Published in Prabhat Khabar.
It seems that nearly every day, our media carries stories of concern about the employment situation in India. The stories include accounts of a desire for jobs that is not being met, the vast over-subscription of government jobs, the falling labor force participation of women, the diminishing opportunities for decent employment in rural India, or massive migration to cities in search of remunerative employment. Other stories focus on the quality of employment being created, often precarious and without dignity. A recent poll by the Bill and Melinda Gates Foundation and Ipsos finds that unemployment is the number one cause of worry both of youth and adults in the country, and this concern is higher than in any other county polled.
At the same time, India is one of the fastest growing countries in the world. Growth has led to impressive gains in poverty reduction. It also has a vibrant democratic society as well as a large pool of capable and young people, who are increasingly healthier and more educated. It is better placed than other countries around the world in trying to generate meaningful and sustainable employment for these reasons. The concern over job creation is also widely shared by all political parties. But for a whole host of reasons, the link between GDP growth and the creation of more and better employment has become much weaker. Both the quantity of jobs and quality of jobs are at issue.
Taking a longer view, historically, the path to a more developed economy has involved the movement of workers from agriculture to non-farm occupations (a la Simon Kuznets) and from informal activities to formal ones (a la Arthur Lewis). For our policy-makers, the main concern continues to be how to support and accelerate the transformation of India from an economy dominated by self-employment and small-scale enterprises to a modern, vibrant one. This concern is further exacerbated in an era when there is increasing automation and less space potentially than there was in decades gone by to create employment through export orientation. There is nothing ‘natural’ about this process. It requires a clear vision and a judicious mix of industrial and trade policies that implement it, for example, by tying import substitution to export promotion, and protection from foreign competition alongside fostering of domestic competition. It also requires changes in the political economy with land reforms, a favourable international climate in the form of export markets and geo-political stability.
In a new report, the State of Working India, we take stock of both the long-run process of structural change as well as more recent developments in quantity and quality of employment, using primarily official government sources. While there are many nuances, some basic facts appear unequivocal.
First, even as GDP growth rates have risen, the relationship between growth and employment generation has become weaker over time. GDP growth has accelerated to 7 per cent, but employment growth has slowed to 1 per cent or even less. On the one hand, this could be a welcome development in so far as it reflects productivity growth. But it is also a problem in so far as the demographics suggest the need for larger employment growth to accommodate those entering the labor force. In addition to the new entrants, jobs are also needed for who want to leave agriculture. Recall that just under half of the workforce is still in this sector which produces less than 20 per cent of the national income.
Second, historically, under-employment and low wages, and not open unemployment, have been the key issues. But a new feature of the economy is a high rate of open unemployment, which is now over 5 per cent overall, and a much higher 16 per cent for youth and the higher educated as of 2015. The increase in unemployment is clearly visible all across India, but is particularly severe in the northern states. If one is optimistic, this may represent a temporary skill mismatch, as more educated and aspirational youth are willing to wait for a job rather than accept a less desirable one. On the other hand, given concerns about the quality of education, this may not be a temporary phenomenon and might require intervention.
Third, around 100 million workers are either employed in very poor quality jobs or are out of the labour force because of the unavailability of work. These are ‘surplus workers’ available to be pulled into the economy if jobs can be created. Another estimate of the surplus workforce, that can be more productively employed elsewhere, is the percentage of those employed in unorganised petty services such as retail, domestic work, and so on. As of 2016, this is estimated to be 78 million.
Fourth, despite a steady rise in wages, the levels are still low. Between 2010 and 2015, real wages grew at 2 per cent per annum for organised manufacturing, 4 per cent for unorganised manufacturing, 5 per cent for unorganised services, and 7 per cent for agriculture (for the last, growth has collapsed since 2015). Since 2000, real wages have grown at around 3-4 per cent in most sectors, with the exception of agriculture. Despite this, nationally, 67 per cent of households reported monthly earnings of only up to Rs. 10,000 in 2015. In comparison, the minimum salary recommended by the Seventh Central Pay Commission (CPC) is Rs. 18,000 per month. This suggests that a large majority of Indians are not being paid what may be termed a living wage, and it explains the intense hunger for government jobs.
