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GDP Growth did not result in increase in employment:UN - Compiled by - K. Ramasubba Reddy
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ABSTRACT: |
| *While the country’s growth rate has been registering impressive numbers, problems related to employment still persist in India, according to the UN Trade and Development Report 2010. |
*The massive growth in modern services such as information technology (IT), communication and financial services was not reflected in the growth of employment.
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*“It is, therefore, necessary that productivity and incomes grow not only in the modern but also in the traditional sectors. This can be achieved by establishing linkages between the two sectors, including the latter in supply chains, increasing the prices of agricultural products and using tax revenue perceived in the modern sector for redistribution policies,” the UN said
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*Despite the expansion in services, employment remained stagnant, the report said. While the sector accounted for 55 per cent of the gross domestic product in 2004-05, it employed just 25 per cent of the work force.
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*Also, employment in this sector has only increased by 22 per cent between 1999-2000 and 2004-05. “Real wages in India have not followed productivity gains,” it said.
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*Similarly, the manufacturing sector also failed to expand in terms of generating employment, even though the sector grew significantly. Formal employment in this vertical, on the contrary, declined from 9.3 per cent to 7.5 per cent of the total employment.
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*One of the primary reasons for lack of real growth in employment was because consumption in rural areas failed to pick up compared to the urban areas, the report added. . BS Reporter / September 15, 2010
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| Excepts from: Trade and Development Report, 2010 |
Employment, globalization and development
Table4.10 India-Sectoral Share in employment (percent)
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| India-Sector |
1995 |
2002 |
2008 |
| Agril |
63.3 (29.5%) |
57.4 (20.4%) |
55.7 (17.8%) |
| Industry |
11.2 (25.9%) |
11.8 (25.0%) |
12.8 (26.7%) |
| Services |
21.3 (44.6%) |
25.1 (54.6%) |
25.0 (55.5%) |
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Note: Employment in agriculture, industry and services does not add up to 100 per cent due to non-classified employment. Figures in brackets , % share in GDP- AT CONSTANT (1999-2000) PRICES .
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(Chapter IV-pp 99)
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In India, the growth of modern services such as information technology (IT) and IT-enabled services, communication services and financial services has not been accompanied by a proportionate growth in employment. This reflects an increase in labour productivity, which makes India’s growth trajectory in services more positive in terms of productivity, though less positive in terms of unemployment and underemployment in a labour-surplus economy.
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Moreover, technological changes and developments have enabled the export of a number of services through various modes of supply such as digital transmission. Thus, in IT and IT-enabled services in India, the expansion of output is being driven by the expansion of exports, with positive effects on the country’s balance of payments.
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As a result, the services sector as a whole has come to dominate
the Indian economy, accounting for more than half of its GDP and contributing overwhelmingly to its relatively high rate of growth in recent years.
However, only half of the services sector’s GDP consists of modern activities. By 2005, knowledge-intensive market and non-market services, including education
and health services accounted for 17.7 per cent of GDP. If the 8 per cent contributed by the railways, defence and public administrations is added, the total comes to 25.7 per cent. To this could be added an equal percentage of substantially unorganized services that offer extremely low wages (Chandrasekhar
and Ghosh, 2010).
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Furthermore, despite the expansion of the services sector, employment growth in this sector has been limited: while the services sector accounted for 55% per cent of GDP in 2004/05, it employed only 25 per cent of the work force. Between 1999/00 and 2004/05, employment in the sector increased by only 22 per cent, whereas the sector’s contribution to GDP at constant prices increased by 44 per cent.
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A typical example is the contribution of the IT sector to employment, which is far below its contribution to income and foreign exchange. Employment in computer-related activities which increased from around 314,000 in 1999/00 to about 963,000 in 2004/05, accounted for only 0.2 per cent of the workforce (Government of India, 2010); in business services, including financial intermediation, real estate renting and business activities, the share of employment was just 1.7 per cent. This explains to a great extent the large disparity between the services sector’s respective contributions to GDP and employment.
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Similarly, the rapid rate of output growth in the organized manufacturing sector27 has not been accompanied by any noticeable expansion of decent
work opportunities for India’s labour force. Formal employment in the irganised manufacturing sector (involving explicit contracts, including a minimum level of work security and social protection) actually stagnated between 1999/00 and 2004/05, signifying a decline from 9.3 per cent to 7.5 per cent of total employment. |
Since the share of employment in manufacturing in total employment remained at around 12 per cent during this period, the manufacturing sector’s contribution to organized employment was not only small relative to the total, but it even declined slightly.
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This happened despite the rapid growth of production in manufacturing in the period after 2001/02, in large measure due to increases in private consumption and investment in housing, which were driven by rapid income growth in the top deciles of the population and in urban areas.
