by Vivek Kaul
In the second stage, the birth rates come down. This happens primarily because once infant mortality comes down, people start to realise that their children will grow into adults. Hence, they have fewer of them. In the Indian case, the investment made by the government in urban as well as rural health missions has started to have some impact on India’s infant mortality rate.127 The infant mortality rate in India was 75 in 1996. It has come down to 38 in 2015, as data from World Bank shows.
Along with the infant mortality rate declining, the general technological advances as well as access to medical facilities have improved. This essentially means that, in the coming years, there will be a huge bulge in the number of young people in the country. In this stage, the workforce of the country increases dramatically. This is the demographic dividend. In the third and final stage, the working population falls and the number of old people goes up. This is something that the European countries and Japan are currently facing, and which China is likely to face in the years to come.
India is currently in the second stage. This basically means that the workforce of the country will grow dramatically in the years to come. What do the numbers look like? There are several projections that are available. Let me discuss a few here, starting with Sanyal, whom we have quoted above.
As Sanyal writes: “The UN’s projections suggest that India’s working age population will rise from 691 million in 2005 to 829 million in 2015 and 942 million in 2025 before stabilising at around 1,050 million in the late 2030s.”
So, as per Sanyal’s calculations, India will add around 113 million (942 million minus 829 million) to the workforce between 2015 and 2025. This means around 11 million (or 1.1 crore) individuals a year, on an average.
Akhilesh Tilotia comes up with a slightly higher number in his book The Making of India—Gamechanging Transitions. As he writes: “Over the next ten years, till 2025, 250 million people will be eligible to join the workforce…. This means that more than 2 million people will become eligible to work every month…. Around 12-15 million people will actively look for employment opportunities every year.”128
Now how does two million eligible workers a month come down to around a million a month looking for a job? There are essentially two reasons for this. Not all Indian women work. Assuming that two-thirds of them do not look out for a job, the number of 2 million a month comes down substantially. Of course, if more women decide to join the workforce, then the number of one million per month will go up. Furthermore, around five to six million individuals will retire every year. Once we adjust for these factors, the eligible new workforce of 2 million a month comes down to an effective new workforce of 1 million a month.129
There is another detailed study on this carried out by TS Papola and Partha Pratim Sahu of the Institute for Studies in Industrial Development. The authors estimate that “about 13 million employment opportunities every year” are needed “to generate productive employment to almost everyone looking for work”.130 The authors estimate that creating thirteen million jobs a year would imply an employment growth rate of 3 per cent per year.
And then there is the estimate made by the Planning Commission for the 12th Five-Year Plan. As the 12th Five-Year Plan document points out: “One hundred and eighty-three million additional income seekers are expected to join the workforce over the next 15 years.” This essentially means that around 12 million (1.2 crore) individuals will join the workforce every year in the years to come. This works out to around one million a month. And at this rate, the Indian workforce is expected to be larger than that of China by 2030.131
Basically, the four estimates vary, but almost all of them suggest that around a million Indians are entering the workforce every month. Sanyal suggests that 11 million Indians are likely to enter the workforce every year. Tilotia suggests a number of 12-15 million Indians entering the workforce every year. Finally, Papola and Sahu suggest a number of around 13 million. Hence, the numbers vary between 11 and 15 million Indians entering the workforce every year. And the 12th Five-Year Plan talks about around 12 million Indians entering the workforce yearly. Given this, it is safe to say that around a million Indians will enter the workforce every month in the years to come. This amounts to 1.2 crore Indians entering the workforce during the course of the year.
And this is India’s demographic dividend. As these individuals enter the workforce, find work, earn money and spend it, the Indian economy is expected to do well. At least, that is how things are supposed to work in theory. But are there enough jobs going around for these individuals who are currently entering the workforce and who will continue to do so for at least the next decade or so?
Before we get around to answering this question, it is important to ask how things have looked in the past. Between 1991 and 2013, the working age population in India increased by 30 crore. At the same time, the number of employed increased by only 14 crore, with the economy absorbing less than 50 per cent of the new entrants into the labour market. This shows the limited capacity of the Indian economy to generate employment. This is a serious challenge, given that the Indian labour force will continue to expand over the next few decades.132
Let’s look at some data. In fact, let’s start with what the various arms of the government are doing as far as job creation is concerned. Take a look at Table 4.1. It shows the total number of employees working for the CPSEs (Central Public Sector Enterprises) as well as their salaries.
Table 4.1: Employment numbers and salaries of permanent CPSE employees.