Fifth, the Indian economy remains heavily gender and caste segregated. Women workers earn anywhere between 30 and 80 per cent of male workers’ earnings depending on the occupation and industry in which they work. Women are severely under-represented among senior officers, legislators and managers as well as in well-paying industries such as Finance. SC as well as ST groups are over-represented in low-paying occupations and severely under-represented in the high-paying occupations, a clear indication of the enduring power of caste-based segregation in India.
What is to be done? India will continue to transform and face the challenges of a world with fewer ‘standard’ options such as export-oriented industrialization (given a much larger number of more productive competitors). It is important, then, to have a clear national employment policy, one that can build on the progress achieved thus far, but that also takes the issue head on. Expansion of employment guarantee, certification of skills acquired on-the-job, a universal basic services programme, innovative industrial policies, and learning from the experiences of the states, can all be part of this effort. And of course, a willingness to use the public purse for these actions is necessary. But this is not enough. Such a policy will need to integrate crucial considerations of social equity and ecological sustainability into its structure. For our country, in the 21st century, Lewis and Kuznets, the theoreticians of structural change, have to meet the ideas of Ambedkar and Gandhi.
(Amit Basole and Arjun Jayadev teach Economics at Azim Premji University.)
The latest banking scam, this time in the Punjab National Bank to the tune of INR 11,000 crores, is yet another reminder of just how well the Indian economy is being managed in the interests of the super-wealthy. Over the years, and particularly during the boom years of the 2000s, when employment growth was negligible and “jobless growth” became a commonly used phrase, India’s corporate elite, including some of its best-known business houses, went on a borrowing spree. They borrowed from private and public sector banks, they borrowed domestically and abroad. It is now clear that many of these loans were never intended to be repaid. The public sector banks, in particular, issued thousands of crores worth of loans without due diligence or even with active collaboration in the fraud.
Starting in the early years of this decade, the Reserve Bank of India itself was under pressure to do something about the building problem and started forcing public sector banks to reveal how many such loans were on their books. This is when the true extent of the problem, long-festering, started becoming apparent.
As per the recent estimates, there are around INR 10 lakh crores worth of bad loans in the Indian banking system. This number will likely rise. To gain a sense of proportion this is around 7% of India’s GDP. The entire union budget for this year was INR 24.42 lakh crores and the fiscal deficit was around 6.2 lakh crores. This year’s MGNREGA budget is INR 55,000 crores.
The amount of money borrowed by India’s wealthy citizens in connivance with its officials with no intention of ever repaying it is larger than the amount that the union government spends on health, education, food and fuel subsidies, agriculture, rural and urban development, combined.
But this is not the end of the bad news for the country’s ordinary citizens who still struggle for small amounts of credit to run their businesses and households. First, it is not known how much of this massive borrowing became a useful investment in the economy and how much was converted into unproductive foreign and domestic assets, as well as luxury consumption.
If the Nirav Modi case is any indication, then we may expect more the latter than the former. Second, not only have we paid once in the form of the opportunity cost of these loans, i.e. the alternative uses to which we could have put this credit, we are paying for it a second time in the form of the budget outlays on what is called bank recapitalisation. This is where the government uses its tax revenue to replace bad assets (loans that will never be repaid) with good ones. This allocation for the current budget was INR 2.11 lakh crores, larger than the allocation for many crucial development programs.
National outrage has understandably followed the latest revelations. But sadly, as expected, this has given the proponents of bank privatisation another excuse to push their agenda. Since the vast majority of bad loans in the banking system are on the books of the public sector banks, the solution seems simple. Privatise them. Make them subject to market discipline and such corruption and negligence will not occur. But this argument appealing to the power of the market to discipline finance can only be convincing to those who have been asleep through the 2008 financial crisis. The cronyism, corruption, conflicts of interest, and open fraud that were the hallmark of this crisis are very well-documented. That very few high profile convictions resulted is a testament to the power of the finance lobby in the United States and elsewhere than to the lack of evidence.
