Employing the unemployed
India’s GDP growth is experiencing an upswing following a slump between 2010 and 2013. Estimates from various agencies suggest that the country’s economy is gradually on the road to recovery. The Central Statistical Office placed the country’s GDP growth for 2013-2014 at 4.9 per cent, which was higher than the 4.5 per cent estimated. In 2015-2016, GDP is estimated to grow by around 7.9 per cent. As the economy recovers and grows, flexi-staffing is expected to become an integral part of the expansion plans of companies.
Even during India’s high growth years, contrasting trends have been observed between GDP growth and employment elasticity. Between 1999-2000 and 2011-2012, the economy grew at a CAGR of around 7.3 per cent. GDP growth between 2004-2005 and 2011-2012 was higher than between 1999-2000 and 2004-2005. At the same time, however, employment elasticity (defined as the percentage increase in employment for every percentage increase in employment for every percentage point increase in GDP) of the non-agricultural sector deteriorated sharply during these high growth years.
India’s growth during the boom years was largely driven by less-labour intensive sectors. In the seven fiscals to 2011-2012, information technology, financial services, real estate and other business services grew at over 11 per cent per year, and contributed significantly (22 per cent) to overall growth. But the labour-intensity of manufacturing also fell sharply during 2004-2005 to 2011-2012 because a large part of the manufacturing (industry) sector’s growth came from fast-growing, capital-intensive industries such as petrochemicals. Also, rising substitution of manual labour due to complicated labour laws (rigid rules for hiring and firing of workers) and technological progress led to higher automation. As a result by 2011-2012, the manufacturing sector needed almost half the number of workers it needed in 2004-2005 to produce Rs 1 million of real output. In 2011-2012, the manufacturing sector had the highest industry share of employment, at around 52 per cent of total employment. At the same time, high growth in services did not result in large incremental employment as it requires only about one or two to produce Rs 1 million of real value-added GDP. By contrast, the more labour-dependent services subsectors grew at a much slower pace. For instance, health, education and recreation services, which require nine people to produce Rs 1 million of employment addition in these sectors was limited. Estimates by various agencies suggest that India’s economy is gradually on the road to recovery. In 2015-2016, overall GDP is estimated to grow by around 7.9 per cent. The Government managed to increase allocation for capital expenditure (up by 25.5 per cent to Rs 2,414 billion) for 2015-2016 because of the headroom created from savings in oil subsidies and hike in excise duties on petrol and diesel. As a share of GDP, capital expenditure will increase from 1.5 per cent in 2014-2015 to 1.7 per cent in 2015-2016. The budget is likely to have a positive impact on the manufacturing sector on the back of anticipated investments in infrastructure and improvement in domestic investment.
Various factors therefore have an implication on the employment levels of each industry segment. The levels of employment do not merely track the progression of GDP. In India, people aged between 15 and 59 years are typically considered working age population. According to census data, this employable population has experienced a 24.7 per cent growth between 2001 and 2011. According to census data, this employable population has experienced a 24.7 per cent growth between 2001 2011. This increase far exceeds the growth in India’s general population for the same period of 17.7 per cent. The proportion of India’s population who are part of the working group population has risen from around 57 per cent in 2001 to 62 per cent in 2011-2012. The majority of India’s population is therefore potentially employable. They can be imparted with the training and skills to make them attractive to employers. As per census data, India’s population reached 1,211 million in 2011. India’s population therefore has great potential to meet future demands of the world and become a global sourcing hub for a skilled workforce.
The proportion of illiterate people in India’s working group population has declined by three-four per cent between 2004-2005 and 2011-2012. Among the literate group in the working population, there has been growth in the amount of workers with graduate and above and higher secondary education.
However, a large proportion of the working group population is yet to attain secondary level of education. Those workers with an education profile below secondary level of education primarily work in the informal sector (being self-employed or working in unincorporated proprietary or partnership enterprises). By contrast, those with higher education levels are employed in the formal sector (such as in government entities, public/private limited companies and other registered organisations.)