Source: Public Sector Enterprises Survey, 2014-2015.
The number of permanent employees in the CPSEs was 16.1 lakh in 2006-2007. But by 2014-2015, this had fallen to 12.9 lakh. This essentially means that the CPSEs, on the whole, did not create any new jobs between 2006-2007 and 2014-2015. In fact, the number of jobs came down by around 20 per cent and has been steadily decreasing over the years.
Now how do things look for the central government employees? On January 1, 2006, the central government had a sanctioned strength of 38.3 lakh. Against this, it had 32.7 lakh employees on its rolls. By January 1, 2010, the sanctioned strength had gone up to 38.9 lakh, while the number of employees had fallen to 32.3 lakh.
By January 1, 2014, the sanctioned strength had risen to 40.5 lakh, whereas the number of employees had risen marginally to 33 lakh. So between 2006 and 2014, the central government basically added around 28,000 jobs.
Let’s look at some more data. The number of people working in the public sector in India has come down over the years. The public sector includes people working in the central government, state governments, quasi-government bodies and local governments. In 1991-1992, the year the economic reforms were initiated, the public sector employed close to 1.92 crore individuals. By 2011-2012 (the latest data that is available), it had fallen to 1.76 crore. So, over a period of two decades, the number of jobs in the public sector has come down by 16 lakh.viii
Interestingly, the number of jobs in the organised private sector between 1991-1992 and 2011-2012 went up from 78.5 lakh to around 1.2 crore. This basically meant an increase of 2.1 per cent per year. 133 One reason for this has been the fact that the share of contract workers, essentially in the manufacturing sector, has gone up dramatically over the years. In 1995, contract workers made up for around 13 per cent of the manufacturing workforce. By 2011, this had jumped to 34 per cent. This increase in the number of informal workers has also led to a decline in the strength of the collective bargaining of the trade unions. This is also evident in the decline in the number of working days lost due to strikes.134
Data released by the Chandigarh-based Labour Bureau in April 2016 suggests that no new jobs were created across eight labour-intensive sectors between October and December 2015. There was, instead, a decline of 20,000 jobs. This was the country’s worst performance on the job front since 2009.
The era when the government created jobs is long gone. Furthermore, this data clearly tells us that the formal sector
hasn’t managed to create enough jobs for the one million Indians projected to join the workforce every month. Also, the public sector jobs data is more than four years old. This is one of the problems with trying to figure out the real employment scene in India. The data in some cases is simply too old.
Let’s look at some more recent data. Figure 4.1 shows the number of people working for the Haryana government during the years 2001-2014.
Figure 4.1: Number of employees of the Haryana government between 2001 and 2014.
Source: Census of Haryana Government Employees.
Between March 2001 and March 2014, the number of employees of the Haryana government went up from 3,19,027 to 3,40,698. This means an increase in jobs at the rate of 0.5 per cent per year over a 13-year period. This is far slower than the rate of population growth. Between 2001 and 2011, when the last two Censuses were carried out, the population of Haryana grew by 1.8 per cent per year, on an average.
Interestingly, the total number of people employed by the government of Haryana fell between 2001 and 2004. How do things look if we take March 2004 as the base year? The numbers of jobs then grew by around 0.9 per cent per year.
The point being made is that the number of Haryana government jobs has been growing at a very minuscule pace. The situation is similar at the central government level. But why are we talking about Haryana specifically here?
In May 2016, the Government of Haryana notified the Haryana Backward Classes (Reservation in Services and Admission in Educational Institutions) Act.
The Act provides 10 per cent reservation to the following castes— Jats, Jat Sikhs, Rors, Bishnois, Tyagis and Muslim Jats—in Class III and Class IV government jobs. It also provides a 6 per cent reservation in Class I and Class II jobs to these same castes. Furthermore, the Act provides a 10 per cent reservation to these castes for admission into educational institutes.
In February 2016, Jats had gone on an agitation, resorted to violence and destroyed public property across Haryana to demand reservation in government jobs. The paramilitary forces had to be called in in order to control the mess that followed.
But the point is: Will this reservation in government jobs help the Jats? Or, to ask a more specific question, does reservation in government jobs really help these days? The data that I have shared until now in this chapter clearly shows that reservations are of no help these days because the number of government jobs has either come down or increased at a very minuscule pace.
The question is: Why do people still believe in the idea of reservations? In the recent past, there has been a spate of protests across the country, carried out by people belonging to castes which are generally seen as well off. These include the Kapus in Andhra Pradesh, the Marathas in Maharashtra, the Patels in Gujarat, and the Gujars in Rajasthan.
