India Story: Employment And Industrial Policy

India needs to create many more jobs in sectors outside of agriculture, construction and services. But that is where we have failed, said Professor Jayan Thomas, Economics, IIT Delhi in an interview with BW Businessworld.

On the employment crisis in India, he cited data and said that between 2012 and 2018, India’s non-agricultural workforce could have increased to 17.5 million a year. That is the potential labour supply. But the actual labour absorption in industry, construction and services was at the rate of 4.5 million a year. Edited excerpts:

Tell us a little bit about yourself. 

I am a Professor of Economics at the Indian Institute of Technology Delhi since July 2010. I am a former member of the Kerala State Planning Board. My research deals with various issues related to development, mainly labour, industrialisation, and the macroeconomy. I teach courses on macroeconomics, Indian economic development, international economics, and planning and development. While India has been the primary focus of my research, I have been maintaining a lively academic interest in China and East Asia as well. 

What is the nature of the job challenge in India? 

The implication is obvious. India needs to create many more jobs in sectors outside agriculture – industry, construction, and services. But that is where we have failed. Consider this: between 2012 and 2018, India’s non-agricultural workforce could have increased at the rate of 17.5 million a year, considering the rates at which the working-age population was growing, and workers were exiting agriculture. 

That is the potential labour supply. But the actual labour absorption in industry, construction and services was at the rate of 4.5 million a year. There is thus a huge mismatch in the labour market, with demand falling way behind the potential labour supply. As a result, India’s unemployment rate jumped to 6.1 per cent in 2017-18. 

How would you define industrial policy vis-a-vis employment absorption? 

The difficulty is that the labour supply growth in India is accelerating during a period in which the employment elasticity of growth has declined significantly. Due to automation and other technological changes, the production of one ton of steel or garments requires much fewer workers today than it did two or three decades back. 

Therefore, it will be difficult for India to replicate China’s success in absorbing massive amounts of labour into its export-oriented industries during the 1990s and 2000s. 

This means that India needs to do much more than improve the ‘ease of doing business for foreign and domestic firms and simply hope that they will create new jobs in large enough numbers. 

We need to invest in modern technologies– not developed-country technologies that tend to displace labour with machines, but instead in the knowledge that will create new value and employment opportunities in, say, agriculture or food processing. 

We need policies that promote the growth of small and medium enterprises, which have the potential to generate jobs. In sum, we need an industrial policy that urgently addresses our development needs. 

How do we situate the demographic dividend and the time frame for absorbing this into significant industrial growth? 

India is facing an employment crisis today. From the 2000s onwards, our working-age population has been growing at a fast rate. At the same time, we expect to see a growing shift of the workforce away from agriculture. Even in 2020, 43.5 per cent of India’s workforce was engaged in agriculture and allied activities. 

The corresponding proportion was 25 per cent in China and 1 per cent in the US. A large segment of India’s agricultural workers is in what may be described as ‘disguised unemployment’. 

That is going to change. A young person in rural India, who is more educated and has greater aspirations than her parents, is not likely to consider agriculture as an employment option. Productivity and per capita incomes are not high in agriculture, and in any case, there is no need for so many workers to crowd the agricultural sector. 

Can you speak a little bit about intra-state variations? 

There are significant differences across the Indian States with respect to the rates of demographic transition. For instance, estimates show that, in 2036, the proportion of the population in the age group of 15-59 years will be 66.5 per cent in Uttar Pradesh but only 59.5 per cent in Kerala. 

Therefore, industrial development and employment creation possibilities will also be different across the various States. Kerala, Tamil Nadu, and other States with slowing population growth will not be successful in labour-intensive industries the way Uttar Pradesh or Bihar can be. 

In fact, industrial policies will have to be more state-specific. State governments should also have greater financial resources at their command to implement industrial and employment policies suited to their regions.