Jobless growth

India has been going through a period of jobless growth for a few decades now. Unlike the 70s and 80s where GDP growth of 3–4% would lead to employment growths of around 2% per annum, today a GDP growth rate of around 10% only creates an increase of employment of around 1%. The increase in income is primarily benefitting people who are already employed and the owners of those businesses.

The growing population means that around 13 million people are added to the workforce, but only around 8 million jobs are created, leading to around 5 million extra people joining the ranks of the unemployed every year. Last year there were 25 million applications for just 90,000 jobs in the Railways. That’s more than 250 applicants per job opening!

However recently the situation appears to have gotten even worse with latest government figures indicating that the unemployment levels of 6.1% are at a 45 year high, and nearly a quarter of youth (15–29 years) are unemployed. New people joining the labour force are finding it especially hard to find jobs, and unless we find quick solutions we will waste our current demographic advantage (lots of young people of working age, as opposed to lots of retired people to support).

Large numbers of unemployed youth could also create frustration that could spill over into the mood of the nation, and it’s possible that that’s already happening.

Why are there no jobs?

The government has done itself no favours with the absurd exercise of demonetization that put thousands of cash dependent firms out of business. The essential rollout of GST has not been smoothly managed either, creating problems for small businesses. And the troubles at ILFS has led to credit institutions being far more cautious of lending money, which in turn has led to lower investments.

These issues have exacerbated the situation, but these are short term shocks, and will eventually pass. The real problems are much deeper and structural in nature. There are no quick fixes for the government, and those that may work will face stiff resistance from stakeholders who will be adversely impacted by them.

Only around 6% of the workforce is in the organized sector of the economy (employed by companies that pay GST). The remaining 94% is in the unorganized sector. However the unorganized sector only accounts for 47% of the income, meaning that the organized sector is 9 times more productive (and therefore richer) than the unorganized sector. In particular, agriculture still accounts for about 49% of the workforce but only accounts for 14% of the income.

One of the key jobs of the government will be to reduce the number of people working in agriculture (in developed nations it is less than 5%, even as low as 1% in certain countries) and make the people who remain more productive. This will require significant re-training schemes and making connections between people who have left agriculture and their potential employers in the non-agricultural sector.

It will also require the creation of many more jobs in the non-agricultural sector to absorb these people. At the same time the government needs to boost the organized sector since the income growth that is generated here will spill down to the other businesses. But India has some of the most restrictive labour laws in the world, that inhibit growth of small companies, and extremely bureaucratic processes that make it harder to start new companies.

Agricultural reforms

The government needs to cut down on expensive subsidies to farmers that keep them comfortable enough so that they do not move to other more profitable sectors. Currently 70% of farmers have land holdings that are less than 1 acre in size that are not very productive. If farmers leave agriculture for better jobs, then they will sell their land to those farmers who stay in the sector creating larger landholdings that make it worthwhile to invest in greater mechanization that will improve the productivity and incomes on those farms. At the moment, the subsidies cannot fully make up for the lack of productivity of the farms and hence we have the persistent sad stories of farmer indebtedness and suicides.

There will be huge resistance from agricultural communities at the reduction of subsidies, and given the number of people in the sector and, given the emotions attached to the term ‘farmers’ in India, this will not be an easy reform to push through. Modi’s government will have to leverage on every bit of credibility they have built up with their religious, nationalist, and anti-corruption positioning to get farmers to agree to this. And it has used up a lot of credibility in the farce that was demonetization.

They will also need to give a lot in return.

One area they have to provide assurance on is that the farmers will find new jobs elsewhere.

Re-training the population is essential, especially since education levels are very low in the agricultural sector. Surveys have found 25% of public teachers missing from their jobs.

To help those that do stay in agriculture, irrigation schemes are essential. Only 46% of cultivable land is currently irrigated, putting a huge amount of dependence on the monsoon to generate enough income to pay off debts.

And the government will need invest in infrastructure that helps in transportation and storage. Currently nearly a third of produce ends up as spoilage.

Labour laws

Creating jobs for those leaving the agriculture sector are currently inhibited by some of the most restrictive labour laws in the world. According to the Economist, India in fact has the most restrictive labour laws in the world. Unlike in countries like American or China, in India companies have to take permission to fire employees from government officials (who usually say no after a considerable delay). There are numerous other restrictions that make it difficult to employ a large number of people and as a result 87% of workers in Indian manufacturing work for companies with less than 10 employees, compared to just 5% in China.

Changing these laws will meet with huge resistance from the powerful labour unions throughout the country, who will fear that the poorest sections of society will no longer have any job security.

This is an understandable fear and one we can all empathise with. However having a job where you could get fired is better than not getting a job because employers are afraid that they won’t be able to fire you, even if they are making losses in a downturn.

