Themes > Current Issues
26.09.2011
Approaching the 12th Plan*
Jayati
Ghosh
In
preparing the Approach to the 12th Plan, the Planning Commission engaged
in a wide consultative exercise that covered different parts of India
and involved a varied group of what are now called ''stakeholders''.
The resulting document clearly indicates some awareness of the complex
problems likely to be faced by the Indian economy in the coming period.
But it falls short of expectations because it does not provide anything
like a cohesive strategy to deal with these problems, and indeed does
not seem to have a framework that would enable such a strategy.
Obviously, it is impossible to consider all the different aspects of an approach to a plan in this short space. So let us consider only one of the most central issues in the economy today: employment generation. This was never one of the success stories of the macroeconomic strategy of the reform period: Since the early 1990s, employment (especially in what could be called minimally desirable jobs) has not kept pace with the rapidly expanding aggregate incomes.
The latest large survey data from the NSSO suggest that, far from improving, the problem has intensified recently. Between 2004-05 and 2009-10, for all persons above 15, employment of all kinds (including self-employment, part-time work, home based work etc) - in terms of the principal activity - increased at an annual compound rate of 0.82%, compared to 2.7% in the previous period.
Total female employment actually fell, mostly because of a massive decline in self-employment. The general decline in self-employment also calls into question the future viability of petty self-employment in low grade manufacturing. Insofar as regular employment of women has increased, in both urban and rural areas it has been dominated by ''domestic service'', which can hardly be seen as a desirable expansion of productive activity reflecting economic boom.
This is a huge concern, because creation of ''good quality'' jobs is the most important mechanism in making aggregate economic growth ''inclusive'' as desired, for example, by the Eleventh Plan. The Approach to the 12th Plan accepts this point as well: ''For growth to be inclusive it must create adequate livelihood opportunities and add to quality employment commensurate with the expectations of a growing labour force.'' (page 9)
One reason why employment grew more slowly in the most recent period is actually because of the growing involvement of young men and women in higher stages of education. While this is good news, it also means that there will be more and more young people entering the labour market with higher level qualifications, expecting to find employment that is commensurate with their education.
This likelihood too has not escaped the notice of the Planning Commission; it notes that: ''much larger numbers of educated youth will be joining the labour force in increasing numbers during the Twelfth Plan and in the years beyond. The clear implication of this is that the pace of job/livelihood creation must be greatly accelerated.'' (page 10)
However, the problem extends far beyond simply increasing the aggregate rate of job creation. Much of the increased enrolment in education has been private: the Approach Paper notes that private higher education currently accounts for about four-fifths of enrolment in professional higher education and one-third overall. Most of these - especially the professional courses - are associated with high user fees. Families across the country now put most of their hopes in educating the young as a means for social and economic advancement. Where access to good public educational institutions is limited (which is increasingly the case) such families educate their young at enormous cost, selling assets and going into debt in order to pay the high fees.
Yet it is abundantly clear already that the large bulk of such private institutions do not live up to their promise in terms of ensuring employment or even employability. Examples are rife, of graduates with engineering, management and other degrees applying for jobs as salespersons or even railway signalers, because they are unable to find jobs that will use the skills they are supposed to have acquired. Some of this is because the system itself is simply not generating enough of the kinds of jobs that are demanded by those with such degrees. But the poor quality of education in many institutions (both public and private) is also a big part of the problem.
That is why it is surprising that the Planning Commission thinks that encouraging more private initiatives in higher education will solve the problem, and that the current ''not for profit'' prescription in education needs to be examined. It is already only too evident - as the proliferation of teaching shops masquerading as higher education institutes suggests - that this is a sector with very strong information asymmetries, where consumers are often not able to sort out quality or can do so only after spending long years and often significant resources in the effort.
In this context, it is chilling to read the argument that ''free entry will, in the end, automatically weed out the poor quality institutions'' (page 13). First of all, how long will it take to ''end''? And in between, how many lakhs of students and their families will have plunged into debt and wasted years of their lives? What will the ensuing frustration and resentment mean for social stability and potential unrest?
More generally, the Approach Paper does not really seem to have an employment strategy at all. That may be why, despite having outlined the problem at the start, there is no chapter on employment, and the macroeconomic discussion barely allows this ''soft'' consideration to intrude into its macho obsession with GDP growth rates. Indeed, despite all evidence to the contrary, the underlying assumption seems to be that output growth in itself will generate the required employment.
