Employment generation has been one of India’s basic developmental objectives. There have been major transformations in the economy brought about in the last three decades by the liberalisation process and rapid integration with the global economy that began in the early 1990s.

With structural transformation of the economy, movement of employment from low productive primary sector to manufacturing and service sector too has gained momentum. The labour force has become increasingly youthful and India seems poised to reap the ‘demographic dividend’. Technological advancements that are being adopted have resulted in increasing diversification and complexity leading to demand for new skills for new jobs.

But, the COVID-19 pandemic and the aftermath have had an adverse impact on skill development and employment generation measures. 

Low employment generation

Employment elasticity in India had been low in the last decade such that decent growth rate failed to generate adequate employment. The figure was relatively stable at around 0.3 between 1991 and 2007 (meaning 1 per cent of overall growth produced 0.3 per cent employment growth). More recently, the elasticity has been only 0.15 per cent compared to 0.30, about half of the previous level. 

Average annual employment growth rate was about 2.4 per cent in the 1970s. This continued in the 1980s but declined in the 1990s. Between 1999-2000 and 2004-05, there was a spectacular jump in employment growth rate to 2.8 per cent, which is hard to explain.

However, most recent rounds of data provided by the National Sample Survey Office (NSSO) show a sharp deceleration in the growth rate (CAGR) of employment – from 2004-05 to 2011-12, it fell to a mere 0.5 per cent from earlier 2.8 per cent. In fact, during the same period, GDP growth rate was remarkable, and yet employment growth rate fell to an all-time low.

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In terms of growth in employment on an annual basis, it was 2.5% in 2015-16 and 4.1% in 2016-17. The rate fell to 3.3% by 2017-18. Employment growth rate failed to pick up during the last two financial years. 

However, when we look at the disaggregated level, we find that employment in India did grow, but mostly for men and mostly in urban areas. At the same time, women in rural areas withdrew from the workforce. Such withdrawals were not voluntary, but due to women’s lack of access to non-farm paid work.

Growing mechanisation of agricultural operations releases surplus labour in rural areas, but they are not getting absorbed in rural non-farm activities. This pattern explains, to a great extent, weak overall employment elasticity of growth. Moreover, most of the new jobs created were informal, either in the unorganised sector or even in the formal sector.  

In the development process, workers should come out of low productivity agricultural sector to higher productivity non-agricultural sectors. This is happening in India at a very slow pace as evident from declining employment elasticity of non-agricultural sector. In the other modern service sectors, such as banking and insurance, real estate, business activities, information technology enabled services, consultancy employment elasticity was higher than other traditional services.

This implies much of the growth in the service sector employment came from this modern service sectors, as seen in Organisation for Economic Co-operation and Development (OECD) countries. So far, growth areas in GDP have been driven more by gains in labour productivity than by increased employment. In a labour abundant country like India, this is not an optimal pattern. 

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Structural reforms needed

These lead to a few critical questions. What can drive growth and job creation in the future? What can be done to promote job-rich growth in India that absorbs abundant labour and take advantage of its demographic dividend?

This would require policy interventions that address both demand and supply sides of the labour market. Macroeconomic policies that support demand and growth, and labour market and social policies that increase wages and disposable income, and also provide a social security floor for households should be pursued simultaneously for a self-reinforcing and sustainable growth path. 

The key to success in strengthening the link between growth and employment is the design and effective implementation of coherent policy packages that address a range of factors simultaneously and in mutually compatible and reinforcing way.

For example, fiscal policies and infrastructure investment can be designed to maximise employment creation. Some of the policy tools fall within the areas of responsibility of labour and employment ministries, while others fall under the responsibility of other ministries. Coordinated thinking, planning and interventions are required.   

On the basis of current Labor Force Participation Rates (LFPRs) by age group, it can be said that the number of male youths joining the labour force over 2012-17 would be 40 million and the corresponding figure for females would be 11 million or a total of 51 million over five years. In other words, approximately 10 million new young people will be looking for jobs each year.

Thus, the number of jobs that is required to be created is at least 10 million (or 50 million in 5 years) per annum in non-agricultural activities. We should also add the number of educated unemployed of total 10 million and the labour force leaving agriculture (5 million per annum left agriculture between 2004-05 and 2011-12).

Thus, in total, India needs to create 17 million new jobs per annum in non-agricultural activities. This is in conformity with the target of creation of additional 100 million new jobs by 2022 envisaged in the National Manufacturing Policy.

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Need for a well-rounded employment policy

India does not have an official employment policy. Had there been a such a policy, it would have two basic objectives – first, to create adequate number of jobs for all the job-seekers to be gainfully employed; and second, to make those jobs as decent as possible. 