What makes us think that the equally, if not more, compromised Indian institutional climate will respond any better under a largely private banking sector than a public one? Privatisation of banks does not alter the fact that 1% of the richest Indians control nearly 60% of its wealth. Further, a private banking system is not the same as a competitive one. The US has the former, but no one would mistake it for the latter.
The PSU banks have to be reformed is clear. But “reform” is not a synonym for “privatise.” What we urgently need is public, accountable, and functional finance.
The country’s permanently credit-starved micro, small and medium sector, including agriculture, can truly transform this economy if supported well. Their individual credit requirements are not high, but they are large in numbers. Such a situation is ideal for a distributed public banking system. The current high-handedness and lack of accountability in public banking is not an excuse to privatise it. It is an excuse to make it accountable locally. Something we have never attempted seriously. Banking performs the crucial function of linking savers with borrowers, those with capital to those who can use it. Further, having the power to create money by making loans, banks are endowed with one of the most powerful tools of development. There is no argument for making this incredible power beholden to elite interests. There is every argument for making it as decentralised and distributed as possible.
But what about the bad loans? Here too the choice is clear; whether to pursue those who stole the money and to retrieve it, or to pay for our theft ourselves. The answer should be obvious.
Amidst the clamour of commentary around the Union Budget yesterday and today, one issue is conspicuous by its absence: jobs.
Of the big three issues I had flagged in my pre-budget analysis, viz. rural distress, jobs, and stimulating private investment, the first has found a prominent place and the third somewhat less so, but the second issue has been given short shrift. Even MGNREGA finds itself with a stagnant budget in nominal terms (constant at INR 55,000 crores), which will mean a decrease in real spending. This is contrary to expectations in many quarters that this budget would see a big push on job creation.
Before we look at what little the budget does offer on jobs, let us look at the big announcements; an increase in the minimum support price for all crops to 150% of the costs of production and a new national health insurance program.
The revised MSP was a long-expected announcement and, politically speaking, this is the right time to make it. However, there is no clear budgetary allocation for it. Is it to come from the additional INR 7000 crore allocated to agriculture? If so, is this increase enough? Further, what does “cost of production” mean?
Will the government take into consideration paid out costs plus family labour (called A2 + FL) or the above plus imputed rent of land and capital owned (called C2)? Until several such details become clear it is impossible to tell whether this can actually improve farm incomes and, thereby, stimulate the rural economy. Add to this the well-known fact that MSPs rarely function as effective price floors (as they are supposed to) because of very poor implementation, forcing farmers regularly sell for less than MSP. All said though, an announcement is better than no announcement. Since this is a big election year, this is the opportunity to press the government on delivering the promise in a proper manner.
Now let us come to the second big announcement, a National Health Protection Scheme, with up to INR 5 lakh annual coverage for 10 crore families. This has been hailed as a big move and it is. The question is, who stands to benefit from it? The FM mentioned that it would create “lakhs of jobs, particularly for women.” But in the absence of details it is not clear how this will happen.
The newspaper accounts of the scheme do not mention the jobs angle much. Rather, there are mentions of this huge government-funded programme (some say the largest such in the world) being a boost for the insurance and healthcare sector. Assuming that the NITI Aayog wants to design this scheme to benefit the poor, maximally, it would be useful to keep a few things centre-stage so that the scheme does not become a giveaway from the government to the insurance and pharmaceutical companies, and hospitals.
First, either improve public delivery of healthcare or find a way to keep prices of drugs, treatment etc. tightly under control. Given the current inflation in healthcare costs and declining medical ethics and standards, this programme runs the risk of funneling a huge amount of public money to private hands while delivering poor quality healthcare to the poor.
Second, make job creation in the healthcare sector an integral part of the scheme by expanding public healthcare coverage. In fact, the public expansion option has two advantages, it keeps costs under control, the government will only be paying itself, not third parties, and it creates jobs. Of course, this will need more than the INR 1473 crore allocated to this program.
Jobs and employment are directly addressed only in a small and uninspiring section under MSMEs and Employment. There are no big ideas here commensurate with the magnitude of the challenge or with this government prior commitment to the issue. The government is proposing to pay 12% of EPF costs for new employees for up to three years, to create incentives for firms to hire new workers. This extends the scope of the previous policy.