A high level of unemployment has been witnessed in many areas across India. The unemployment rate is higher in regions where the education profile of the population is weak, indicating the significance of skill development.
The East of India has the highest percentage of illiterate persons, whilst West India is one of the regions with the highest share of education levels of “Secondary and Above.” This has a clear effect on the levels of unemployment in the respective regions, with states in East India having amongst the highest rates of unemployment, and states in West India having amongst the lowest.
Due to the lack of employment opportunities and poor skill-sets, workers are forced to either look for work as low-paid casual workers or become self-employed. More than half of the workforce is self employed owing to lack of employment opportunities. Poverty and lack of education are major constraints to employment. The proportion of self-employed and casual labourers is around 82.1 per cent of the total workforce.
India’s informal sector is currently driving employment. The informal sector comprises all unincorporated proprietary, partnership enterprises and enterprises whose activities or collection of data is not regulated under any legal provision and/or which do not maintain any regular accounts. About 80 per cent of India’s workers are in the informal sector, with particularly high levels of informal workers evident in the manufacturing and construction industries. The cumulative effect of low levels of literacy, less-than-adequate skill-sets, and lack of employment opportunities is a high level of self employment, due to which informal employment dominates employment in most sectors. Complex and tough labour laws have hampered job creation in the formal sector. Many workers also prefer the higher take-home pay that the unorganised framework for a job can provide. India’s poverty is about low productivity. India is on the cusp of a transformation of its five geographies of work. To boost their presence and meet demand for their products/services, companies are aggressively expanding in tier II and tier III cities. Finding the right manpower for such locations is a challenge. Education levels across the regions vary, with lower education levels evident in the North and East of India.
India’s physical landscape is still largely rural, with six lakh villages (of which two lakh have less than 500 people). Companies are incurring huge costs to locate, hire and then retrain the right talent. Flexi-staffing agencies with a significant national footprint will be at an advantage as they can cater to the requirements of employers by bringing in flexi-staff from distant locations. However, it is a challenge to bring people and jobs together.
The government has recently announced that it was willing to fund and dedicate contracts to the business process outsourcing industry to create jobs in the northeast and tier II and III cities in the country. There are also 100 ‘smart cities’ planned to be established. This will create jobs in locations outside the traditional industrialised areas. The various training initiatives currently underway will assist to provide employees with skills in the necessary areas to make them more employable in the formal sector. Flexi-staffing companies will be in an ideal place to assist with the provision of labour as companies expand their operations into less industrialised areas.
The big question for public policy is whether India is going to take jobs to people or people to jobs. The history of economic development is about taking people to jobs. The total number of establishments in India is around 58 million, as per the 6th Economic Census. In the years ahead, the number of enterprises in the country will rise due to factors such as higher GDP growth, an expected increase in the share of establishments located in urban areas and regulatory policy initiatives to attract fresh industry to hitherto less-industrialised areas. Overall, this will lead to an increase in the number of formal enterprises and improve the migration of informal labour into the organised workforce.
India has a multitude of antiquated employment laws, which reflect dated attitudes and thinking. The number, complexity and outdated nature of these laws can operate to deter industry from giving permanent employment to people, leading to a greater number of jobs being created in the informal sector. Central government is committed to the reform of labour laws and the repeal of outdated legislation. Recent regulation amendments in the interests of flexi-staffing industries include ID Act, CLRA Act, the Factories Act and the Apprentices Act. Stakeholders believe that these amendments will have a positive impact on flex-staffing agencies. Certain states have recently taken the lead in reforming employment norms, which should contribute to an increase in the formal employment market share.
The government, end-use companies and staffing companies are all undertaking efforts to address the skill gap between companies’ demand for skilled employees and low skill availability. The government is undertaking a clear push for skills development. In 2009, the government adopted the national Skill development Policy with the aim to skill/reskill 500 million people by 2022. The main intention n behind the policy is to equip people with skills and enhance employability. The target of providing skills is split between 17 ministries and the National Skill Development Corporation. Many programmes implemented by the different ministries, such as the skill development programmes run by the Ministry of Human Resource and Development, the Ministry of Rural Development, the Ministry of Urban Development, Ministry of Labour and the Ministry of Minority Affairs will operate to train/retrain labour and provide value-added services, which will increase job opportunities for employees.
