As the fastest growing large economy in the world, India is a rare bright spot today in a difficult global environment. But in a populous country like ours, and with 12 million working age people getting added to the workforce every year, ’employment intensity of growth’ is as important as growth itself. No wonder, of late, the link between ‘economic growth’ and ‘job creation’ has often been subjected to the most rigorous scrutiny by key stakeholders – policymakers, economists, industry, and even the common man.
Multiple studies in the recent past have pointed to a persistent decline in employment elasticity of growth, which effectively means that fewer hands are needed to produce the same amount of economic output. Early this year, the Quarterly Employment Survey of eight employment intensive sectors – textiles, leather, metals, automobiles, gems and jewelry, transport, IT/BPO, and handloom/power loom did point to a slowdown in new job creation with just about 91,000 net new jobs getting added in these sectors during the first half of FY 2016. Though it can be claimed that the narrow scope of the study (just eight sectors) may well have constrained its ability to capture the changing dynamics of job creation in the economy today, some concern over the rate of new job creation can however not be ruled out. The reason attributed by economists to this deceleration is change in the composition of incremental GDP in recent years; a large part of this is accounted for by less labour intensive services like IT/ITES, business and financial services.
in manufacturing if eleven people were needed to execute a piece of work that generate Rupees one million worth of GDP a decade ago, today only six are needed.
I would like to believe that a challenge of this kind is perhaps inevitable in a rapidly modernizing economy where technology is constantly altering work processes in both manufacturing and services. The other factor impacting new job creation could be globalization; slowing global demand dragging down exports conspicuously, which in turn has drastically impacted overall employment in the export sector. Like the technology factor, impact of globalization is an inescapable reality today.
India is clearly at an important crossroad today in terms of sector-specific distribution of employment. Nearly half the people currently employed in agriculture need to move out of the sector, for the sake of productivity, as too many people are engaged in a sector whose share in GDP is dropping every passing year. But the moot question today is whether manufacturing and services sector are ready to take this enormous burden at the rate we would like them to.
Having missed out on the manufacturing boom of the 1990s and the 2000s that was so well exploited by China it is incumbent upon us to revive and reorient the sector urgently to increase its share in the overall employment pie from the current 12-13%. Though it may not be possible to increase this to the level of China’s, where about 34% of the work force is employed in manufacturing, taking it up to 20% could surely be a more feasible target. Thus, Make in India looks a timely step in the right direction.
While trying to energize the manufacturing sector, we however have to keep in mind some of the imposing challenges facing the sector today. The apparent disharmony between education and training infrastructure and the requirements of the industry have long been highlighted, but not addressed to. The skilling infrastructure needs substantive reorientation to create more employment ready job aspirants. Skill India Mission needs to be a more participative initiative to reflect industry’s changing requirements more accurately. Labour reform is another key area that needs urgent action. Contrary to general perception that paint the proposed reforms as labour unfriendly, appropriate changes in laws in this area can actually encourage companies in the organized sector to recruit more.
This article is a part of FICCI publication “Economy of Jobs” that was released during our 89th AGM in December 2016. It presents essays from India’s leading business leaders and eminent thought leaders who share views and suggestions on job creation. The articles cover varied issues: demographics, education, skill development, entrepreneurship, impact of technology, labour laws, and as well as specific issues across sectors.
More articles from this series can be viewed here at: Economy of Jobs
We also need to keep in mind the importance of the informal sector as the foremost driver of employment in the economy. In fact, today India has only about 30 million jobs in the organized sector as compared to nearly 440 million in the unorganized sector. According to the Economic Survey 2015-16, of the 10.5 million manufacturing jobs created in India between 1989 and 2010, only 3.7 million were in the formal sector. Hence, all future policy changes with regard to new job creation or skill mapping need to keep in perspective the internal dynamics of this important sector.
Automation is clearly emerging as a big job killer. Innovations in AI, 3D printing and robotics have already alerted us about the vast scope of change in this area. According to a recent World Bank Study, automation could threaten about 69% of jobs in India in future. But given the fact that the same study also points to a corresponding potential job loss of 77% in China, we need to accept impact of automation as a global phenomenon. Instead of trying to block or restrict such an all-encompassing phenomenon, we will be better off planning for a smooth transition through such potentially turbulent changes.
It’s now fairly clear that many of the traditional sectors in the economy are not in a position to absorb the rising load of new working age population as they become less labour absorbent. For instance, according to Crisil, in manufacturing if eleven people were needed to execute a piece of work that generate Rupees one million worth of GDP a decade ago, today only six are needed. In such a situation, it is quite imperative to look at other sectors to speed up the job creation process in the economy, notwithstanding the visionary Make in India initiative undertaken by the Government, which aims to increase the share of manufacturing in GDP to 25% by 2022 from 16% today.
The services sector has clearly emerged as the frontrunner as far as job creation is concerned. But given the varying levels of labour elasticity across different service sector, it will be critical to identify the right sectors to focus on.
While new services like e-commerce and logistics are very much capable of multiplying their intake at a very rapid pace, others like IT, telecom, brick and mortar retailing, financial services and aviation too can speed up their absorption by taking advantage of a booming consumer market. The IT sector, which has been a prime driver of employment over the last two decades, is clearly undergoing a big transformation. While some of the traditional job profiles are getting completely obliterated, new ones – fewer in number, but richer in skills – are being created as customers abroad are seeking more productivity and value addition. Disruptive technologies – social, mobility, analytics, AI, cloud – while creating new jobs and opening new avenues of growth, are also making a lot of traditional IT jobs redundant. Making sense of this change process and planning for future manpower requirement of the sector to move up the value chain will of course be critical.
Sunil Bharti Mittal, Founder & Chairman, Bharti Enterprises writes this piece for FICCI publication “Economy of Jobs”. Post continues on Page 2..