Inclusive Growth
Sankara Narayanan | 28 Jan 2015

The probability of an American lifting himself up from poverty is the same as that of an Indian in similar circumstances. In other words, Indians have the same chances of becoming rich as the Americans have.

The power to transcend poverty, move into middle class and, finally, reach the stage of affluence is now within the person himself. This is the finding of a World Bank report.

The single most important finding of the report is that job creation is the key to a nation's economic well-being. Modi's "Make in India" campaign is primarily aimed at job creation.

This article deals with the vital issue viz economic inclusiveness of the projected growth. Incidentally, the world's biggest captains of industry and trade at the World Economic Forum in Davos also expressed their discomfort on the increasing inequality.

As PM Modi pushes his Make in India manufacturing plan and factory output rebounds, new data indicate two disquieting trends. One, there is a slowdown in employment in the formal, organised sector (which employs only 12% of our labour force), the prime target of Modi's programme. Data released by the Ministry of Statistics and Programme Implementation on Indian factories show that nearly 500,000 people lost their jobs during the financial year 2012-13.

Two, this slowdown hides a larger, long-term trend: India Inc is automating and squeezing more output from its workers and so needs fewer of them. The proposed retrenchment of 25000 persons by Tata Consultancy Services is a pointer in that direction.  

While India had 222,120 operational industrial units during 2012-13, an increase of 2% per cent from 217,554 units in 2011-2012; people engaged in factories declined from 13.43 million to 12.95 million – a drop of 3.6% (480,000). This cannot be a welcome development, given the focus on employment in Make-In-India programme.

But taken from 1994-95, the growth of jobs in proportion to capital invested and value of output shows a much stronger downward trend. Over nearly two decades up to 2012-13, this is what happened in India's organised-sector: The number of industries increased by 80%. Capital invested multiplied nearly by 700%. The value of output is up by 1066%. Total employment increased only by 40%. Indeed, more people were employed in Indian factories during 1994-95 than a decade later in 2005-06.

Clearly, industrial India is getting more output per person engaged in its industrial activities. In other words, it needs fewer workers to do the same work. Capital employed has been going up simultaneously across industries, which implies more automation and efficiency, thus reducing the need for workers.

Employment estimates indicate that between 1999-2000 and 2011-12, Indian manufacturing (organised and otherwise) added 1.4 million jobs each year, against the 12 million now needed. The sector now employs more than 60 million people. The organised manufacturing sector for the same period increased jobs by 4.5%, employing 12.2 million in 2011-12.

The rate of job creation in the organised manufacturing sector falls severely short of the requirements of productive jobs for the 7-8 million youth expected to enter the job market each year in the next ten years. The dismal performance of the manufacturing sector on job creation could not be blamed on labour laws because these laws affect only permanent workers. Companies are bypassing them by hiring contract workers.

Clearly, while employment is stagnant across industries–a cause of concern for those joining the labour force and the job-creation hopes of the Make in India programme–Indian industry is doing reasonably well, thanks to capital-intensive production methods and by moving labour from full-time employment to contracts. This is the dilemma the government will need to address.