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UPA’s legacy: Honey, I shrunk the jobs market 25%


Jul 9, 2012
As the UPA prepares to leave office over the next three-four months, it will be leaving behind not only a decelerating economy with untamed inflation and weak government finances, but one that will be unable to produce jobs in the quantities required over the next five years.

According to a Crisil report, between 2011-12 and 2018-19, which will be the terminal year of the next government if it survives its full term, the number of people entering the workforce will be over 85 million, of whom 51 million will be seeking employment.

Representational Image. Reuters

But the rating agency believes that the non-agricultural sector will be able to churn out only around 38 million jobs, forcing the balance 12-13 million to return to low-quality, low-productivity rural or agricultural jobs.

The 38 million new jobs created over the next five years would be a 25 percent drop from the 52 million created in the seven years between 2004-05 and 2011-12, which, in turn was lower than the 62 million created during the 1999-2004 NDA period.

Clearly, the economy is not creating as many jobs as it did earlier? What has gone wrong?

Data Crisil Report

The Crisil report traces the problem to two factors: inflexible labour laws, which militate against more employment of labour, and the shift in the growth pattern towards less labour-intensive jobs such as IT and IT-enabled services.

The clear job-destroyer during UPA has been automation due to rigid labour laws. Says Crisil: "The employment elasticity of manufacturing - defined as the percentage increase in employment for every percentage point increase in manufacturing GDP - deteriorated sharply to an average 0.17 in the seven years to FY 2012 from 0.68 in the seven years to FY 2005.

Put another way, it took four times as much investment to create one job during UPA than it did during NDA.

It is estimated that one or two people in IT/ITES can produce Rs 10 lakh worth of real value-added GDP, whereas the higher job-creating sectors in manufacturing have been recruiting less by increasing automation. The reason is obvious: the IT/ITES business is not constrained by labour laws, while the manufacturing sector is.

To make matters worse, Crisil now sees the likely growth rate during 2013-19 at not more than 6 percent per annum, making it tougher to generate more jobs.

Says Crisil Chief Economist Dharmakirti Joshi: "We expect the Indian economy to expand at a slower pace of 6 percent per year in 2013-19 from 8.5 percent in the 2005-12. Further, GDP growth is driven increasingly by less labour-intensive services such as financial (services), real estate and business services (including IT-ITES). For example, in FY 2012, these services, with nearly 19 percent share in GDP, employed only 3 out of 100 workers in the economy. Employment generation in the evolving scenario will therefore pose a severe test for Indian policy makers."

Net result: with jobs expanding slowly, more people will slink back to agriculture - a reversal of the trend seen over the last decade. Says Mukesh Agarwal, President, CRISIL Research: "It is desirable to pull more and more people out of agriculture since it is a low-productivity sector, with only a 14 percent share in GDP, but around 49 percent share in employment. The old trend of migration from agriculture will reverse with fewer non-farm job opportunities coming in the way of achieving this."

So what will the new government have to do to pull the country back from the brink?

Crisil says it will have to check the "falling intensity of labour participation in the manufacturing sector by simplifying labour laws and encouraging the growth of labour-intensive industries (such as textiles, gems and jewellery and leather)." It will also have to develop sectors such as health and education and invest in physical infrastructure and construction - which were major job creators during the NDA regime.

UPA's legacy: Honey, I shrunk the jobs market 25% - Firstbiz

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