Back to the farm: Can industry keep its jobs?

Last week CRISIL research came out with a harrowing report that said an additional 12 million people will be redirected to agricultural sector in between now and 2019. In the same period, it stated, jobs in the non-agricultural sector will come down by 13 million.

The reversal of trend in job creation is disturbing especially when India is aspiring to be world’s manufacturing hub, it has a competitive industrial sector and entry barriers for foreign companies have been eased over a period a time. If at all, the shift should continue to be from agriculture to industry in the modern times and not the other way round.

Agriculture sector in India, which is extremely low in productivity, and contributes only a meagre 14 per cent to the country’s economy, already has a close to 50 per cent share in employment.

The report also painted a gloomy picture about the employability of the educated youth because they do not have required skills. It said that around 70 per cent of graduating engineers are not employable because of lack of technical or soft skills.

India has a huge population in the working age group. By 2019, the working age population is expected to cross 85 million. Providing employment to such a rapidly growing population would be difficult even if only half of them seek employment.

It is in this context, the growth of industry and manufacturing sector is important. India approved a new National Manufacturing Policy about three years ago that aimed at creating 100 million additional jobs by 2025 and develop mega industrial zones with world class infrastructure facilities and flexible labour and environment regulations.

The policy approved by the Cabinet Committee on Economic Affairs headed by Prime Minister Manmohan Singh also sought to increase the share of manufacturing in the economy to 25 per cent by 2022 from the current around 16 per cent.

Three years down the line, the contribution of manufacturing in India’s GDP still stands at 16 per cent and the report suggests that the employment elasticity of manufacturing has deteriorated. What are the reasons for low employability in the capital intensive sectors such as manufacturing? Economists say, the policies in the government and private sector have concentrated only on investment and making profit rather than employment generation.

Investment too comes only in the organised sector which employs a meagre 7-8 per cent of country’s workforce. The remaining 92 per cent are in the unorganised segment —, which contributes one half of India’s national output and provides employment to an overwhelmingly large portion of the workforce —, which is often left to fend for itself.Data shows, in 1990, Tata Steel produced 2 million tonnes of steel and employed 80,000 people.

Today, it produces 10 million tonnes of steel and employs only 30,000 workforce. While the output has risen by five times, employment has slipped by a third.India has blindly aped the Western modernity, their mechanisation and technology without giving a thought to its own requirement, says Professor Arun Kumar, chair Professor, Centre For Economic Studies and Planning.

While he supports the technological advancement and modern applications for critical sectors such as aerospace, petroleum sector and a few others, he prescribes a graded technological policy for  labour intensive, small scale sectors to begin with.There should be a clear cut employment generation policy in the country and the government should have certain sectors in mind where the priority should only be creation of jobs. India has lagged behind in that and employment generation has not picked up pace because there is no judicious mix of policies, according to Kumar.

Even the CRISIL report has suggested the government frame appropriate policies that can facilitate job creation in the manufacturing and services. It also said that the growth in economy in the seven year period from 2005 to 07 was driven by less labour intensive services such as financial, real estate and business services, including IT-ITES. For example, in fiscal year 2012, these services, with nearly 19 per cent share in GDP, employed only 3 out of 100 workers in the economy. ‘Employment generation in evolving scenario will therefore pose a severe test for Indian policy makers,” CRISIL said.

It said, apart from GDP growth, India needed to raise the demand for labour, especially in the manufacturing sector, by simplifying labour laws and debottlenecking labour-intensive industries.  Policymakers should also focus on expanding the health, education, construction sectors.

“There is a need to move a large number of people from the farm sector to other productive sectors,” Kumar said. He said economic growth can be sustained only when productivity in an economy keeps rising. For this, the workforce needs to constantly shift from lower productivity sectors to higher productivity ones. A shift from agriculture to manufacturing is a must.

However, despite the growth of the services sector in India, its ability to absorb surplus labour is limited. Services require a certain minimum skill sets, which many do not possess. The situation will worsen as millions would join India’s workforce over the coming decades. 

The government is aiming at skilling 500 million youth by 2022 through the ambitious Skill Development Program. About $ 2.5 billion is spent on training rural below-the-poverty-line youth.

Besides, rigid labour laws deter industry from employing available workforce. The UPA government that has scarcely talked about making labour laws flexible in its entire two term of nine-and-a-half years, has at last given some thought on that. Congress vice president Rahul Gandhi has admitted in his interaction with industry captains recently that India’s labour laws were far from flexible also expressed his willingness to reform those laws.

Last but not the least, the problems in land acquisition, which the industry suggests has toughened several times after the passage of the Land Reforms Bill recently. It will be naïve to believe that the cost of housing in the country would not substantially go up, it would, and not only housing but also some of the industrial projects would appear to become financially unviable, according to analysts.