal for it declined by 5 million (against an increase of 12 million in the first half), partly offsetting the gains in the first half of the decade.

Here’s what the authors have to say: “In other words, the challenge before the country’s policy makers — especially in the New Manufacturing Plan 2012-2022 — is not only to increase the contribution of manufacturing to gross value added in the economy, but also its contribution to employment.”

At this point it might help to take a step back and look at an important structural change that occurred during the decade, especially in the period of high growth. A structural shift took place in the decline of Agriculture and the emergence of Services as the prime contributor to national output.

This shift in relative importance of the tertiary sector was reflected in an increase in employment, in a movement of surplus labour from agriculture to the non-manufacturing sector in the main.

Thus, the non-manufacturing sector in the first half of the decade saw an increase by just 9 million jobs. But in the second half — UPA-II — it increased by 18 million. In manufacturing, as the study points out, “Construction was the prime mover in this rapid increase in employment.”

And again: “The pull of the construction growth in both rural and urban areas led to workers moving out of agriculture (15 million moved out between 2005 and 2010)”.

What explains this high migration of labour was the spurt in “infrastructure investment during the 11th Five Year Plan (2007-12) period from 4 per cent of GDP at the beginning of the Plan to 7.5 per cent of the GDP in the terminal year of the Plan. The target of investment of $500 billion in infrastructure during the 11th Plan was actually achieved.”

Education, say the authors, was another important source of service sector employment, accounting for 10 per cent of the total services employment in 2009-10.

The main reason was public investments in school education, especially the Sarva Shiksha Abhiyan (programme to universalise elementary education). Investments in this domain led to an increase in the number of teachers hired by government schools throughout the country. “Private school enrolment and hence teacher hiring has also increased.” There’s an important lesson here in the empirical evidence for the new policymakers. Public investments remain the key for employment growth, for the shift from low paying, low productive agriculture to higher paying jobs in services.

That said, evidence from around the developed world also shows that with rising per capita incomes the share of public investments also has to rise. In the OECD countries, point out the authors, the share of government in GDP is 40 per cent, in the Scandinavian countries 50 per cent, while in India, it is 30 per cent.

Perhaps the authors overstate the case; there is after all a need to remind ourselves that the problem in India is not the quantum but the efficiency of that investment.

But the data for employment, employment elasticities for manufacturing and services — falling in the former, rising in the latter — does point to a proposition that can’t be ignored; the relative importance of public over private investments in the creation of jobs in a country where agriculture retains labour far in excess of its contribution to national output.