Mounting manpower: Is India generating enough employment?

Unemployment has been falling steadily since 2009, from the peak of 9.4% to below 5%. However, with the accelerating availability of labour (one million per month) due to our demographic dividend, the issue of jobs is a very serious one. In the run-up to the elections in 2014, BJP made a bold promise to generate 10 million jobs a year for the youth who comprise two-thirds of India’s population. While its ambitious initiatives like Make in India and Smart Cities Mission have garnered international investment interests, they remain largely on paper.

If the economy is growing at 7% despite a slowdown, manufacturing GDP has been steady for the last five years and jobs are not growing in proportion, then one thing is clear: More work is being done by a fewer number of people. It is important to note that this kind of growth is capital-intensive in nature and it is not translating into higher employment. This leaves us with two possibilities: Either the growth is happening in non-employment-centric sectors or the growth numbers are not accurate. With over 10 million Indians becoming eligible to join the workforce every year, the future is not as certain as it has been presented to us. Although India seems to be in a relatively better spot than other countries of the world economy, the growing population has led to a possibility of increasing unemployment. This is the most worrisome feature of our economy.

Labour-intensive industries like textiles, leather, automobiles, transport, IT/BPO and metals added more than one million jobs in 2010, but since then, the job loss has been more than 1.5 million in total. Traditionally labour-intensive industries are beginning to move towards automation as this makes production more efficient and profitable. The speed of transition can also be accredited to global competition and the lack of a skilled and semi-skilled labour force. Also, the labour laws in India preventing companies from easily firing employees has discouraged employment. The lack of labour reforms and freedom to fire workers at will has kept foreign companies wary of hiring too many Indians and they resort to outsourcing as the easier route in case things go sour.

In fact, in recent times, there is an ongoing trend where foreign players are exiting the Indian market by selling off their businesses to Indian partners or counterparts. This trend has been seen across financial services, telecom, cement and other sectors as well. Even among homegrown business houses, downsizing has been the order of the season. Asset-heavy businesses such as infrastructure and power continue to reel under heavy debts as they struggle to hive off their assets to reduce the loan burden that has been looming large for a decade. While private investments don’t seem to be picking up, the government spending too is limited due to fiscal prudence and political gridlock in passing key legislations that are likely to boost productivity, growth and overall employment. Since our economy has an oversupply of labour, structural reforms are imperative to change the long-term direction of employment.

Due to the slack in global demand for goods, there has been a sharp drop in exports, which has resulted in job losses over the years. This is because large export manufacturers across sectors have shrunk their operations.

Considering that informal employment is approximately 15 times the size of formal employment, the government needs to take big steps to kickstart the domestic investment cycle, which will result in local employment growth in small and medium-scale enterprises. As the labour department has limited data on the exact breakup of employment in the SME and unorganised space, they will need to expand the scope of survey to include the wide variety of establishments from different industries. 

On the other end, startups, which are hyped to be the next big thing, have found themselves in a compromised situation where funds seem to be drying up in the wake of tough competition. As the focus has now shifted from scale to profits, several large startup companies have decided to lay off a large portion of their workforce to reduce their expenses and reach breakeven point. In hindsight, Nasscom had estimated that IT startups will create up to eight lakh jobs by 2017, the reality is out of whack.

Currently, even the mainstream IT companies are dreading US H-1B visa restrictions which can cause mass unemployment and repatriation of the IT labour force back to India, causing a surge in supply in the face of slack domestic demand for such services. The increasing competition in the call centre sector from Southeast Asian countries like the Philippines and Malaysia have cost a lot of potential jobs too. With such uncertain conditions prevailing, it is likely that the employment push is expected from elsewhere as the IT sector seems to have saturated in capacity for the time-being.

The infamous government initiative MGNREGA is a drain on the country’s resources as it puts money into the pockets of unemployed persons without achieving any meaningful output. In a way, this activity can be classified as disguised unemployment. It is not scalable beyond a point and does not have the capacity to serve the aspirations of the rising eligible work population of India.

If the government is serious about improving these conditions, then it must make sure that reforms which have been stalled are restarted at the earliest. The future of large-scale job growth will depend on the domestic defence industry, public infrastructure like construction and upgradation of roads, dams, connectivity of inland waterways, ports and railways. Power sector, education, healthcare and logistics sectors have to catch up with the developed world and there lies the real scope of generating sustainable large-scale employment. The government has a choice to take advantage of the low interest rate scenario and increase public spending, and get foreign equity investment to complete these agendas. 

(The writer is co-founder and CEO, www.fyers.in/FYERS Securities)