India's Jobless Growth

Summary

This Forum of Free Enterprise booklet is Dr. S. D. Naik’s diagnosis of India’s “jobless growth” — economic expansion that fails to produce enough formal jobs. After Sunil S. Bhandare’s editorial framing (printed pages 3–6), Naik’s essay “What needs to be done to tackle it?” opens by defining jobless growth and pointing to a contradiction: India grows at 7–7.5% per year while creating only 4 to 4.5 million jobs against an annual labour-force addition of roughly 12 million. He attributes this paradox to India’s failure to build a labour-intensive manufacturing sector along Chinese lines and to the dominance of services, which now employ 30 per cent of the working-age population.

Drawing on Labour Bureau, CMIE and McKinsey Global Institute data, Naik shows that 93 per cent of employment sits in the unorganised sector, that rural wages are at a decade low, and that underemployment runs at 35 per cent. He traces a collapse in India’s employment elasticity from 0.44 in 1999–2005 to roughly 0.01, well below the 0.3 global average for 2000–2010. He treats the Make in India target of 100 million new jobs by 2022 as already failed, with $117.35 billion of sanctioned investments scrapped in FY 2017–18, and uses recruitment surges — 25 million applications for fewer than 90,000 Railway posts; 200,000 applications for 1,167 Mumbai constable jobs — as evidence of the formal market’s exhaustion.

Naik then identifies the ideological culprits. India’s roughly 200 labour laws, including the Industrial Disputes Act and the Industrial Employment (Standing Orders) Act of 1946, require government permission for retrenchment or even reassignment in firms with 100+ workers; these protect just 7 per cent of the workforce while preventing labour-intensive production and leaving Vietnam, Bangladesh and Cambodia to absorb the low-end manufacturing share China has vacated. He further faults the inverted duty structure — 10 per cent on raw materials, duty-free finished apparel — and the shocks of demonetisation and a poorly implemented GST, which together shed up to 1.5 million informal textile jobs and shuttered Bhiwandi’s power-loom cluster. The rendered pages close at the first item of Naik’s eight-point reform agenda: scrapping rigid labour laws.

Key points

• India’s economy grows at 7–7.5% per year but creates only 4 to 4.5 million jobs against roughly 12 million annual additions to the labour force — the central ‘jobless growth’ paradox the booklet investigates.

• 93 per cent of total employment lies in the unorganised sector with no formal monthly payment or social security; rural wages are at a decade low while agriculture employs about 45% of the population yet contributes only ~15% of GDP.

• Employment elasticity collapsed from 0.44 in 1999–2000 to 2004–05 to about 0.01 by the late 2010s, well below the 0.3 global average for 2000–2010 — each unit of GDP growth now generates almost no jobs.

• McKinsey Global Institute analysis shows 4.75 million people entered India’s labour market every year between 2012 and 2015 while the economy generated only about seven million jobs in the entire four-year period.

• Make in India’s target of raising manufacturing to 25% of GDP and creating 100 million new jobs by 2022 has failed; sanctioned investments worth $117.35 billion were scrapped in FY 2017–18 alone.

• India’s roughly 200 labour laws — particularly the Industrial Disputes Act and the Industrial Employment (Standing Orders) Act, 1946 — protect just 7% of the workforce while making labour-intensive production unviable for the other 93%.

• The inverted duty structure (10% duty on raw materials versus duty-free imports of finished apparel and electronics) blocks India from capturing the low-end manufacturing share China has vacated, which has flowed instead to Vietnam, Bangladesh and Cambodia.

• Demonetisation in 2016 and a poorly implemented GST in 2017 disproportionately hurt the cash-dependent informal sector — the textile industry alone shed up to 1.5 million informal jobs and the Bhiwandi power-loom cluster near Mumbai shut down.