There are also some policies specifically to create incentives for women to participate in the workforce, such as maternity leave and creches. While most of these are welcome measures, they stop far short of what needs to be done on the jobs front. Sadly, the FM also cites the same flawed study cited by the PM in a recent interview, that 70 lakh formal jobs will be created in the current year. The problems with this have been widely discussed in the media already.
The second pro-jobs measure mentioned in the budget is the reduced tax rate (from 30% to 25%) for firms with turnovers of INR 250 crores and less. This is again a disappointingly supply-side view of job creation. Lowering taxes to create jobs will only work if some other key conditions are satisfied. Most importantly, firms need to see strong demand in the economy, particularly in the vast rural sector.
On the whole, there is a large missed opportunity here to go big on the employment front by proposing a range of direct public employment measures, a potential expansion of MGNREGA to more occupations, payment of wage subsidies for jobs where the minimum wage is far below a living wage, and so on. All of these have long been on the policy wish-list.
One last comment on the third front I had highlighted in my pre-budget analysis, viz. private investment. The Economic Survey chapter on Savings and Investment ends by saying “`animal spirits’ need to be conjured back.” This refers to John Maynard Keynes’ famous characterisation of the behaviour of the owners of capital to be moved to action on the basis of mood swings of optimism and pessimism rather than calculations of risks and rewards. The measures suggested are, addressing the problem of stressed assets on bank and firm balance sheets, lowering taxes, easing the costs of doing business, etc. The budget more-or-less confirms to this approach. And no doubt, these measures are important.
But the list leaves out the obvious driver of “animal spirits” in the Keynesian tradition, viz. aggregate demand. The thinking is almost purely supply-side, whether discussing an incentivising investment by big business or by small and medium industries. Time and again we have seen, and even industry leaders have said, that a revival of demand in the economy, an increase in spending across the income distribution, is a strong determinant of private investment.
In sum, while the budget seems to deliver strongly on “ease of doing business”, on the “ease of living” front, much remains unclear. Pressure should be kept up in this election year to hold the government accountable for the proper implementation of the revised MSP formula and the new health insurance scheme.
The upcoming Union Budget is the last full budget of the present government before the 2019 general election. As expected the question doing rounds is, will the finance minister present a “populist” budget with a view to the elections or “stay the course” of fiscal consolidation and related reforms.
The question is made sharper by the likelihood of the central government exceeding its expenditure target for 2017-2018. The prime minister’s recent comments that he does not believe the “common man” wants “freebies and sops” have been interpreted as indicating a non-populist budget.
It is very unfortunate that the “populist” versus “reform” frame continues to dominate discussions on the budget. Such a framing is useless for any real analysis because both the magnitude and the direction of government spending are equally crucial as are the magnitude and sources of government revenue. There may be good and bad reasons for exceeding the expenditure targets for the year, as well as good and bad reasons for falling short of revenue targets. Hence, creating more fiscal room in the budget by revising the deficit target upwards is not in and of itself either good or bad. If it is done with a clear path to raising future incomes for the vast majority, it is very welcome and will pay for itself in the future.
Let me illustrate by taking the three main issues that are of widespread concern leading into the budget: rural distress, lack of jobs, and weak private investment.
First, consider rural distress, an issue that is, sadly, on the agenda nearly every year. The recent Gujarat elections have given a much needed political boost to the issue since it is cited as one of the reasons behind the BJP’s reduced majority. The rural sector “wish-list”, at a minimum would include,
* Implementation of the Swaminathan Commission recommendation of minimum support prices equal to 50% in excess of the costs of cultivation.
* Complete rural electrification in substantive terms. That is, not the token delivery of power, but adequate and timely power supply on par with that available in urban areas.
* Increased overall public investment in agriculture, particularly in irrigation, sustainable practices, and so on. It is noteworthy that investment in agriculture which was around 3.8 percent of GDP in the early 1990s has steadily fallen since then.
* Strong push for the non-farm sector, which is obviously the future of sustainable employment in the rural economy. This is also where the rural distress issue meets the jobs crisis squarely.
