Poor job growth makes mockery of economic 'recovery'

The UPA government has been talking up the prospects of higher GDP growth, of the order of 7 percent or more next year, to signal an end to the downturn and the accompanying mood of despair. That headline number may yet be a bit of a stretch, but even if it is met, analysts are fretting that the recovery -such as it is, and when it does come-will be low on job generation.

India’s failure to harness the manufacturing industry adequately has meant that it has failed to generate sufficient number of ‘sweatshop’ jobs, without which it cannot hope to create a critical mass of middle-income consumers. For all the hype of the past decade about India’s likely transition from the agricultural to the services sector, the limitations of that model are being gradually exposed.

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[caption id=“attachment_665700” align=“alignleft” width=“380”] No country of India’s size had ever achieved such an economic ‘short cut’.Reuters[/caption]

No country of India’s size had ever achieved such an economic ‘short cut’. China, the only other country with a comparable billion-plus population, went by the playbook of economic evolution with its low-end export-oriented manufacturing ‘sweatshops’ that drew migrant workers from China’s villages to the manufacturing centres.

It appears that India too may have to remedy that ‘missing link’ in its economic evolution - or renounce its status as a billion-plus market with a vibrant middle class, which is the expectation that has thus far driven inbound investments in the first place.

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Indicatively, for much of the past decade, India’s record of overall industrial export penetration was outright mediocre, registering an increase of barely 2 percent of GDP over that period. On the other hand, China, riding high on the strength of its ‘sweatshop economy’, registered a gain of 18 percentage points.

Specifically in the area of electronics and light consumer exports (toys, textiles, footwear and furniture), India’s performance - or lack thereof - is even more striking. India’s total annual export turnover is about one-seventh of China’s, and total exports to the US and to Europe is about one-ninth of China’s. But India’s share of electronics and light consumer exports is barely about one-thirtieth of China’s.

This matters because, by some estimates, given the demographic transition under way in India, the country will likely provide the largest increase to the global labour force over the next decade, an estimated additional 110 million by 2020.

More specifically, there will be a rapid increase in the Indian population in the 30s and 40s (or the ’thorties’, as they’ve been dubbed) over the next two decades. By some estimates, their numbers will account for nearly half of overall population growth. (By contrast, in China, which is demographically over the hill, the age 30-49 population will shrink by 20 million between 2011 and 2030.)

This favourable demographics is generally accepted as a key element of India’s growth story. However, for India to reap the ‘demographic dividend’ from this ’labour force army’, it has to generate millions of jobs over the next two decades.

And since services (including construction) can likely provide employment for only about half of the addition to the labour force, the manufacturing industry, which has traditionally underperformed the service sector in job creation, has to step up and generate jobs for the rest.

Even within the manufacturing sector, it isn’t the heavy industrial sector that typically generates the most employment per unit of invested capital: it’s the light industrial sector that does it. In China, for instance, of the 120 million or so rural migrants who are currently employed in non-farm activity, more than three-fourths work in just two sectors - construction and light industry.

Industry experts too reckon that job generation is critical to sustain economic and consumption growth. In an article in Tehelka magazine ( here), which addresses this “jobless growth phenomenon”, HDFC Bank chief economist Abheek Barua reasons that “large-scale manufacturing” will be important, and that India cannot discard growth models that have worked in a high-population economy like China. On the other hand, Arun Nanda, non-executive Director of the Mahindra Group, sees greater scope for job generation in the small and medium enterprise (SME) sector. “For every million rupees invested, they create more jobs than in the large businesses,” he says.

ICICI Bank Chairman KV Kamath, however, argues (in an accompanying interview to Tehelka) that the manufacturing sector in India may not necessarily be the job driver - even if it remains an important anchor.And while the “knowledge economy” was still generating jobs, other areas were afflicted by a “skill gaps” that was a drag on job generation, he adds.

The irony is that, as a special report in India Today (March 25 edition, which is not available online) points out, even the BPO sector in India, which was once generating the jobs that triggered enormous hype, has fallen on bad times. “Expensive manpower, inadequate language skills and poor infrastructure are forcing BPO businesses to leave India, and young jobseekers are the victims,” the report notes.

According to TV Mohandas Pai, former director of human resources at Infosys (who has been quoted in the report), India had in the past five years lost one million jobs in the customer contact business to countries like the Philippines.

That’s reflected in the fact that in the past five years, even Indian BPO companies - as many as 30 of them - have set up operations in the Philippines alone. Among these are Wipro, Convergys, Genpact, TCS BPO, HCL and Infosys BPO. “This is hurting jobs in India,” the India Today report adds, but notes that industry professionals are typically unwilling to admit to job losses, much less put a number on it.