The bargaining power of labour unions has been going down slowly over the decades but it is still high enough to push very hard against these initiatives. The unions who stand for people who are already employed will put up an organized resistance and the people who stand to benefit (those who are currently unemployed) have no organized representation to speak on their behalf in public.

So expect this battle to be hard.

The government may find it easier to get buy in for the easing of the restrictions of the labour laws if people feel that there are jobs being created compared to if they fear that jobs are being lost.

Which is why the government needs to help entrepreneurs and other job creators.

Entrepreneurship

Starting new businesses in India is extremely tricky. The government has pushed through changes that have dramatically improved the ease of doing business rankings of India from 131 to 77. How much of this represents actual tangible differences and how much is gaming the metrics is hard to say, but it indicates at the very least that the government is conscious of the need to work on this area.

Rituparna Chakraborty, Co-Founder of TeamLease, an employment services company, stresses the need to introduces a Unique Enterpreise Number to replace over 25 current numbers that enterprises get from the government. These include a Corporate Identity Number, Taxpayer identification number for commercial taxes, GST, PAN, Provident fund number, Professional tax registration number, professional tax enrolment certificate, income tax deduction and calculation number, among many others.

Land reforms for manufacturing and power companies

In the manufacturing and power generation sectors, land acquisition is considered extremely difficult. India has been ranked by at least one survey as one of the 10 worst places in the world to get infrastructure clearance.

A task force to study the problem and come up with some easy to understand guidance for land acquisition is probably required. The competing demands of locals and the environment may in cases outweigh the benefits of employment by granting corporates right to the land, but these decisions could only be made on a case to case basis.

We do not know what the solution here is, but it is clear that people on both sides of a debate perceive a problem here.

Innovation and R&D

Less controversial in principle is the need for innovation in large technology firms in India.

The combined market capitalization of three IT companies in the US — Apple, Microsoft, and Amazon equal India’s GDP as a whole. Alibaba, of China, has a market capitalization of 20% of India’s GDP. If India does not invest heavily in innovation, we will always be making rice and fabrics and low quality goods for low wages.

However India only invests 0.67% of GDP in R&D compared to mature economies like the US or Japan that invest around 3% of their GDP. Unfortunately India’s government is currently promoting appointments in educational institutes that boost their Hindutva credentials rather than those who will genuinely boost our education levels.

There are better ways of doing this.

Instead of encouraging cow lynchers to murder Muslims on trumped up charges of beef smuggling that spoils our international relationships, destroys businesses, and most importantly destroys lives, the government could be investing in areas like generating artificial plant based versions of beef. This would be meaningful purpose driven work for vegetarian scientists in India and, if we find a solution, it would generate huge exports for to a world desperately searching for a carbon friendly tasty alternative to beef, provide employment for farmers, boost our foreign exchange reserves, position India as a leader in a field of innovation and progressive rather than regressive values, and make the world a better place.

There are better ways of linking brand image to the past achievements of Indias — by glorifying genuine Indian achievements in the field of sciences, maths, technology, etc rather than by talking about ancient plastic surgery, flying vehicles, internet, etc.

This would make groups of people happy — those who value science and those who value recognizing past achievements by Indians. There is definitely an easy win-win here that the government is not seeing.

More controversial is the need to privatise PSUs.

With job security for life and comparatively tenure based promotion, there is lack of accountability and therefore of initiative, innovation, dynamism, and a results focus. Selling these units to the private sector is required if we want to achieve similar results to the ones we saw when telecom was privatised.

However there will be significant resistance from government employees, and perhaps they can be guaranteed employment on some terms for a certain period of time with the companies who buy the PSUs.

It is also critical that the selling process is transparent and competitive. Giving preferential rates to a small number of existing industrialist supporters will create extractive inefficient monopolies that cheat the taxpayer in terms of lower receipts from the sale, and which may need to be bailed out later by the same tax payer.

India is practically an oligarchy already, and so it is critical that these auctions don’t simply make the situation worse.

Conclusion

The jobs situation is one of the most pressing concerns in India just now (environment and human rights being others). The current government is responsible for the exacerbating of the situation but the real problems were inherited and will take significant political will to push through.

Reducing subsidies, reforming labour and land laws, selling PSUs, etc. will face significant resistance and a number of things will simultaneously have to be executed extremely well to make this transition successfully. If done well they will transform India and deservedly give the NDA another term in office. Done badly they will remove protection from vulnerable people and cause a lot of harm.

It’s hard, but if any party can do it, it will be one that has the mandate of the people, which the NDA currently has.

We urge them to do the job sincerely with an eye to making a lasting change for the betterment of India rather than simply trying to massage perceptions to ensure re-election and the expansion of their populist Hindutva narrative.

If they are committed to this, then we wish them the very best.