Job Less Growth in India after Liberalization

SuryakantAshwani VohraSachin GuptaAmit Pal

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Contents

Introduction

Job growth scenario from 1956 to 2012

Reasons of Jobless Growth

Proposed Solution

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What is Jobless Growth ?

A jobless recovery or jobless growth is an economic

phenomenon in which a macroeconomic

experiences growth while maintaining or decreasing

its level of employment. The first documented use

of the term was in the New York Times in 1935

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Is Job Less Growth Exist in India ?

Earlier (FY73 ~FY94) GDP growth sub 5% employment generation is above 2% Post liberalization GPD growth is 6 .0 % but employment generation is 1.1% During FY05 to FY10 Growth is 8.7 % & employment growth is 0.1%

Year Employment Growth CAGR

GDP Growth CAGR Employment Elasticity

FY 73 - FY 78 2.6 4.6 0.57

FY 78– FY 83 2.1 3.9 0.54

FY 83 –FY 87 1.7 4.0 0.42

FY 87- FY 94 2.4 5.6 0.43

FY 94- FY 00 1.0 6.8 0.15

FY 00- FY 05 2.8 5.7 0.50

FY05 - FY 10 0.1 8.7 0.01FY 10 –FY12 1.4 7.4 0.18

FY94 –FY12 1.1 6.0 0.18

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Contents

Introduction

Job growth scenario from 1956 to 2012

Reasons of Jobless Growth

Proposed Solution

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Higher Productivity Growth by Technology

Productivity growth by technology outpaced 3 times than Increase in Labour productivity

Broad SectorReal value added growth

Contribution of Labour persons

(A)

Contribution of Labour

quality(B)

Contribution of Capital services

(C)

TFP growth(A+B+C)

Agriculture 3.03 0.37 0.15 0.99* 1.52

Mining & Quarrying 4.75 0.68 0.38 3.93 –0.24

Manufacturing 7.22 0.68 0.44 5.37 0.73

Electricity, Gas & Water Supply 7.44 0.66 0.34 3.49 2.96

Construction 3.48 5.21 0.21 1.37 –3.31

Services 7.11 1.73 0.53 3.00 1.84

Total Economy 5.82 0.84 0.69 2.89* 1.40

Table 2-Trend Growth Rate in Real Value Added and Contribution of Factor Inputs and TFP to GVA growth by Broad Sectors, 1980 to 2008

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Contents

Introduction

Job growth scenario from 1956 to 2012

Reasons of Jobless Growth

Proposed Solution

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Increasing Real Wages & Falling Cost of Capital

Technology is relatively became cheaper in last 30 year & Ratio is increasing exponentially so it is prudent to replace man power with equipment

Ratio increased at much faster pace in manufacturing sector than other area

Source: http://www.ideasforindia.in/article.aspx?article_id=280

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Lower Labour productivity of Indian Labour

Labour productivity in India is one of lowest in developing countries so it is relatively cheaper to use Technology

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Service Sector Led Growth

Abnormal growth pattern of economy . Normally countries goes Primary sector to Secondary Sector but India directly switched to Tertiary Sector

1950-51

1952-53

1967-68

1958-59

1974-75

1954-55

1957-58

1963-64

1955-56

1975-76

1983-84

1982-83

1988-89

1990-91

1994-95

1996-97

1998-99

2001-02

2004-05

2003-04

2010-11

2013-140

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20

30

40

50

60

Share of GDP by Sector

Agriculture Industry Ser vice

Source: http://statisticstimes.com/economy/sectorwise-gdp-contribution-of-india.php

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Higher Productivity Growth in Service Sector

Source: https://rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=785

Higher productivity growth in service sector after 1990 lead to less Job creation for same GDP growth

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Unequal Geographical Growth GDP growth benefitted only to some part of India i.e. Maharashtra ,Gujarat ,Haryana Most populous state i.e. Bihar , West Bengal , U.P. , M.P. lagged behind Growth Centre are Far away from Man power central, makes Manpower costly

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Free Transferability of Cheap Foreign Capital Due to liberalization, there is a Free transferability of

capital/technology but labor movement is subject to restriction (VISA).

Cheap funding of capital for Technology up gradation by developed world (USA/JAPAN /IMF) to India.

Investment in technology is capital expenditure & One time cost so there is more certainty of expenses .Wages are revenue expenditure & repetitive in nature .It is inflationary in nature .So expenses are uncertain . Businessman reduce uncertainty by replacing man with equipment.

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Old Labour Law & Poor Product Quality Indian Labour law & Industry regulation are decade

long .These law promotes Red-Tapism , Corruption & unnecessary delay in processes . These law makes Hire & Fire of Labour makes difficult So Industry is avoiding Man power with Machines /Automation

Out put from manual Labour is non standardized & poor quality. We get standardized output & superior quality by Machine. This encourage usage of technology in place of man power .

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Contents

Introduction

Job growth scenario from 1956 to 2012

Reasons of Jobless Growth

Proposed Solution

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Proposed Solutions for Job Creation Focus on Skill Development –Skill development

improved productivity & makes export of our goods & services competitive in international & domestic market

Reform Old Labour Law –Indian Labour laws are decade old .These laws hinder Employment Growth

Promote Labour Intensive Sector –Promote Labour intensive sector (Manufacturing ,Construction , Tourism).

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Focus on MSME Sector–MSME sector has a tremendous potential of employment generation . Sector doesn’t focus on state of technology .

Set up industry in Populous state – Provide tax incentive to setup industry in most populous state (U.P. , Bihar ,Bengal )

Support for free movement of Labour –Developed countries advocating for Free Trade So third world countries to jointly support for Free movement of Labour

Proposed Solutions for Job Creation

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Linking MANREGA to capacity creation- Government should link MANREGA to create capacity & to boost future growth potential of economy .

Diverting Saving to Financial Asset– Currently people are investing their saving into Real Estate & Gold .By diverting these saving to Financial asset, we can increase GDP growth & Employment

Circular Economy Concept -Industry should think of circular economy .If people don’t have Job. There will be no demand for Goods so business man must create Job for their own Growth.

Proposed Solutions for Job Creation

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Stable Policy Regime –Provide stable Rules, Regulations & Policy Regime for FII/FDI investment .In past few years there were lot of problems i.e. Retrospective Tax , Court ruling in Telecom & Coal . These cases affected the investment friendly image of the country .

Make In India Initiative

Proposed Solutions for Job Creation

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