Creating employment opportunities in India is important because millions are graduating each year from schools and colleges, from skill development programmes, but jobs will not be created unless people can be deployed to provide relevant goods and services at proper prices, quality and as efficiently as required by the market. This is possible only if it is economically viable to provide such goods and services in India, if people with required skills are available and if technology required to be competitive, is used.
The latter two have not been accorded the required level of importance over the past seven decades by the Governments in power and the private sector alike, resulting in India losing out during the Second and Third Industrial Revolutions. We are at the door-step of the Fourth Industrial Revolution (aka Industry 4.0) and much needs to be done. However, the focus of this article is not on that but on five other issues. They will, in fact, help us understand why data on employment is unreliable and where new opportunities exist.
Employment data, unreliable
In the recent months, there have been headlines ranging from screaming ones like ‘The cat is out of the bag’ to more sanguine ones like ‘unemployment is on the increase’. The figure for unemployment in India for 2018 is reportedly 7.6% and the following chart seems to suggest that it has risen sharply from a benign 3.54% in 2010.
It is my submission that neither positive news nor negative news on employment in India is reliable for important reasons.
We need new metrics and measurement tools to understand unemployment in India. We continue to bemoan job losses and high unemployment because we have not woken up to the fact that the world has changed in more ways than one; business models have changed rapidly across sectors due to digital technologies and changed consumer habits. For example:
New metrics and measurement tools required
One can list a few dozen more sectors that are changing including entertainment, travel and hospitality, real estate, healthcare, etc., where old jobs are dying, new ones are being created. No one measures such employment. What metrics will help to measure such job creation? There are no clear answers, but jobs are being created though we don’t have the means, yet in India, to capture data accurately.
The second issue is that comparison of employment statistics with those of the previous years, is a challenge peculiar to India, because of the weakness in the methodology used in the past to arrive at employment numbers. Approximately, 93% of the employment in India is believed to be in the rural sector and the informal sector. It is very difficult to measure. Sample surveys are done once in five years by the NSSO (National Sample Survey Organisation) to arrive at estimates, which are neither accurate nor done frequent enough. Often factors and definitions used are debatable. When neither the present nor past data on unemployment are reliable, how can any meaningful conclusions on trends be arrived at?
The third issue is whether it is the Government’s job to create jobs. It was definitely the case till the late sixties when the newly independent country needed some economic pillars to build businesses on. Government and public sector jobs were coveted, both for stability as well as because the Government was the biggest employer. The Government’s industrial licencing policy actually curbed business growth in the private sector and curbed job creation till 1991. Not anymore. Today, the Government’s role should be to facilitate job creation and not to create jobs. Unfortunately, some sections in the Government think, it is still their responsibility to create employment. They must own airlines, manufacturing companies, telephony services, etc., provide poor service to customers; hence, struggling to stay alive. A few jobs are being protected with money that could be used to create many more viable jobs. For instance, Air India is being kept alive to protect jobs using tax-payer`s money, with no real plan on how to make it a great airline that can compete against the best in the world. In fact, Government policy of pricing aircraft fuel high, is killing the entire private sector airlines.
Flaws in government policies
Where the Government has fallen short is in policies that encourage industrial and business investment, in sensible innovative taxation, in policies that encourage entrepreneurship, in labour and judicial reforms, in making the processes for buying land, building construction, etc. Till this day, several policies actually retard job creation. Countries in the Asia Pacific region have mastered the art of doing that. We could even learn from Vietnam, which has hugely benefited from the trade war between China and the US.
That leads me to the fourth issue, the requirement of a flexible contract labour law. Disingenuous as it may seem, it will actually create more employment and not kill jobs. Anyone who has been in business knows that business has its ups and downs. A large part of the opportunity for India’s exports, especially for labour intensive businesses which the Government wants to promote, actually lies in the cyclical ups. Indian companies cannot go for those opportunities because they are afraid to employ labour due to inflexible labour laws. If there was a flexible contract labour law, one would see an increase in labour hours used per year, though not in the form of higher number of permanent jobs. But only in some countries like India is part-time employment looked down upon.
One area where the Government needs to stay out of policy making is Artificial Intelligence (AI), which is likely to create more jobs than it destroys but the jury is still out. While it is true that AI based systems will sooner or later replace most repetitive jobs, it will enable humans to do the unthinkable, thus creating more jobs than it kills. Let the private sector figure out this conundrum like the Government of India stayed out of IT Services sector for a long time, unlike the Government of Kerala, which was against the use of computers in general. Today, it is a major advocate for computerisation and software development after seeing the huge number of jobs created in the State. Skilling for new types of jobs needs to start now as some things are already evident. If we get our policies right or don’t create adverse policies, India has an opportunity to create a large number of jobs to cater to the demand for AI-based software and hardware arising from the world at large. China has already got onto that path aggressively. There is good space for India too; it is for us to lose the race by lacking vision.
The fifth issue is disguised unemployment in agriculture. The following chart shows how 43% of the employed are in Agriculture but they contribute to only 16% of the GDP. Many of them should be moving quickly into the manufacturing and services sectors where real employment opportunities are growing, and productivity is better. The seriousness of distortion in India is evident from the following chart:
Outside industrialised cities like Greater Mumbai, new factories and existing ones depend upon migrant labour from distant places which disappears during harvest season (creating shortages), or depend on rural labour that have migrated to nearby towns with no change in their agricultural mindset. Thus, labour productivity is abysmal. There are Government initiatives for skilling but paradoxically, factory owners are not willing to pay high enough for skilled labour for workers to be incentivised to attend skilling schools because they make do with yesterday’s technology.
As mentioned at the outset, the world is moving to Industry 4.0. It is for us to win or lose this time. There is inadequate appreciation of this opportunity and threat. Job creation in the future will depend on that.