Jobs highway runs through India's fields

Manufacturing sector growth dismal, crucial to inclusive growth, says Plan draft paper

Manufacturing, the primary painpoint of the economy, is a area of concern addressed in the Planning Commission’s draft paper of the 12th Five-Year Plan approved by the National Development Council last week.

 Manufacturing contributes approximately 11 per cent of total employment in the country in comparison with other emerging economies where share of employment in manufacturing range from 15-30 per cent, the draft paper said.

The draft notes that manufacturing-driven employment rose from 44 million in 2000-01 to nearly 56 million in 2004-05. Between, 2004-05 and 2009-10, employment in manufacturing actually declined by 5 million.

 The net increase in employment over the decade from 2000-01 to 2009-10 was only around 6 million, a barely 13 per cent increase over 10 years, the draft paper said.

While certain segments of the industry, like mineral extraction and processing industries, have shown promise in the 11th Plan Period, only rapid growth based on faster growth for the manufacturing sector as a whole, including MSMEs, will generate a much broader spread of employment and income earning opportunities, and will therefore, be more inclusive than a growth largely driven by extractive industries, the paper said.

Calling for a paradigm shift in focus and technology adoption, the draft paper said that the manufacturing sector provides the best opportunity for creating quality jobs.

Improving the state of the physical infrastructure — power, water supply, road connectivity and transport, in particular — on which manufacturing enterprises depend more than IT-based service enterprises, will make a difference to performance of manufacturing as a whole, the draft said.

The manufacturing sector decelerated during the 11th Plan with a growth rate of only 2.5 per cent in 2011–12. The paper called for a reversal of this trend for a return to rapid growth, saying that manufacturing is critical to ensuring inclusive growth.

The 12th Five-Year Plan has projected a steady acceleration in growth rate of the manufacturing sector which is projected to reach 10 per cent in the last two years of the Plan.

The average growth rate in the 12th Plan period has been projected at 8 per cent, compared to 6.9 per cent in the 11th Plan.

Agriculture, a Face-Saver

Noting that agricultural growth increased from 2.4 per cent in the 10th Plan to 3.3 per cent in the 11th Plan, the draft said that further acceleration to 4 per cent is essential to ensure greater inclusivene growth.

It pointed out that action is needed on several fronts, including provision of basic support services such as technology and irrigation infrastructure, access to credit, good and reliable seeds and improved post-harvest technologies, the paper said, adding that despite several factors hindering its growth, the sector exceeded expectations in generating employement during the 11th Plan (see chart).

The higher employment generation in agriculture during the 11th Plan was to some extent stoked by higher private investment in the sector over the previous three Plans. Private investment averaged 15.6 per cent of agricultural GDP in the first four years of the 11th Plan as against the expected 12 per cent.

However, total capital in agriculture grew more than expected with the largest increase happening in labour-saving mechanisation.

“This was a natural response to growing labour scarcity which is reflected in rising wages,” the draft noted.

The total rate of unemployment in India declined from 8.2 per cent in 2004-05 to 6.6 per cent in 2009-10, reversing the trend observed in the earlier period when it actually increased from 6.1 per cent in 1993-94 to 8.2 per cent in 2004-05.

Noting that the government’s employment schemes had exercised a poverty reducing impact during the 11th Plan, the draft said that the National Sample Survey had showed an eightfold increase in employment in public works after the MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), whose impact on rural wage earnings and poverty had been much larger than all previous rural employment schemes.

“What is less appreciated is that this has been achieved with a rather modest increase in the share spent on rural employment schemes out of total Central Plan expenditures,” the draft noted.

With 183 million additional income seekers expected to join the workforce over the next 15 years, the draft paper cautioned that agriculture alone cannot be expected to create more jobs.

“Manufacturing must provide a large portion of the additional employment opportunities required for India’s increasing number of job seekers. Unless manufacturing becomes an engine of growth, providing at least 70 million additional jobs, it will be difficult for India’s growth to be inclusive,” the paper said.

The draft paper noted that employment elasticity in the agriculture, services and manufacturing sectors had declined in the second half of the decade from 2000 to 2010. The negative employment elasticity was the result of people moving out of agriculture to sectors where wage rates were higher.

Noting that migration of surplus workers to other sectors for productive and gainful employment is necessary for inclusive growth, the paper said such migration in the manufacturing sector is cause for concern, even after the sector achieved 6.8 per cent output growth during the 11th Plan.