Thus, there is a brave declaration that the rate of job creation in manufacturing should increase to provide 100 million additional jobs by 2025 (page 110). This is startling, given that economic growth in the fifteen years up to 2010 generated not even a small fraction of that number. What makes the projection particularly brave is that manufacturing employment actually declined in the period 2005-05 to 2009-10, even though manufacturing output grew at an annual compound rate of more than 8 per cent over that period.
If manufacturing is to provide even part of the additional employment that is projected, there must be special focus on medium, small and micro enterprises. The Approach document does note the different elements that are required for this: access to capital and credit; technology and productivity; marketing and production inputs; creation of industrial clusters to provide infrastructure. All of these will require specific policy interventions, which also take note of the very specific requirements of women engaged in such activity.
But obviously, if employment is indeed to become a central goal of economic policy, a more proactive role is required in general. The first and most obvious requirement is that employment data should actually be collected at more frequent intervals. It is extraordinary that reliable employment data are generated only every five years through large surveys of the NSSO and every ten years through the Census, and then made available only after a very substantial time lag. Compare this to the release of quarterly data on GDP, which is surely much more complex to estimate and requires many more assumptions to be made while deriving the numbers.
If gender-disaggregated data on employment are not collected and analysed regularly, it becomes impossible to monitor actual trends or the effects of policies and processes on employment. Only when such data are available can it even become a basis for popular mobilization. More regular (at least annual) data must be the basic minimum requirement for a government that is serious about employment creation, and must be an essential demand from the citizenry.
But also, shifting to an employment-oriented macroeconomic strategy can have many other, more creative aspects. One aspect that is often missed is the possibility of using social policy and social expenditure to generate more employment, which not only improves the quality of life of people but also has very strong multiplier effects. Increased public spending on health, sanitation, education and other essential public services should be associated with the provision of regular and good quality jobs in these sectors, rather than exploitation of underpaid para-professionals who increasingly carry the burden of service delivery.
This is not only a ''welfare'' measure - it can in fact be part of a systematic growth strategy, as the experience of Southeast Asian countries as well as Nordic countries in the past makes amply clear. This is particularly important in India at the current juncture because of our demographic bulge and the increasing numbers of educated youth in search of productive employment. We urgently need to redesign our growth strategy with this viable alternative in focus.
* This article was published in the Frontline volume 28, Issue- 20, September 24 - October 07, 2011.
Obviously, it is impossible to consider all the different aspects of an approach to a plan in this short space. So let us consider only one of the most central issues in the economy today: employment generation. This was never one of the success stories of the macroeconomic strategy of the reform period: Since the early 1990s, employment (especially in what could be called minimally desirable jobs) has not kept pace with the rapidly expanding aggregate incomes.
The latest large survey data from the NSSO suggest that, far from improving, the problem has intensified recently. Between 2004-05 and 2009-10, for all persons above 15, employment of all kinds (including self-employment, part-time work, home based work etc) - in terms of the principal activity - increased at an annual compound rate of 0.82%, compared to 2.7% in the previous period.
Total female employment actually fell, mostly because of a massive decline in self-employment. The general decline in self-employment also calls into question the future viability of petty self-employment in low grade manufacturing. Insofar as regular employment of women has increased, in both urban and rural areas it has been dominated by ''domestic service'', which can hardly be seen as a desirable expansion of productive activity reflecting economic boom.
This is a huge concern, because creation of ''good quality'' jobs is the most important mechanism in making aggregate economic growth ''inclusive'' as desired, for example, by the Eleventh Plan. The Approach to the 12th Plan accepts this point as well: ''For growth to be inclusive it must create adequate livelihood opportunities and add to quality employment commensurate with the expectations of a growing labour force.'' (page 9)
One reason why employment grew more slowly in the most recent period is actually because of the growing involvement of young men and women in higher stages of education. While this is good news, it also means that there will be more and more young people entering the labour market with higher level qualifications, expecting to find employment that is commensurate with their education.
