News of Indian engineering giant Larsen & Toubro (L&T) laying off 14,000 employees or more than 10 percent of its staffers in the months leading to September has brought focus to one of the biggest challenges facing the Indian economy today. Growing automation in the nature of manufacturing and services around the world today is a real cause for concern in a country that desperately needs to provide jobs for millions entering the workforce. In a statement, L&T argued that the mass layoff was part of its bid to “right-size” during an economic slowdown and maximise on digital developments. “The company has taken a lot of initiative to right size staffing in various businesses,” said L&T Chief Financial Officer R Shankar Raman.
“The digitisation and productivity enhancement initiatives taken by us boiled down to redundancies of roles, and we have been able to shed as a group 14,000 in the six months to September.” The company decided to lay off 14,000 employees despite claims that its second-quarter profit rose by 84.3 percent to Rs 1,434.63 crore and a reported increase in revenue by 8.2 percent to Rs 25,010 crore in the second quarter. This “correction” is part of a large global dynamic in the manufacturing sector characterised by the rational management of the factory floor. In his fascinating book titled, The Rise of the Robots: Technology and the Threat of Mass Unemployment, noted Silicon Valley entrepreneur and a leading expert on robotics, Martin Ford, presents an account of how increasing automation is fundamentally changing the nature of manufacturing today.
In his book, Ford breaks down the recent history of manufacturing into two phases. In the first phase, before the oil shock of the 1970s, electrical and mechanical improvements boosted productivity, and increased wages matched its benefits to workers on the factory floor. The second phase, which Ford argues began from the 1980s, boost to productivity, has been mainly down to developments in information technology. Instead of workers on the factory floor, the real beneficiaries have been the owners and the investors of capital. Manufacturing today continues to hurtle further towards the latter dynamic, leaving workers stranded.
In a recent column, which refers to Ford’s book in great detail, Rishikesha T. Krishnan, a Professor of strategic management at the Indian Institute of Management, Indore, argues: “There has been a big jump in the nature of tasks that machines can do. Thanks to developments in artificial intelligence and machine learning and the huge decrease in the cost of computing because of the relentless march of Moore’s law (where the power of computers doubles every 18 months), machines can do a whole new set of tasks that earlier required human intervention. Ford provides several examples, but I was particularly captivated by a story from Japan about an entirely automated sushi restaurant. The third dimension of this change is the declining cost of automation, including robots. This is bound to accelerate the diffusion of robots.” Like many firms, L&T has also been heavily investing in robotics. What we heard on Wednesday was only a confirmation of that dynamic.
In a speech earlier this month, President Pranab Mukherjee made two very pertinent points—lack of adequate jobs and the growing automation of the main job-generating sectors. "The restlessness and frustration of youth manifest in unrest and upheaval. Let us not allow such a situation to appear on our horizon. We must turn our evolving demographic configuration into strength. For that, adequate job creation is a priority. The employment-creation figures of 1.35 lakh in 2015, which is the lowest in seven years, are not encouraging," the President said. With machines replacing men, there is a paradigm shift, which needs urgent attention, he added. Last month, the unemployment rate in India had shot up to a five-year high of 5 percent in 2016. According to a report by the Labour Bureau, the figure is significantly higher at 8.7 percent for women as compared to 4.3 percent for men. India's proud record as the fastest growing economy in the world regarding gross domestic product means nothing with job growth in the doldrums. Increasing automation in the manufacturing sector further reduces the scope of employment generation. Why would a factory owner need to pay additional workers when a single machine can do the job? The Boston Consulting Group, an American global management consulting firm, believes that robots will do 40 percent of manufacturing tasks in the years to come.
A booming manufacturing sector will contribute to higher growth, but not necessarily more jobs. Also, one has to be highly skilled in acquiring employment in the manufacturing sector. To obtain these jobs, good quality education is mandatory. But India’s education system has failed miserably in its bid to deliver quality education to India’s young populace. With a fragmented marketplace, low job generation, and rising income inequality, the prospects are rather frightening. “The erosion of jobs is like climate change," said Kaushik Basu, chief economist at the World Bank. "It happens slowly and so makes no news, but its impact can be devastating.” For a brighter future, the governments at the Centre and states need to come up with a definitive plan for long-term targets.