India risks squandering advantage as it faces urban jobs crunch - FT.com
India risks squandering advantage as it faces urban jobs crunch
©Getty
Not long ago, Indian policy makers, and other slick marketers, touted the South Asian country's youthful population as a national asset, which would propel faster economic growth with the energies of 1m young people entering the workforce every month for the next 20 years.
Today, businesses and economists are darkly warning that India is in grave danger of squandering its demographic opportunity, and could face rising social unrest, as it fails to create enough jobs for rural youth seeking to escape from the countryside.
Last week, Crisil, an independent credit rating agency, said India’s sluggish pace of job creation will slow further in the next few years, the result of faltering overall economic growth and companies’ reluctance to hire more workers due to restrictive socialist-era labour laws.
The Crisil report estimated that India, which created 52m jobs in industry and services from 2004 until 2011, will generate 38m between now and 2019, trapping many rural youth coming of age in a life of agrarian poverty.
The Federation of Indian Chambers of Commerce and Industry, a leading business group, has called for urgent measures to revive faltering economic growth to 8 to 9 per cent a year, the level it says is necessary to absorb new entrants to the workforce.
“If we as a nation fail to do that, then we risk damaging an already fragile social cohesion,” the organisation said.
In the west and east Asian powerhouses like Japan, the escape from poverty to greater prosperity has been driven by the mass exodus of people from rural villages and farm labour to more remunerative opportunities in cities and industrial zones.
In India, this process has been slow. According to the 2011 census, 31 per cent of India’s 1.3bn live in cities, or urbanised areas, up marginally from 28 per cent in 2001.
Manufacturing jobs account for 12 per cent of total employment, the same level as in 1991, before New Delhi began opening its state-controlled economy to greater private and foreign investment. That’s also around the same level as the US, widely considered a “post-industrial society”.
“We haven’t had the farm to non-farm transition,” says Manish Sabharwal, founder of TeamLease, a large human resources company. “I don’t think anybody can envisage a less poor India without a higher proportion of the labour force in manufacturing.”
India’s ruling Congress-led government has repeatedly paid lip service to the importance of manufacturing, with its job-creating potential. But the sector remains choked by fragile infrastructure too overstretched to support large-scale, industrial expansion in labour intensive sectors like textiles.
The Congress administration has not even talked about reform of labour laws, which make it nearly impossible for companies to lay off a permanent worker thus deterring many from hiring long-term employees. Many manufacturers circumvent the rules by relying on small cohorts of permanent workers, supplemented by rotating squads of short-term contractors.
Large manufacturers in India have invested heavily in factory automation so they require fewer workers to make more. Between 2004 and 2011, Crisil says, manufacturers in India halved the number of workers needed for every Rs1m of output.
While manufacturing output increased 9 per cent annually during that period, 6m manufacturing jobs were added. Most new jobs were in low-value services, like couriers, sales, security guards or unskilled construction workers.
The Congress government’s answer to the lack of employment opportunities has been a huge rural jobs scheme, which promises 100 days of paid work, mostly at low-value tasks, each year to one member of every village household.
Since 2006, New Delhi has allocated around $25bn to the programme, which ostensibly serves as a floor beneath the feet of the rural poor. But critics say the scheme has exacerbated labour market problems, encouraging villagers to stay at home rather than find jobs that are still available.
Sorting out the labour market will be one of the most urgent tasks for any government serious about combating long-term poverty, and will require tough, politically controversial decisions.
FICCI and other business groups are clamouring for a redesign of the rural jobs scheme to allow some young people to attend vocational training classes that would prepare them for potential jobs in textiles, construction or other sectors.
A new government may also have its own ideas. But this much is certain: India will never escape its existing poverty with policies that discourage companies from hiring more workers, while spending billions of dollars to encourage hundreds of millions of rural unemployed to stay at home.
India risks squandering advantage as it faces urban jobs crunch
Not long ago, Indian policy makers, and other slick marketers, touted the South Asian country's youthful population as a national asset, which would propel faster economic growth with the energies of 1m young people entering the workforce every month for the next 20 years.
Today, businesses and economists are darkly warning that India is in grave danger of squandering its demographic opportunity, and could face rising social unrest, as it fails to create enough jobs for rural youth seeking to escape from the countryside.
Last week, Crisil, an independent credit rating agency, said India’s sluggish pace of job creation will slow further in the next few years, the result of faltering overall economic growth and companies’ reluctance to hire more workers due to restrictive socialist-era labour laws.
The Crisil report estimated that India, which created 52m jobs in industry and services from 2004 until 2011, will generate 38m between now and 2019, trapping many rural youth coming of age in a life of agrarian poverty.
The Federation of Indian Chambers of Commerce and Industry, a leading business group, has called for urgent measures to revive faltering economic growth to 8 to 9 per cent a year, the level it says is necessary to absorb new entrants to the workforce.
“If we as a nation fail to do that, then we risk damaging an already fragile social cohesion,” the organisation said.
In the west and east Asian powerhouses like Japan, the escape from poverty to greater prosperity has been driven by the mass exodus of people from rural villages and farm labour to more remunerative opportunities in cities and industrial zones.
In India, this process has been slow. According to the 2011 census, 31 per cent of India’s 1.3bn live in cities, or urbanised areas, up marginally from 28 per cent in 2001.
Manufacturing jobs account for 12 per cent of total employment, the same level as in 1991, before New Delhi began opening its state-controlled economy to greater private and foreign investment. That’s also around the same level as the US, widely considered a “post-industrial society”.
“We haven’t had the farm to non-farm transition,” says Manish Sabharwal, founder of TeamLease, a large human resources company. “I don’t think anybody can envisage a less poor India without a higher proportion of the labour force in manufacturing.”
India’s ruling Congress-led government has repeatedly paid lip service to the importance of manufacturing, with its job-creating potential. But the sector remains choked by fragile infrastructure too overstretched to support large-scale, industrial expansion in labour intensive sectors like textiles.
The Congress administration has not even talked about reform of labour laws, which make it nearly impossible for companies to lay off a permanent worker thus deterring many from hiring long-term employees. Many manufacturers circumvent the rules by relying on small cohorts of permanent workers, supplemented by rotating squads of short-term contractors.
Large manufacturers in India have invested heavily in factory automation so they require fewer workers to make more. Between 2004 and 2011, Crisil says, manufacturers in India halved the number of workers needed for every Rs1m of output.
While manufacturing output increased 9 per cent annually during that period, 6m manufacturing jobs were added. Most new jobs were in low-value services, like couriers, sales, security guards or unskilled construction workers.
The Congress government’s answer to the lack of employment opportunities has been a huge rural jobs scheme, which promises 100 days of paid work, mostly at low-value tasks, each year to one member of every village household.
Since 2006, New Delhi has allocated around $25bn to the programme, which ostensibly serves as a floor beneath the feet of the rural poor. But critics say the scheme has exacerbated labour market problems, encouraging villagers to stay at home rather than find jobs that are still available.
Sorting out the labour market will be one of the most urgent tasks for any government serious about combating long-term poverty, and will require tough, politically controversial decisions.
FICCI and other business groups are clamouring for a redesign of the rural jobs scheme to allow some young people to attend vocational training classes that would prepare them for potential jobs in textiles, construction or other sectors.
A new government may also have its own ideas. But this much is certain: India will never escape its existing poverty with policies that discourage companies from hiring more workers, while spending billions of dollars to encourage hundreds of millions of rural unemployed to stay at home.
