MUMBAI: India has an employment problem. It's rather surprising that we believe politicians, who resell the same plot for years, which is, to make jobs and growth, their priority.
Narendra Modi too ran for Prime Minister with the promise of creating jobs. 10 million of them every year, exactly what the US added in nearly 8 years under President Barrack Obama. For the NDA government, it worked as a political strategy and carried the day in 2014 elections. But latest official statistics put a chill on Modi's promise to boost hiring. Unemployment rate is at a 5-year high of 5 per cent in FY16 and the UN Labour report pegs 18 million to be jobless in 2018.
We have an estimated 433 million core labour force, of whom 22 per cent are women. But the employment rate is growing at 1.5-1.7 per cent, which is inadequate. Why? Nearly 13 million are openly unemployed, some 52 million are in 'disguised unemployment,' and another 52 million, all women, aren't part of the labour force due to fewer opportunities, according to the India Employment Report, 2016. In other words, we are staring at a 117-million unemployed club! This backlog can be eliminated if our annual employment rate touches 3 per cent or more. Making matters worse, roughly 10 million enter the labour pool every year, while our employment potential, instead of expanding, is simply shrinking.
The reason is our traditional job engines -- organised sector including IT, pharma, finance and the large informal sector -- are stuck in a downturn and unable to reverse out of a dead end (go ahead and blame global factors, demon and GST). Formal jobs, accounting for less than 20 per cent of total employment, are affected by the xenophobic retreat led by US President Donald Trump's poll plank to restore American jobs -- which, by the way, got him the top job at White House. So was Australia's Malcolm Turnbull's 'jobs and growth' slogan that rendered him victorious. As if the protectionist wave wasn't enough, the IT sector took another massive blow from automation, which is eating into the regular jobs' pie. The one-two punch forced IT majors to 'right size' staff, with trade body Nasscom saying further 1.6 million will be 're-skilled' in five years. Banks, which employ over 13 lakh, too are under the weather with hiring at state-run lenders touching a 5-year-low of 1.3 per cent in FY17 and are considering staff and branch rationalisation as we speak. Ditto with debt-ridden telecom sector, where 'down-sizing' appears inevitable.
So stark is the problem that in October, at the World Economic Forum, Bharti Airtel Chairman Sunil Mittal admitted that India's top 200 companies saw significant workforce reductions and if they don't generate jobs, millions will be left behind. Baffling, but the government thought it was 'a very good sign.' Speaking on the same platform, Railways Minister Piyush Goyal reasoned that our youth were no longer job seekers, but job creators. Perhaps, sensing an opportunity, the government launched an ambitious Rs 10,000-crore Startup India programme in 2015 to spur entrepreneurship, but cut to two years, the picture ain't rosy.
Some 5,300 DIPP recognised startups created 40,000 jobs alright, but the promised 1.8 million jobs by 2020 under the Startup action plan is but a moonshot. Worse, just 75 entrepreneurs received Rs 337.02 crore funding out of the earmarked Rs 10,000-crore Fund of Funds. If 2016 saw 6,000 startups, the first nine months of 2017 saw only 800 upstarts, according to startup tracker Tracxn.
Still, the government is taking comfort in the fact that it's encouraging self-employment under multiple schemes like Mudra. According to Modi, in the past three years, 97.5 million were given unsecured loans aggregating Rs 4 lakh crore. Of this, 30 million were new entrepreneurs. The spotlight on informal sector is sensible, as over 80 per cent of our workforce is crowded in the unorganized sector, largely in micro enterprises employing 9 or less.
India is midway through its demographic dividend, which according to the Economic Survey, is a period when demography boosts growth by expanding the working-age share of the population. By 2027, we will have the world's largest labour force, but the downside is, the need for jobs is pronounced. Job creation has been Modi's biggest unfinished agenda, but he has little time left to paper over the cracks before 2019 elections. So in September, Modi replaced labour and skill development ministers roping in oil minister Dharmendra Pradhan and junior finance minister Santosh Kumar Gangwar to get cracking. Doing its bit, government think tank Niti Aayog submitted an action plan to improve employment, particularly in agriculture and manufacturing. As an added thrust, the country's first National Employment Policy, is likely to be unveiled during Budget in February, outlining a road map to create quality jobs through economic, social and labour policy interventions.
These measures are essential to formalise informal sectors, move employees from casual to regular, where real wages rise, underemployment decreases, and productivity improves. When this happens, it'll goose the economy, that's stuck in first gear. Right now, the process is excruciatingly slow than desired, broadly for three reasons.
One, the slow growth of labour force is due to the declining labour force participation rate (LFPR). Especially, women LFPR is among the lowest in the world and the second lowest in South Asia after Pakistan. Successive governments did what was expected, rolling out schemes like MGNREGA, stipulating one-third women participation, but easing of labour policy restrictions will help immensely. Two, just 5 per cent of the current workforce have required skills making it difficult to embrace productive employment and needs immediate attention. Three, labour-intensive SMEs employing between 10 and 200 -- the missing middle -- are affected by dysfunctional and rigid laws. For instance, the Industries Disputes Act that mandates firms with over 100 employees to secure state approvals before closing down, laying off or dismissing employees, deters entry and expansion of small firms. To give you a perspective, there are 200 central and state labor laws and the enormity of the anti-employment bias is rather puzzling.
But not everyone agrees with India's jobless growth story, based on job creation and layoffs in organised sector alone. Conventional wisdom tells us that in the event of joblessness, people take up any work -- casual, informal, or part-time -- to survive. It means, employment rate could be larger, according to Sudipto Mundle, of NIPFP. He argues that what we are seeing isn't the actual picture of the labour market, which is fragmented with shades of employment, underemployment and unemployment.
While efforts are on to create millions of productive, well-paying, formal jobs, truth is, structural changes have occurred and large-scale jobs are no longer found in factories, (think of Chinese dominance) or via back-end service sector jobs (think automation). Nearly every country, be it the US, UK, or China is fighting unemployment and is promising the same 'jobs and growth' story. But here's the thing: Traditional jobs have disappeared and aren't coming back. The future of work is now dynamic and competition intense. Back home, the government is rightly focusing on facilitating exports, renewing thrust on agricultural employment and constantly tweaking initiatives like Skill India to engage and encourage domestic firms to thrive in. Some are helping, while others may take time to effect.
Clearly, the only solution for unemployment is to create more jobs. Needless to say, for now (and next), job creation will remain the richest prizefight in all electoral battles to come.