A background report on Employment in India submitted to the Prime Minister's Economic Advisory Council (EAC-PM) on November 28, 2018.
Our estimate of employment for 2017/18 is between 445 and 452 million, or 448 million (principal status definition). This will represent a 20 million increase over the 428 million observed in 2014/15. The Labor Bureau April-December 2015 survey is centered on February 2015; the 2017/18 NSSO July ’17-June ’18 survey will be centered on June 2017. This is for the principal status definition which is an estimate of employment over the preceding 12 months. Thus, over 2.3 NDA-II years, the economy is estimated to have added (20/2.3) or 8.7 million jobs per year.
Note that 448 million jobs in 2017/18 is an estimate. Only the publication of NSSO results for 2017/18 will confirm how accurate our estimate is.
As a reference, during 2004/5 and 2009/10 the economy added 11 million jobs over 5 years or 2.8 mil jobs per year. Between 2009/10 and 2011/12, the economy lost a million jobs, thus making the 7-year UPA period the slowest period of job expansion (1.4 mil jobs a year) in Indian history (since the availability of unit level NSSO data in 1983). For the entire 2004/5 -2013/14 nine year UPA period, the economy added 21 million jobs, or 2.3 mil jobs a year.
The Modi government has undertaken several economic reforms over the last four years. Some reforms have been specifically geared towards employment generation – e.g. the emphasis on road construction (a labor-intensive activity); the MUDRA initiative (provision of loans to small entrepreneurs); the housing initiative as well as the policy to increase employment via a wage subsidy to employers (this achieved through lowering the provident fund contributions to employers).
The first two years – 2014/15 and 2015/16 – after Modi became PM were drought years, only the fourth time in the last 150 years that this has happened. Droughts are not conducive to economic growth, nor conducive to agricultural (rural) employment.
The next two years the weather was normal, but two major economic reforms were undertaken – demonetization and GST. Both reforms have (had) several objectives; in the main, they have had a considerable effect on direct tax compliance (demonetization) and indirect tax collection (GST). Both these reforms introduce uncertainty, and hence, in the short-run, affect economic growth and employment generation.
In addition, the BJP government also inherited a broken state banking sector; NPA’s at a decadal high and close to 8 % for state owned banks. Again, reform of banking is not growth enhancing in the short run.
High real policy rates, lower GDP growth lower growth in employment
Finally, as if growth diminishing factors were not present in abundance, the Indian economy witnessed the largest increase in real policy rates post 2014. In May 2014, the monetary policy repo rate was at 8 % and CPI inflation was at 8.3 % i.e. a real policy rate of -0.3 %. The average real policy rate for fiscal year 2017/18 was 2.5 %, the highest observed in India since the start of the repo regime in FY2005 when the real policy rate was 2.07 %, and the third highest in the world (behind Brazil and Russia). It is estimated that each 1 % increase in the real lending rate leads to a 0.5 % decline in non-agricultural growth. Real policy rates have increased by 380 bp between 2005-2014 (-1.6 %) and 2005 to present (2.2 %). Since agriculture is one-sixth of GDP, this means that an increase of 1 ppt in real lending rates leads to a decline of 0.4 ppt in GDP growth. This real policy rate increase (and consequent increase in lending rates) has caused GDP growth post 2014 to be lower by 1.5 ppt per year
Thus, there have been several factors arguing against “extra” employment generation during the last 2.3 years (i.e. between the last two employment surveys, April-December 2015 and June 2017-July 2018.)
The Non-Existent Modi promise of 10 million jobs a year
It is popularly believed that PM Narendra Modi had promised the generation of 10 million jobs a year. We find no record of any such statement. In the BJP Election Manifesto 2014, there is the following statement “The country has been dragged through 10 years of Jobless Growth by the Congress-led UPA Government”. At a campaign rally in Agra in August 2013, candidate Modi did talk about the lack of job generation in the UPA years. In the speech, Modi promised that if the BJP/NDA was to be elected, they would create 10 million jobs for the youth of the country (youth defined as those younger than 35 years). This is the only reference to job creation. There is no reference to the promise of 10 million jobs per year that we could find.
There has been a large emphasis on road construction in the last few years, and especially in 2017/18. Indeed, GDP growth of 5.8 % in construction in FY18 was the largest in the last six years. Construction is a labor-intensive activity and we estimate that construction activity alone added between 1.7 and 3 million jobs in FY18.
The recently released, but controversial, EPFO (Employee Provident Fund Organization) employment data suggests a healthy expansion of 7 million jobs in 2017 in the formal sector , and 3 million jobs in the informal sector(Ghosh and Ghosh 2018). For the very young likely first timers – 18-21 years – EPFO job creation was 2.5 million in the one-year Sept. 2017-Aug. 2018.
Labor force participation rates and jobs needed
One of the main “conventional wisdom” conclusions about the labor market in India is that the labor force participation rates of women in India have declined, and declined “precipitously”. This issue is examined in some detail and our preliminary conclusions are: (i) but about half the decline is explained simply by the fact that more women are attending school (and college) and hence half the decline is “artificial”; (ii) labor force participation rates for women have declined, but male participation rates have declined at about the same rate; (ii) after accounting for school enrollment, between 1999/00 and 2014, female LFPR declined from 36.4 % (principal status) to 33.6 %, and male LFPR declined from 92.8 % to 89.9 %. This issue, of both male and female labor force participation rates, is presently under study.
It is commonly believed (assumed) that India needs to provide 10 to 12 million jobs for its expanding labor force. We find that this conclusion has never been valid. The maximum expansion in the population ages 15 and above was during 204/5 to 2009/10 when the population increased at an average rate of 15.3 million a year. The highest LFPR recorded in India (again since and including 1983) was 60.6 % in 1983, some thirty-five years earlier. A population expansion of 15.3 million, with a 60 % LFPR, yields a labor force expansion of 9 million a year.
There is a further “error” in the computation of jobs needed. One of the big stories of Indian economic development over the last 15 years is the huge, and unprecedented, expansion of individuals ages 15 and above (especially the 15-24 age-group) that are going to school. This subtracts from labor force availability for individuals above 15 years of age.
Our estimate of jobs needed per year (after incorporation of school enrollment) has declined from a peak 8.6 million a year during 1999/00 and 2004/5, to just 5.3 million a year post 2011/12.
One final conclusion – the estimate of jobs needed rests on the estimates of labor force participation rates, especially for women. If this rises, as we think it will, the requirement for job growth will increase to about 6.5 million jobs a year over the next decade, from the present 5.3 million level.
Towards a Targeted Basic Income Policy for India
Most commentators have attributed the current agrarian crisis to two successive droughts and demonetization. While droughts do have an adverse...
Growth and Poverty in India – Myth and Reality
There is a raging controversy about whether poverty levels in India have increased in the nineties, a period co-incident with...
What Ails GDP Growth: Demonetization or High Interest Rates?
GDP Growth in India has slowed down to less than 7%, from the recent high level of 8.2% in 2015-16....