The flexi-staffing industry acts as an enabler, by providing job-seekers with training on the requested skills of end-use industry to make them job-ready. Flexi-staffing companies are therefore able to offer end-use companies with ready-trained employees and this reduces the costs that would be incurred by the employer in training them. The low productivity of India’s labour force working in agriculture means that most of India’s self-employed are part of India’s working poor; people who make enough money to live but not enough to get out of poverty. Only 11 per cent of the labour force works in manufacturing, which is the same percentage as in post-industrial United States. The government aims to double the labour force working in manufacturing and this will create opportunities for flexi-staffing companies to provide the required workers.
Did you know?
- India is the world’s second largest labour market. Only around 10 per cent of India’s labour force works in formal employment. Redefining the nature of employment and having a greater amount of workers in formal employment will be critical if India’s economic development is to become more broad-based, not only in terms of regions, but also in terms of social inclusion.
- Both industry and the government are increasingly recognising that if the current employment scenario continues, the situation will become increasingly untenable and a hurdle to growth and economic and social development.
- There are a lot of challenges confronting the Indian employment industry today.
- Industrialisation in India has been focused on a few states, whilst those workers with requisite skills are more widely located.
- This means that there are inadequate workers with the requisite skill-sets in regions where industry is concentrated, and not enough employment opportunities in their home regions for people with the appropriate skills. For instance, a large percentage of the enterprises in India are located in South and West India, yet the largest proportion of working age population belongs to North and East India.
- Lack of opportunities in their domestic zones is putting pressure on people from less-developed regions to migrate, causing social and familial dislocation and putting pressure on civic and social infrastructure. By contrast, service industries such as IT/IT enabled services, banking and telecom services are facing a shortage of people with the necessary skill-sets.
- Due to lack of opportunities in their home regions, many workers are turning entrepreneurs, or end up doing lower paying jobs or casual work. This is reflected in the large number of enterprises in the country being operated informally.
- Due to a confluence of such factors, a greater proportion of jobs are still being created in the informal sector. On the one hand, the industry is unable to find enough people with the adequate skill-sets, and – on the other hand – there are large numbers of people working in jobs far below what their educational qualifications or skill-sets demand.
- Numerous efforts are underway to mitigate this situation. The Central and State Governments are providing incentives for industry to set up enterprises in relatively unindustrialized areas. Governments are also increasing the allocation of education and setting up more such institutions in less-industry intensive areas. This will enhance the skill-set of the population and hone them for the formal industry. The result of this will be new employee-catchment areas for companies and encouragement for them to set up industries in such areas.
- India’s employment growth going forward will be concentrated in a few functions (sales, service, logistics) and employment intensive industries (healthcare, FMCG, FMCD, hospitality, construction, etc.) These functions industries are much more likely to use formal staffing companies relative to old industries.
- There is also a focus on consolidating skills development and increasing the education literacy and skill-sets of the general population. The National Skills Development Mission through Skill Development and Entrepreneurship Ministry is just one of these initiatives, that has resulted in the establishment of the National Skills Development Corporation.
- Finally, the government is focusing on introducing regulatory measures to increase the formalisation of enterprises and push towards an increase in formal employment. Amendments to India’s complex and antiquated labour laws are already underway, and the government is focused on formalizing both enterprises and employment.
- There should be a move from informal to formal employment that will lead to an increasing play thereon of the formal sector. The transformation from formal to informal employment will happen in the following three phases:- Phase 1: operations/risk/compliance; Phase 2: hiring; Phase 3: quality of employees. As the government and industry work to address the problems facing the employment sector in India, and to increase the rates of formal employment, there is likely to be huge opportunities generated for the flexi-staffing industry.