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Direction of growth?

India’s economic growth has little impact on the employment scene. GDP is on the rise but jobs are shrinking

Direction of growth?

It may sound rather odd that India's high rate of economic growth has practically no net contribution to the country's job market. The net domestic headcount of full-time employees may be actually shrinking though the economy is growing above seven per cent. It is a paradox which few economic researchers are ready to explain. If the latest report of the Teamlease Employment Outlook is to be taken seriously, India's net employment outlook is likely to decrease by 3 per cent to 92 per cent in the two quarters (October 2018 – March 2019) as compared to 95 per cent for the preceding half-year. The Teamlease report is based on a survey of 750 employers and 2500 employees of small, medium and large companies across 19 sectors and 14 cities to gauge the hiring sentiments in the country.

The employment outlook looks really bad. The alarmingly high demand-supply mismatch in the job market came to light in April when Indian Railways received a staggering 23 million applications for just 90,000 vacancies. The result of a sample survey report of the Centre for Monitoring Indian Economy (CMIE) showed that the number of formally employed Indians may have declined marginally by 0.1 per cent in 2017-18. It suggests that no jobs were added in FY 2018. This is certainly bad news for Asia's third-largest economy. This also contradicts the government's claim ahead of the 2019 Lok Sabha election that 3.11 million jobs were added between September 2017 and February 2018, based on the employee payroll data. The CMIE had contested the data. Yet, such a government claim is in stark contrast to the ruling BJP's 2014 poll promise of creating 10 million jobs every year if the party came to power. What has gone wrong?

The job push in a developing economy normally comes from new large projects and manufacturing expansion. Unfortunately, in the last several years, the country hardly witnessed many large new projects and manufacturing ventures. Instead, several of the existing ventures fell sick and referred to the country's Insolvency and Bankruptcy Board. Public sector banks lost billions in bad loans turned non-performing assets. The wrong economic policies and a deliberate attempt to weaken large public sector understandings and an overwhelming focus on primarily import-based digitisation — without creating a local manufacturing infrastructure of hardware and instruments, including memory chips, and education levels of users — appear to be primarily responsible for India's highly job-starved economic growth.

The fear that increasing imports of manufactured goods and components may eat up more domestic jobs has now started haunting even many central government departments. That may explain why so many ministries recently flagged concerns over ongoing negotiations for the regional comprehensive economic partnership (RCEP) agreement. Rising cheap imports from China is causing the biggest fear. The ministries are believed to have conveyed their concerns to the union commerce ministry as well as the prime minister's office (PMO). At least three union ministries are still not convinced about the usefulness of an urgent RCEP agreement, which is now postponed to 2019. "We have more convincing to do within the government. The ministries of steel, heavy industry and textiles continue to be apprehensive as they feel their sectors are not ready to face competition from China and some others," said a government official. Even the finance ministry is reported to be worried, though for a different reason, as it may annually lose some Rs. 25,000 crore in customs duty collection the moment such an agreement comes into force. The number of duty losses could only go up in the following years. An all-pervasive RCEP agreement, fear these ministries, will see the end of the much-touted 'Make-in-India' programme.

The country's make-in-India has failed to take off in the face of growing import-led economic expansion and an unprepared focus on digitisation. The domestic, as well as foreign direct investment (FDI) in projects, is shrinking. A substantial part of FDI is taking place not in new projects, but in domestic corporate take-overs as in the case of Walmart's majority Flipkart acquisition deal, or, growing "promoters' equity" in Indian companies by the likes of Alibaba and Softbank. Some cell phone companies are setting up assembly plants. But, they don't create many permanent jobs. The so-called 'Make-in-India' hype may face the same fate as former US president Ronald Reagan's 1980 presidential campaign — Let's Make America Great Again — against the growing Japanese and Chinese import lobbies, then. Using the country's economic distress as a springboard for his campaign, Reagan used the slogan to stir a sense of patriotism among electorates. Under the RCEP agreement, 90 per cent of goods from ASEAN countries, Japan, South Korea, Australia and New Zealand will enter duty-free into India. In the case of China, 75-80 per cent of all goods will enter the country without duty. It may further push up India's trade deficit with China to $100 billion or more and make India's unemployment situation even more acute.

It is common knowledge that import of goods also means import of labour that is utilised in the manufacturing of those goods. The massive imports of manufactured products in recent years are contributing substantially to India's services sector growth. Imports are creating jobs in manufacturer-supplier countries and hardly any in India. Going by last year's data from the programme implementation ministry, India's GDP from the industry sector was only $495.62 billion. In the services sector, its GDP was $1.186 trillion. This is unusual for a developing economy of India's size. It needs to be substantially reversed if the country's employment growth has to keep pace with economic growth. Even a World Bank report, published earlier this year, says that India needs to create over eight million jobs annually to keep its employment rate constant, as its working-age population (above 15 years) is increasing by 1.3 million every month.

(The views expressed are strictly personal)

Nantoo Banerjee

Nantoo Banerjee

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