Second, take the jobs crisis. In his recent interview, the prime minister has, unfortunately, chosen to trivialise the issue by equating low-paying informal livelihoods, such as selling tea and pakoras with secure, well-paying employment. The demand is for the latter, the former already exist in great numbers. He has rightly been criticised for this.
The prime minister also claimed a large increase in formal employment based on a recent study of data from the Employee Provident Fund Organisation and other similar institutions (such as ESIC and NPF). The study is a novel attempt to use administrative payroll data from such agencies to estimate employment. Its main conclusion is that an estimated 7 million new accounts were added into the system in FY 2017-2018. This is welcome news.
But it cannot be used straightforwardly to draw conclusions about job creation for two reasons. First, the approach measures new PF, insurance, and pension accounts. Not new jobs. As Jairam Ramesh has pointed out, some of the new accounts may be existing jobs without benefits being converted into jobs with benefits. A welcome development, but not to be confused with an increase in employment. The authors partly correct this problem by excluding those accounts that were created during the PF amnesty period. But this does not address all the problems arising out of demonetisation and GST implementation raised by Ramesh.
Second, even assuming that new accounts mean new jobs, to say something about the employment situation we need to know how many jobs were lost during the same period. The study does not address this. If recent work based on Labour Bureau annual household surveys is to be believed, the Indian economy has been losing jobs on a net basis. Even if payroll data adds another dimension to our knowledge on employment, taking both this factors into account, the net new jobs created may be far less than 7 million. Using this data uncritically to support job creation claims is jumping the gun.
On a more optimistic note, a National Employment Policy has been widely reported to be on the cards for this year’s budget. But there are no details on what such a policy would entail. One hopes to see more direct job creation say via public investment in services. There is likely to be some focus on public investments in infrastructure for job creation. But a broader approach to public job creation would be welcome in the policy. Particularly creating jobs to improve the quality and delivery of services the government is already committed to providing, such as health, education, housing, and transport.
I have also chosen these as examples deliberately because data show that these are the largest part of the household budget (except food). Indeed, there is evidence that poor households are cutting back on food consumption to pay for health, education, housing, and commuting expenses. Recently, NITI Aayog VC Rajiv Kumar has also observed that low-cost or free provisioning of such services would go a long way in raising real incomes.
There are legitimate concerns here, of course, to do with the quality of public service provisioning. Do we really want the government spending more money on schools and hospitals when the quality is so bad that anyone with sufficient resources chooses to exit the system? In fact, as I mention above, exiting the public system and “going private” has its costs. The obvious solution is to repair the system, not abandon it.
Third, take the weak private investment climate. This is not a long-run structural issue like rural distress or the jobs crisis. But nevertheless, it is important in the short-run. Here too the fiscal implications are straightforward. An increase in public investment will most likely “crowd-in” private investment. That is, when the government spends in such a way that incomes rise, this creates demand that will bring forth private investment. In the face of lack of demand, as is the case right now, no amount of tax or other incentives really work to stimulate investment.
Obviously making a serious dent in any of these problems requires fiscal resources, both in the sense of increased spending and possibly foregone tax revenue. But if all the above make additional demands on the fiscal, all also have the potential to pay back many times over with increased incomes and increased demand. This brings me to my original point about the nature of government spending and revenue generation.
Failing to meet the fiscal deficit target due to increased public investment in agriculture or healthcare is not the same as failing to meet it due to foregone tax revenues on highly profitable large corporations or high net-worth individuals, both of which are increasing rapidly in India. Conversely, insisting on meeting the target at the cost of raising incomes and demand is not sound economic policy.
It is safe to say that the issue of job creation was among the top economic issues of 2017, along with demonetisation and GST. And as a long-term issue, its importance definitely exceeds the other two, which though severe are likely to be short-term shocks. Further, riding on the youth vote in 2014, the Narendra Modi government has consistently made jobs its central plank, ensuring that the issue always remains in the news.
The year began with the question of whether demonetisation had negatively affected job growth, especially in the informal sector. Unfortunately, like most questions about demonetisation and its impact on the informal economy, this one too suffers from lack of data to answer it. The government has doggedly refused to address the question directly by failing to conduct the necessary surveys at a national level. But anecdotal evidence, as well as survey evidence from a few sectors, does indicate that the severe contraction in economic activity caused by demonetisation did eliminate informal jobs on a large-scale.
