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More Reforms, Less Jobs.

India, Nov. 11 -- There has been a transition in the traditional role of the State in commercial and business activities during the last three decades. The drive towards a review of the State's role in economic activities had both political and economic dimensions. Political considerations were against the growing political interference in the functioning of public enterprises and poor departmental leadership. The economic dimension related to macro-economic performance in general and in particular, to fiscal deficits, inflation and high cost of welfares.

As Joseph Stiglitz observes, reforms entail struggles because of the adjustments that they impose; forcing change in the ways business is conducted. Reforms cannot be imposed from outside, and this is part of the reason for all widespread failure of reform measures in many developing countries.

The unleash of the Second Generation Reforms by the UPA II Government calls for some introspection. The main thrust of the new reforms would be to sequence the unfinished economic agenda and deal with sensitive issues such as subsidies, since the first phase of liberalization process had been "ad hoc and poorly-planned'. Let us look at the trends of employment through the lens of "Reforms".

In the broad setting of reforms in many countries in the 1980s, India was an apparent anomaly. India was at the crossroads. She was facing a macro-economic crisis that required immediate attention. The crisis had been simmering since the mid 1980s in spite of occasional minor reform measures attempted by the governments led by Prime Ministers, V.P. Singh, Chandrasekhar and Rajiv Gandhi respectively.

The macroeconomic crisis provided the opportunity and the necessity to address meaningfully the inefficiencies in our policy framework that had altered our economic performance and to begin constructively the task of undertaking the necessary microeconomic or structural reforms that had long been overdue. The actual reform process began in India in 1991, when P.V. Narashima Rao along with his Finance Minister, Manmohan Singh, moved swiftly and announced a programme of macroeconomic stabilization and structural adjustments.

As a consequence of the type of policy followed in India, there has been a higher proportion of labour in public sector enterprises than in private sector. Public enterprises were known for disguised unemployment (excess manpower). All things being equal, factor proportions are different in private and public sectors for similar activities. Public management often take the social value as the criterion for choosing production technology, while the private sector takes its market value, which is usually higher. Public enterprises are also under political pressure from authorities to offer employment as political favour. In this context, transfer of a public enterprise to private sector would reduce employment and might improve welfare schemes.

As far as employment intensity is concerned, the number of employed persons per lakh of real GDP declined to 1.05 in 2010 from 1.71 in 2005. Between 2005 and 2010, the addition in jobs was 27.7 million but the number of self-employed people decreased by 25.5 million. This has restricted the increase in number of employed people to 2.2 million. In manufacturing sector, employment declined by about 7 per cent, despite a faster growth in manufacturing output. In services, employment growth slowed in financial intermediation and business services. Employment grew by almost 70 per cent in the construction sector, but it was mainly in casual jobs.

According to NSSO employment survey relating to 2009-10, in the rural areas, male (principal and subsidiary) employment increased by only 13.4 million between 2004-05 and 2009-10, as compared with 20.2 million between 1999-2000 and 2004-05. The corresponding figures for the urban areas were 9.8 million and 15 million respectively. Thus there is clear evidence of deceleration here. Self-employment rose by 21.8 million during that period, as compared with just 4 million during the more recent period. On the other hand, during 2004-05 to 2009-10, salaried (regular or casual) employment increased by 24.6 million, as compared with just 4.4 million during the previous period. Given the fact that self-employment could be substantially distress-driven, this is indeed welcome.

Moreover, the evidence points to the growing inability of the commodity producing sectors to absorb additional labour. If we consider the period between 1999-2000 and 2004-05, the increase in employment was distributed across agriculture, manufacturing, construction and services, though services and construction dominated in the case of males and agriculture in the case of rural females. As compared to this, during the 2004-05 to 2009-10 period, both agriculture and manufacturing made negative or negligible contributions to the increase in employment, whereas construction played the dominant role in the case of both males and females.

Clearly even the small contributions made by the commodity producing sectors to employment generation are disappearing, making the system dependent on construction and services, especially the former. Even if we take account of the increased participation of the young in education and the possible underestimation of the employment of women, the evidence seems to point to unsatisfactory labour market outcomes in the period when India transited to its much-celebrated high-growth trajectory. The post-reform period has witnessed a general decline in employment, more so after mid 2000s.

Reforms had exposed the Indian industry to the vagaries of international markets, which led to negative effect on employment in the long run. Export thrust, unmindful of the demands of the domestic requirements, is quite harmful. A concrete example in this context is the cotton thread case in Andhra Pradesh, where large-scale export of the coarse cotton thread had catapulted 110 weavers to starvation deaths. Take Mumbai, the industrial hub of India; the trend has shifted from the manufacturing sector to service industry, thus rendering millions jobless. In the textile mills, which were once the backbone of the City's economy, the 2.5-lakh work force in 1981 has drastically dwindled to 20,000 now.

In this context, a UN study has revealed that the TNCs and their associate companies have made significant investment in India, but could not generate employment as they use capital-deepening and labour-saving technologies. It is also found that the investment by the MNCs has been only 10 per cent of what was expected till now after the implementation of the new economic policy. Thus, employment of the unemployed has not taken place and unemployment has only increased. This has serious adverse effects on the economy and people in general.

Thus, India is facing a challenge of not only absorbing the fresh entrants but also clearing the backlogs. Reforms may have given a boost to industrial productivity and investment, but the pity is they have not generated enough jobs.

-J . Felix Raj

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Publication:Indian Currents
Geographic Code:9INDI
Date:Nov 11, 2012
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