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Real aggregate consumption in urban areas increased by 22 per cent, much faster than the 5.5 per cent rate of increase in rural areas between 1999/00 and 2004/05 (Chandrasekhar and Ghosh, 2010). Another factor driving demand was the sharp increase in credit-financed investment in housing and consumption of durable goods, facilitated by financial liberalization.
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| Exports also provided a stimulus, especially as India became drawn into the
export-oriented manufacturing hub dominated by East Asia. |
In recent years, the share of India’s traditional manufactured exports (such as textiles, gems and jewellery, and leather) in its total manufactured
exports has declined, while that of chemicals and engineering goods has risen significantly. As a result, recent industrial growth in India has been driven by
the metal and chemical industries. The metal industries have gained from new export opportunities, and from credit-financed construction and the surge in
demand for consumer goods such as automobiles, television receivers and computing equipment, while the chemical industries, such as refined petroleum products, provide inputs into luxury products for which there is growing demand. |
All these industries, which tend to be capital-intensive and are characterized
by relatively high productivity and high rates of productivity growth, create much less direct employment than those more oriented to the production of goods consumed by the lower income groups. |
Moreover, real wages in India have not followed
productivity gains (table 4.10). |
| Summing up, India has experienced trong economic growth over the past few
decades, based on rapid productivity growth in manufacturing and, increasingly, also in modern services. |
Despite these achievements, employment problems persist: a large proportion of the labour force is still employed in informal and low-productivity
employment, either in agriculture or in traditional services.
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The dynamic modern sectors boosted GDP and overall productivity growth without absorbing a substantial part of the surplus labour force. Moreover,
informal employment and even open unemployment have increased in recent years, owing to lack of sufficient job creation in the urban areas to absorb rural
migrants. The Asian financial crisis in 1997-1998 and the global crisis in 2008-2009 have exacerbated this situation. Several of the crisis-hit countries managed
to restore productivity gains, particularly in manufacturing, but these have not translated into higher wages. In addition, employment creation in manufacturing
has remained weak.
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This situation may not only widen the gap in income distribution in the region;
it could also render economic recovery fragile and over dependent on uncertain export performance. In the long-term, a sustainable development
strategy, high investment and productivity gains are of the utmost importance,
but they need to be complemented with rising wages, better incomes for non-wage earners, and the creation of more and better employment. This is critical
for rebalancing the structure of demand. |
| NOTE: Where have all the jobs gone? |
| Despite rapid recovery the unemployment rate in India remains high |
| Although India’s GDP growth has recovered fast from the global crisis, very little is reliably known on whether it has generated adequate employment opportunities or has remained jobless in nature. |
One can extrapolate from earlier NSSO five-year surveys to derive more recent estimates, especially after the global crisis hit India. A disturbing fact is the sharp deceleration in employment growth to 1.8 per cent per annum (between1993-94 to 2006-07 ) from 2.6 per cent between 1983-1993-94 although GDP growth accelerated to 6.3 per cent from five per cent over this period. These numbers imply a decline in employment per unit of GDP growth or employment elasticity to 0.28 from 1993-94 to 2006-07 from 0.52 over the years 1983-1993-94.
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Applying this elasticity to the likely GDP growth of 7.4 per cent in 2009-10 to project the generation of employment provides an average of 8.7 million jobs generated last year. This is significantly short of the annual average 10 million opportunities generated before the global crisis struck. In other words, around 1.3 million fewer jobs were generated last fiscal despite a recovery in GDP growth. This shrinkage of employment opportunities when nine to 10 million people look for work every year will only swell the reserve army of the unemployed. |
The number of unemployed in 2009-10 is substantial at 36.2 million out of a labour force of 465.3 million on a daily status basis, if one uses the projections of the Planning Commission for the Eleventh Plan (2007-2012). Disturbingly, the rate of unemployment appears stuck at around eight per cent. This rate did not budge from this level even when the economy experienced faster growth of 9.5 per cent in 2005-06 and 9.2 per cent in 2007-08. This was the case even when the global crisis impacted the economy and GDP growth plunged to 6.7 per cent in 2008-09. |
Whether unemployment rates have become entrenched, impervious to the revival in GDP growth, however, is a task for deeper study. Certainly, the availability of NSSO’s comprehensive survey data for 2009-10 will shed light on this matter. The fact that fewer employment opportunities are being generated when nine to 10 million people join the labour force each year obviously implies that the rapid recovery of the economy from the global crisis is basically jobless in nature — notwithstanding the good news regarding hirings in the IT/BPO space. N Chandra Mohan / B S September 24, 2010 |
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