The long-run question is, however, what it has always been. Can the Indian economy generate employment in the required numbers to provide gainful, meaningful work to the millions of youth who enter the labour market each year?
On this, 2017 will be known more as a year of confusion and backpedaling on promises mixed with some welcome developments on the data front.
A principal source of confusion has been the term “jobless growth.” Only last week two ex-policymakers argued that “India’s jobless growth is a myth.” Citing Labour Bureau survey data, the authors pointed out that India’s problem is not lack of jobs, but rather lack of “regular, productive, and well-paid jobs.” But this has always been the understanding among all observers of the Indian economy.
As I have also consistently pointed out in this column, jobless growth was never about the absence of jobs, it was about the failure of the formal sector to generate decent jobs, forcing the vast majority to work in the informal sector. The question is, why has growth mostly created “bad” jobs. And how can it create more “good” jobs? So it is rather late in the game to be resorting to such denial techniques and using clickbait headlines to boot.
Another source of confusion has been the lack of data. The most frequently used NSSO data has been available only every five years. India did not have a large-scale, high-frequency employment data collection system till 2010. The Labour Bureau experimented with annual surveys from 2010 to 2015, but these were not used much by academics or policy-makers for quality as well as availability reasons, and have now been discontinued.
Due to lack of reliable, high-frequency employment data, much poorly informed back and forth has been carried out in the op-ed pages. In mid-2017, a task-force was set up under then NITI Aayog Chairperson, Arvind Panagariya to prepare a report on how to improve the country’s employment statistics system. Admitting that the debate “has been taking place in the absence of accurate data or analysis”, the report made recommendations to collect “more reliable, timely and relevant labour market data”.
In this respect, a welcome development is that in 2017, the NSSO has started doing a Periodic Labour Force Survey (PLFS). This is an unprecedented (for India) continuous survey that will be conducted quarterly for urban areas and annually for rural and urban areas. So while 2017 passed with lack of adequate data to gauge what was happening to jobs, hopefully, 2018 will be different, creating the stage for an informed debate leading to the 2019 general election.
The government’s backpedalling on the jobs issue in 2017 has taken two forms. The first, after several weeks of bad press in mid-2017, BJP President Amit Shah issued a statement that it was not possible to provide formal sector jobs to everyone in a country of 125 crore people so self-employment was the answer. This was a clear admission of failure because it implied that the government did not think its policies were going to create formal jobs in the private sector in adequate numbers. Second, in order to make its performance in job creation seem better, the government proposed redefining what counts as a “formal” job. If we count all workers who are enrolled in some pension or provident fund scheme as “formal” then the picture looks better. While this may be understandable as a jobs accounting exercise, it hardly solves the actual problem of disguised unemployment plaguing millions.
We need to get serious about three distinct issues with regard to the Indian labour market. First, the continued problem of bad, low-paying jobs and disguised unemployment, which is most of our labourforce. Second, the relatively new and fast-growing problem of open unemployment among the educated youth. As a proportion of the total labourforce, this is a small number, but it is a high visibility issue as seen in the large rallies taken out all across India for reservations in government jobs. Third, the question of a low and falling labour force participation rate. Compared to other developing countries, India has a much lower ratio of those employed or seeking work in the population aged 15 and above (53% compared to Indonesia’s 66% or China’s 69% and the world average of 62%). This is usually explained by withdrawal of women from the labour force due to prosperity or education. But it needs to be investigated further because “discouraged workers”, those who have given up looking for work, may be a part of the story as well.
The final and potentially welcome development for this year is that the government is expected to announce a new National Employment Policy in the 2018 Union Budget. One hopes that such a policy will be adequately funded, and even more importantly will signal that the government places the interests of Indian workers before those of international investors or the global market.
Gujarat’s development model rests primarily on its industrial performance. Industrial output accounts for nearly 40 per cent of state domestic product as compared to an all-India average of around 30 per cent. Correspondingly 16 per cent of the Gujarat workforce is in manufacturing (which is the largest subset of the industrial sector) as compared to an all-India average of 10.5 per cent. This much of the story is well-known.