An integrated policy framework consisting of economic and tax policies, labour market laws and regulation, equality and anti-discrimination measures, skill development, financial and business services, social protection and income security (including wages and minimum wages), social dialogue would provide the basic policy ecosystem for generation of adequate employment opportunities in the country.  

The policy ecosystem for generating employment has two sides sides – supply and demand. On the supply side, the main thrust would be provided by the skill formation initiatives. Labour regulatory reforms and ease of doing business initiatives would facilitate generation of employment.

Labour regulatory reforms would mainly consist of simplification and rationalisation of existing labour laws and providing slightly more flexibility to both employers and employees. Social security measures and enabling fiscal policies would fill the vacuum left by fissures of market economy. Public employment services would provide the coordination link between the supply of labour and demand for labour.

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Along with new job creation, another priority would be to make those jobs decent ones. Policy measures in four key areas, namely social security, skill development, labour regulation, public employment services, would be necessary to strengthen the thrust to create decent jobs.

The private sector plays a pivotal role too in employment generation, upliftment of rural areas and economic empowerment. The government needs to provide incentives to the private sector to create more jobs and it needs to supplement such efforts through skill development initiatives.

In recent times, the Apprenticeship Act 1961 was suitably amended to facilitate engagement of apprentices in large numbers who might get permanent employment in later days after acquiring necessary skills and expertise through on-the-job training. 

Some of the factors constraining the growth of the private sector are limited access to fund, regulatory issues, high cost of infrastructure, lack of value addition, and the likes. To tide over these bottlenecks, arrangements should be made for adequate and timely credit at cost-effective rates, conducive regulatory environment including effective governance, supportive infrastructure, facilitation of technology upgradation, and training in skill development, among others.

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Sectoral reforms needed

The fundamental question facing the Indian economy today is whether rapid increase in growth of output in industry and service can be combined with rapid employment growth. In order to achieve this objective, two kinds of transition would be needed.

First, movement of unskilled labour from agriculture to unorganised industry and service sector should take place, and second, movement of labour from informal employment in organised and unorganised sectors of industry and services to formal employment in organised sector must take place. 

The pace of structural transformation accelerated after 2010. The share of agriculture in total employment has fallen by 4 percentage points in two years – from 53% in 2009-10 to 49% in 2011-12 (a decline comparable to that achieved in the previous five-year period).

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During 2009-10 to 2011-12, 13 million workers withdrew out of agriculture. There was no absolute decline in employment in agriculture between independence and 2004-05. It begun after 2005 for the first time. However, this trend didn’t sustain beyond 2012. Employment growth rate too fell sharply.

Just before the COVID-19 pandemic broke out, India recorded the highest unemployment rate in last 45 years. Then the pandemic-induced countrywide lockdown pushed things to the brink and in the first quarter of the present financial year 2020-21, GDP shrunk to the tune of 23.9 per cent. 

Manufacturing sector employment remains a concern despite rapid manufacturing-output growth. The challenge before the policy-makers is not only to increase the contribution of manufacturing to GDP, but also its contribution to employment in a context where the last decade of rapid economic growth did not result in employment growth.

With increasing global integration, different technologies are being imported, which are relatively labour-saving in nature. It is important that the savings generated in such sectors are diverted towards labour-intensive sectors including social sectors, which will directly as well as indirectly generate demand through the multiplier effect.

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New bureaucracy needed

To give the necessary priority and the urgency, implementation of this policy will have to be led by a senior ministerial secretariat, both at the central and state levels, with the overall guidance of a Steering Committee at both the levels consisting of ministerial representatives.

A strong ownership, commitment and active participation of all stakeholder organisations is required for successful implementation of the policy. The role of workers’ and employers’ organisations and the importance of their commitment for successful implementation need stressing.

A close liaison among industry, the Technical and Vocational Education (TVET) sector, and secondary schools represented by career guidance teachers are also essential. At the level of the government itself, coordination among ministries, departments and other public sector agencies is necessary. For monitoring purposes, a Coordination Unit must be set up at the union- and state-level ministerial secretariats to manage the implementation process.

The key element underpinning these dimensions is the opportunity to create work and jobs, implying that everyone who wants work should be able to find work, since decent work is not possible without work itself. ‘Work’, however, is not confined to wage employment, but can be any form of economic activity, including self-employment, which is the main source of employment in the India. 

Views expressed are the authors’ own and not necessarily that of the organisations that they belong to.

Featured image: Job seekers stand in line at an employment exchange in Bishnupur, West Bengal | Flickr