Jobs & growth: Good news and bad news
Our potential for decades of high growth demands the creation of millions of high-quality jobs in labour-intensive industries.
Naushad Forbes | Aug 14 2024
Our aspiration is to become a developed economy by 2047. A “developed”, or high-income, country has a per capita gross domestic product (GDP) above $14,000, about five times higher than our current level of $2,700. Getting there demands a 2 per cent higher rate of growth (8.5 per cent) for the next quarter-century than we are achieving now (6.5 per cent). Growth and jobs are linked. As countries develop, the most dramatic growth driver is the movement of people from low-productivity agriculture into higher productivity occupations in manufacturing and services. When a farmer’s child migrates and goes to work for Zoho in Chennai, Zomato in Pune, or Tata Electronics in Bangalore, the jump in family earnings directly shows in GDP. More income multiplies through the economy as the family begins to consume everything from holidays to processed food. Consumption has been our driver of GDP growth for the last 30 years. Equally, when we see reverse migration from cities to villages, economic growth suffers. Over the last four years, we have added 20 million jobs in agriculture and informal rural self-employed services. We need to see decades of migration from low-productivity rural occupations to higher productivity urban ones; the reverse trend we have recently seen reflects a failure of development
Last month’s Economic Survey tells us that of our total workforce of 565 million, 46 per cent work in agriculture, 11 per cent in manufacturing, 13 per cent in construction, and 29 per cent in services such as trade, hotels and transport. Agriculture employs 46 per cent but produces 18 per cent of our GDP. We do not need so many in agriculture. Romantic notions of an idyllic rural life aside, most farmers would prefer to move away. We could produce as much food as we do now with a quarter as many farmers and little change in technology. Looking forward, the survey makes a powerful case for creating 8 million non-agricultural jobs a year. It makes a set of reasonable assumptions. Men’s labour force participation will stay where it is, at 54 per cent (a low rate by international standards). Women’s labour force participation will increase by 1 per cent a year, from 27 per cent (about the lowest in the world). That may sound modest, but the last 30 years show that we have done very poorly in creating urban jobs for women. And each year should see a movement of 1 per cent of the workforce from agriculture to manufacturing and services. This again sounds modest, but repeated over 23 years has a great impact. We do not know just how many people live in rural areas. The 2011 census said 70 per cent. Given the hugely delayed 2021 census, an educated guess would put the rural population today at around 60 per cent, with most of the 10 per cent who have migrated heading to smaller towns, not the metros.
This projection is good news. New entrants to the labour force and a shift away from farming directly add to GDP. The Survey also shows that the most vibrant job growth has been in construction and what it calls the flexi-economy, contractual jobs in logistics and contract labour in firms. Our jobs in construction are heavily contractual. These construction and flexi-jobs are not great jobs, but they are much more productive and pay a lot more than the agricultural jobs they replace. Eight million more manufacturing and service jobs would add between three-quarters and a per cent to GDP growth for each of the next 23 years. That will bridge half the gap to becoming rich enough to count as a developed economy by 2047.
That’s the good news. The bad news is that we have never created 8 million non-farm jobs in one year. The survey points to the potential in agri-processing and the care economy. Both are worthy sectors with much need, but we must go further.
This year’s Budget tries three ways to incentivise job creation in existing firms: Subsidising the first month’s salary, providing the provident fund contribution of firms for new employees during their first two years, and a large internship programme with a modest state stipend. All these are useful, and will support firms that are already hiring people. Whether they will prompt firms to hire more people is another question. I would suggest a different approach, one that focuses on labour-intensive industry (also tourism, but that’s for another column).
The Economic Survey shows where we employ people in our factories (see table). A note on this data. Of the 60 million (11 per cent of 565 million) people employed in manufacturing, just 17 million work in factories (defined, in Edison-era terms, as employing over 10 people using power or 20 people not using power). The remainder are presumably in tiny enterprises. But it is a reasonable assumption that factories constitute the modern manufacturing jobs we should be after. Where can they be?
Three manufacturing sectors can create jobs by the million: Apparel, food, and electronic assembly. Our apparel sector has long languished with little attention paid to it. Let’s talk to them and ask them what it would take to scale by a factor of ten. Just as we have attracted Foxconn to India, let’s try to do the same with Li and Fung, the world’s largest apparel company that indirectly employed 1 million people in China. A large garment factory in Bangladesh employs 30,000 – 50,000 people; in India, it is only 3,000 – 5,000. What would help them grow? Design and technology? Skills on the shopfloor? Tariff-free access to markets through free-trade agreements? Labour reform? Hiring seasonal labour more easily?
In food processing, we are still a small player by international standards. We grow over 20 per cent of the fruit and vegetables in the world but process, Deloitte tells us, 4.5 per cent of our fruit and 2.7 per cent of our vegetables. We could dominate world markets for both.
Electronic assembly is a new success story. We are finally seeing large labour-intensive factories being set up by Tata Electronics, Foxconn and Pegatron. Set up under the production linked incentive (PLI) scheme, electronics assembly is the only one of the 14 PLI sectors that is labour-intensive. Machining iPhone cases, assembling phones, knitting garments and processing oranges may not be as glamorous as drones and semiconductors. But unlike drones and semiconductors, these activities can employ millions. An effective jobs strategy demands a sectoral focus on labour-intensive industries.