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.
|
Table 1: Growth rates of employment |
||
| Annual compound rates per cent | ||
| Rural | Urban | |
|
1983 to 1987-88 |
1.36 | 2.77 |
|
1987-88 to 1993-94 |
2.03 | 3.39 |
|
1993-94 to 1999-00 |
0.67 | 1.34 |
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.
Even in the urban areas, the rate of employment generation
has slowed down very dramatically over the various periods considered
here, and in the latest period it appears to have been also well below
the estimated rate of growth of the urban population. Since it is widely
felt that economic growth in the 1990s has been disproportionately higher
in the urban areas, the significantly lower rates of employment growth
here also suggest very low and falling elasticity of employment generation.
Associated with this, there has been a continuation
the earlier process of casualisation of labour. Thus for both rural
men and women, the share of casual employment has gone up, quite substantially
for men.
This is probably no surprise, given the lack of more
regular employment generation in the countryside following from the
more general decline in per capita public spending on the rural areas.
This has naturally led to a drying up of regular employment opportunities,
and the reduced multiplier effects of this decline also would have had
an effect. But it is also not surprising given the lower rate of aggregate
employment generation in the countryside, since periods of excess supply
in labour markets are typically associated with worse conditions for
the workers, in terms of less secure or regular contracts at the very
least.
For urban workers, the pattern is much more mixed.
For men, there is only a very slight increase in casual contracts. For
women workers, in fact there is a substantial increase in regular work,
although this increase is greater when all workers (principal and subsidiary
status) are taken together, rather than for principal status alone.
This suggests that at least some of the increase may be a reflection
of regular but secondary work undertaken by women to supplement household
income, for example through manufacturing activities on a putting out
basis at home, or part time service activities.
Such a dramatic deceleration in employment growth,
well below the estimated rates of population growth, would normally
be associated with very significant increases in unemployment. This
would happen to a more limited extent than otherwise, since it is usually
typical of poor countries with low to non-existent social security benefits,
that the working population cannot afford the luxury of open unemployment.
However, the data show that usual status unemployment
has increased only marginally for rural men and women, and has actually
decreased for urban men and women workers. This points to a substantial
decline in labour participation rates overall.
The main reason for this is the expansion of education,
which seems to be drawing in more and more of the population in the
age group 10-19 years. This is of course a very welcome and positive
development. In fact, the NSS suggests that in the sample year, as many
as 78.5 per cent of rural boys and 64.3 per cent of rural girls (of
the age group 10-14 years) were "usually" occupied in school. For urban
areas the figures are as high as 87.5 per cent for boys and 82.5 per
cent for girls. If these numbers are even approximately correct then
it is a sign of much hope.
This also means that the process of education has
absorbed some of the slack in the labour market so that unemployment
rates are not as high as they would otherwise have been given the very
slow and falling rate of employment growth. But it does not get away
from the basic problem, that the system is simply not generating enough
job opportunities for the aggregate labour force.
Clearly, there is something very wrong with an economic
growth process that not only does not increase the rate of employment
generation, but actually brings it to a historic low. Even in the context
of a poor history of employment generation, the latter part of the past
decade ranks as the worst ever performance.
It turns out. therefore, that the expectations of
neoliberal marketist reformers have certainly been belied even in the
area of employment. Obviously, the production restructuring that has
occurred in the Indian economy has not been of a type which has created
more labour-intensive productive activities. Nor has there been sufficient
dynamism to make the overall employment grow faster because of sheer
volume increases in output.
In fact, quite the opposite tendency appears to be
at work. The NSS evidence on employment generation - or rather, the
lack of it - suggests that the basic economic problems of unemployment
and low productivity unemployment not only remain unresolved, but have
actually grown more acute, after a decade of marketist reforms. It is
more crucial than ever, then, to think of different economic strategies
that would focus on productive employment expansion.