But can Gujarat’s industrial performance be a desirable model for the rest of the country? One way to address this question is to take a closer look at the way this sector has performed in Gujarat compared to the national average over the last few years.
The most commonly used nationally comparable dataset on the organised manufacturing is the Annual Survey of Industries (ASI) conducted by the Central Statistics Office, which provides data on employment, value added, and other key variables for the “factory sector.” Note that, this does not include the vast number of micro and small enterprises that are not required to register under the Factories Act.
Indian manufacturing has become more and more capital intensive over the years.
Here, I take a brief look at what these data reveal for Gujarat. I am looking at the period from 1983 to 2013, but I also examine if the trends in the past fifteen years are any different from the preceding fifteen. At the national level, ASI data show that Indian manufacturing has become more and more capital intensive over the years.
That is, the number of people employed per rupee of fixed capital used has been falling steadily. This trend has been commented on widely in the economics literature as well as the popular press, in the context of “jobless growth”. Together with this rise in capital intensity, and partly as a consequence of it, has come increasing labour productivity and a falling share of value-added going to labour in the form of wages and salaries.
Gujarat does not stand out as far as employment generation is concerned and if anything does a bit worse than the national average.
The trends for Gujarat are similar to the rest of India. However, some interesting and instructive differences also emerge. First, the general trend towards increasing capital intensity is much sharper for Gujarat compared to the all India average or comparable states like Karnataka. So, while in 1983, 63 jobs were created per rupee of fixed capital, by 2014 this was down to less than 5 jobs.
The comparable numbers for India are 59 and 8, and for Karnataka are 70 and 8. Most of the increase in capital intensity has happened in the 1980s and 1990s, with the trend being relatively flat in the 2000s. This has happened nationally. So, Gujarat does not stand out as far as employment generation is concerned and if anything does a bit worse than the national average.
Second, likely as a result of the increasing capital intensity there has been an increasing divergence of labour productivity on the one hand, and wages and salaries on the other hand. Labour productivity refers to value added per employee. The relationship between productivity and employee wages and salaries tells us how much ordinary people have benefited from increases in productivity.
While in 1983, 63 jobs were created per rupee of fixed capital, by 2014 this was down to less than 5 jobs.
In the case of Gujarat, adjusting for inflation, annual emoluments (wages and salaries) per person went from ~ INR 47,000 in 1983 to ~ INR 96,000 in 2014 while productivity went from ~ INR 91,000 to ~ INR 750,000 in the same thirty-year period (amounts are in 2004-05 rupee values). That is productivity increased eight-fold while earnings of labour only doubled. This divergence has accelerated over time, particularly during the BJP’s tenure.
This divergence between productivity and earnings is observed all over India but is much higher for Gujarat than the national average. Another measure of how much industrial growth and development have benefited ordinary people is the labour share of value-added, i.e. the proportion of value-added accruing to workers in the form of wages and salaries. The nature of changes occurring in the manufacturing sector in India, particularly the increasing capital intensity of production, has meant a steadily falling labour share.
In Gujarat while productivity increased eight-fold, earnings of labour only doubled.
In Gujarat, the labour share has fallen from 36 per cent in 1982-83 to 18 per cent in 2015. The national average trend is from 40 per cent to 25 per cent. For Karnataka, the numbers are 38 per cent to 30 per cent. This again shows that Gujarat’s industrial development has been much more anti-labour than the all-India average.
One possible counter-point is to say that even if the labour share is lower in Gujarat, the level of wages may be higher due to higher productivity. But here too the story is not as clean. In 2014- 2015, the latest year for which data are available, annual emoluments per person employed in Gujarat were INR 229,868 per year (in current rupees) while the national average was INR 221,000 and the Karnataka figure is INR 246,222. So while Gujarat does a little better than the national average, it is by no means a star performer.
Thus, both in terms of job creation, as well as earnings of industrial workers and employees Gujarat, performs either worse than or only slightly better than the national average. At least as far the organised manufacturing sector is concerned, development in Gujarat has benefited capitalists far more than ordinary people