This likelihood too has not escaped the notice of the Planning Commission; it notes that: ''much larger numbers of educated youth will be joining the labour force in increasing numbers during the Twelfth Plan and in the years beyond. The clear implication of this is that the pace of job/livelihood creation must be greatly accelerated.'' (page 10)
However, the problem extends far beyond simply increasing the aggregate rate of job creation. Much of the increased enrolment in education has been private: the Approach Paper notes that private higher education currently accounts for about four-fifths of enrolment in professional higher education and one-third overall. Most of these - especially the professional courses - are associated with high user fees. Families across the country now put most of their hopes in educating the young as a means for social and economic advancement. Where access to good public educational institutions is limited (which is increasingly the case) such families educate their young at enormous cost, selling assets and going into debt in order to pay the high fees.
Yet it is abundantly clear already that the large bulk of such private institutions do not live up to their promise in terms of ensuring employment or even employability. Examples are rife, of graduates with engineering, management and other degrees applying for jobs as salespersons or even railway signalers, because they are unable to find jobs that will use the skills they are supposed to have acquired. Some of this is because the system itself is simply not generating enough of the kinds of jobs that are demanded by those with such degrees. But the poor quality of education in many institutions (both public and private) is also a big part of the problem.
That is why it is surprising that the Planning Commission thinks that encouraging more private initiatives in higher education will solve the problem, and that the current ''not for profit'' prescription in education needs to be examined. It is already only too evident - as the proliferation of teaching shops masquerading as higher education institutes suggests - that this is a sector with very strong information asymmetries, where consumers are often not able to sort out quality or can do so only after spending long years and often significant resources in the effort.
In this context, it is chilling to read the argument that ''free entry will, in the end, automatically weed out the poor quality institutions'' (page 13). First of all, how long will it take to ''end''? And in between, how many lakhs of students and their families will have plunged into debt and wasted years of their lives? What will the ensuing frustration and resentment mean for social stability and potential unrest?
More generally, the Approach Paper does not really seem to have an employment strategy at all. That may be why, despite having outlined the problem at the start, there is no chapter on employment, and the macroeconomic discussion barely allows this ''soft'' consideration to intrude into its macho obsession with GDP growth rates. Indeed, despite all evidence to the contrary, the underlying assumption seems to be that output growth in itself will generate the required employment.
Thus, there is a brave declaration that the rate of job creation in manufacturing should increase to provide 100 million additional jobs by 2025 (page 110). This is startling, given that economic growth in the fifteen years up to 2010 generated not even a small fraction of that number. What makes the projection particularly brave is that manufacturing employment actually declined in the period 2005-05 to 2009-10, even though manufacturing output grew at an annual compound rate of more than 8 per cent over that period.
If manufacturing is to provide even part of the additional employment that is projected, there must be special focus on medium, small and micro enterprises. The Approach document does note the different elements that are required for this: access to capital and credit; technology and productivity; marketing and production inputs; creation of industrial clusters to provide infrastructure. All of these will require specific policy interventions, which also take note of the very specific requirements of women engaged in such activity.
But obviously, if employment is indeed to become a central goal of economic policy, a more proactive role is required in general. The first and most obvious requirement is that employment data should actually be collected at more frequent intervals. It is extraordinary that reliable employment data are generated only every five years through large surveys of the NSSO and every ten years through the Census, and then made available only after a very substantial time lag. Compare this to the release of quarterly data on GDP, which is surely much more complex to estimate and requires many more assumptions to be made while deriving the numbers.
If gender-disaggregated data on employment are not collected and analysed regularly, it becomes impossible to monitor actual trends or the effects of policies and processes on employment. Only when such data are available can it even become a basis for popular mobilization. More regular (at least annual) data must be the basic minimum requirement for a government that is serious about employment creation, and must be an essential demand from the citizenry.
But also, shifting to an employment-oriented macroeconomic strategy can have many other, more creative aspects. One aspect that is often missed is the possibility of using social policy and social expenditure to generate more employment, which not only improves the quality of life of people but also has very strong multiplier effects. Increased public spending on health, sanitation, education and other essential public services should be associated with the provision of regular and good quality jobs in these sectors, rather than exploitation of underpaid para-professionals who increasingly carry the burden of service delivery.
This is not only a ''welfare'' measure - it can in fact be part of a systematic growth strategy, as the experience of Southeast Asian countries as well as Nordic countries in the past makes amply clear. This is particularly important in India at the current juncture because of our demographic bulge and the increasing numbers of educated youth in search of productive employment. We urgently need to redesign our growth strategy with this viable alternative in focus.
* This article was published in the Frontline volume 28, Issue- 20, September 24 - October 07, 2011.
© MACROSCAN 2011