Inadequate employment generation has been a major weakness of Indian economic growth since Independence. Indeed, it probably ranks with the persistence of poverty and the slow rate of increase in human development indicators as the great failures of the Indian development strategy over the decades.
 
This is not just a problem of welfare, since it represents a huge waste of human resources that are crucial to building the economy. Thus, it is likely that Indian economic growth could have been both faster and more equitable if only the enormous labour reserves had been productively utilised.
 
Why there has been such a tendency is of course a difficult question requiring a complex answer, and it is probably true to say that the causes are both structural and conjunctural, changing with different phases of the economy.
 
In the 1990s, when neoliberal marketism became the official flavour of the times, it became fashionable to argue that it was the mixed-economy planning-based strategy that was responsible for the slow rate of employment growth. It was suggested that export pessimism and an inward looking import substitution policy had discouraged employment-intensive export production and imposed high-cost capital-intensive production which had low linkage effects with the rest of the economy and did not lead to more use of labour.
 
According to this argument, which was effectively the official position as well, opening up the economy to more liberal external trade and foreign investment would not only generate a higher rate of output growth but also mean much more rapid employment generation. This was because the greater market orientation was envisaged as automatically creating a restructuring of production towards more labour-intensive production along with greater dynamism which would entail also substantial increases in employment.
 
Now that nearly a decade has passed since the imposition of this strategy, and more recent data is available, it is possible to assess how valid this argument has been for the Indian economy. The key results of the National Samples Survey's 55th Round (over 1999-2000) regarding employment and unemployment have just been released.
 
These results reveal a sharp, and even startling, decrease in the rate of employment generation across both rural and urban areas. Indeed, so dramatic is the slowdown in the rate of employment growth that it calls into serious question the pattern of growth over this decade.
 
Based on the employment rates (as per cent of the population) that are given for the 55th Round, it is possible to calculate the rate of growth of aggregate employment in rural and urban areas since the previous large sample conducted in 1993-94. These are shown in Table 1. This table shows growth rates of employment which have been calculated using extrapolated annual population data based on Census figures up to 1991, and thereafter using the now standard projections of annual rates of growth of 1.73 per cent for the rural population and 1.84 per cent for urban population for the period after 1991.

This shows a very significant deceleration for both rural and urban areas, with the annual rate of growth of rural employment falling to as low as 0.67 per cent over the period 1993-94 to 1999-2000. This is not only less than one-third the rate of the previous period 1987-88 to 1993-94, it is also less than half the projected rate of growth of the labour force in the same period. In fact, it turns out that this is the lowest rate of growth of rural employment in post-Independence history.
 
It is also possible to try and calculate the employment elasticity of rural output growth based on these growth rates and on estimates of the rural share of GDP. One such exercise yields an employment elasticity of rural output growth of only 0.13 for 1993-94 to 1999-00, compared to 0.38 for the previous period.
 
In other words, the employment elasticity of rural output growth has declined to less than one-third of what it was in the earlier period, which itself represented a decline compared to past trends. It also means that it can no longer be assumed that the process of economic growth itself will necessarily generate much more employment even in the rural areas, as has commonly been supposed by advocates of the economic liberalisation process.
 
If this is correct, this clearly points to some major problems with the pattern of growth that has emerged in the rural areas in particular. Note that these rates of employment growth refer to all forms of employment in the rural areas, and what is emerging is that there is no sector in which employment is growing fast enough to take up the slack that is brought about by falling labour use patterns in agriculture.