A simple explanation for this lies in the fact that the salaries paid by the government at lower levels have gone up and are significantly higher than those paid by the private sector. Hence, those who manage to get into a government job on the basis of reservation do benefit. While the government is not creating jobs on the whole, it hasn’t stopped recruiting totally and is always recruiting to replace the people who are retiring.
It is worth asking here why the central government can’t play the role of Big Government and create jobs directly. In the case of the central government, the simple answer lies in the salaries and pensions that it needs to pay to current and former employees. In 2016-2017, the total salary and pension (excluding the Railways) bill is expected to come in at Rs. 2,25,000 crore. This amounts to a little more than 21.3 per cent of the central government’s share of the tax revenues.
Furthermore, the amount that the central government is likely to spend on salaries and pensions in 2016-2017 is Rs. 40,000 crore more than what it did in 2015-2016. Interestingly, the salary and pension bill in 2015-2016 amounted to 19.5 per cent of the central government’s share of the tax revenues.
The point being that the money spent on salaries and pensions already forms a significant portion of what the central government earns every year, and this when the number of central government employees hasn’t really gone up at a fast pace. Given this, it is not surprising that the government is really not in a position to create jobs anymore.
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We have largely looked at the formal sector of employment until now. What about the informal sector, in which a large number of Indians actually work? Almost 92 per cent of the workforce works in the informal sector, with a large proportion of them having low earnings and almost no social security. This basically means that only around 8 per cent of the workforce has regular full-time jobs and access to some sort of a social security system. Even within this bracket, upper caste Hindus and other minorities like Christians, Jains and Sikhs have a disproportionate share of good jobs, given their higher educational attainments. Furthermore, around half of the workforce is self-employed.135
If one were to use the kind of terms that venture capitalists and private equity investors like, then we would say that around half of the workers are entrepreneurs or business owners. As Abhijit Banerjee and Esther Duflo write in Poor Economics:136
The sheer number of business owners among the poor is impressive. After all, everything seems to militate against the poor being entrepreneurs. They have less capital of their own (almost by definition) and… little access to formal insurance, banks and other sources of inexpensive finance…. Another characteristic of the businesses of the poor and the near-poor is that, on average, they are not making much money.
The point here is that a large part of the workforce is not self-employed by choice but are self-employed because they have no other option. Banerjee and Duflo call them ‘reluctant entrepreneurs’. The phrase summarises the situation very well.
Other than the reluctant entrepreneurs, more than 30 per cent of the workforce comprises casual labourers, who seek employment on an almost daily basis. The reluctant entrepreneurs and casual labourers looking for daily work essentially tell us that no one can really afford to stay unemployed. This also tells us why the rate of unemployment is really low in the Indian case. Between 2011 and 2014, the rate of unemployment varied between 3.5-3.6 per cent.ix What this clearly tells us is that “the problem is not primarily one of unemployment, but the lack of productive employment”.137
This is something that we need to explore in a little more detail.
From late September to early October 2016, there was a spate of reports in the media which said that unemployment in India was at a 5-year high.
Indian economic agencies do not measure the rate of unemployment on a regular basis. In the United States, a regular unemployment figure is released every month. In India, this happens now and then when some big surveys are carried out. In mid-September 2016, the Labour Bureau, based out of Chandigarh, released the Report on the Fifth Annual Employment-Unemployment Survey (hereafter referred to as the Report).
Using this Report, large sections of the media reported that unemployment in India during 2015-2016 was at a five-year high of 5 per cent. The Press Trust of India in a newsreport said: “The figures could be an alarm bell for the Bhartiya Janata Party (BJP)-ruled government at the Centre.”138 The Times of India said: “It shows a continuation of a distressing job situation.”139
What these statements clearly tell us is that the media was right and wrong at the same time. Furthermore, should a country be bothered about a 5 per cent rate of unemployment, even if it is at a five-year high?
Let’s consider the rate of unemployment reported when the previous survey was carried out by the Labour Bureau. The last survey was carried out in 2013-2014, and the rate of unemployment then was 4.9 per cent. Given this, there has hardly been any jump in the rate of unemployment between then and now.
So, should that get us worried, even if the unemployment is at a five-year high? In 2012-2013, the rate of unemployment was 4.7 per cent. In 2011-2012, it was at 3.8 per cent, and in 2009-2010, it was at 9
.3 per cent. 140 The Labour Bureau did not publish any report in 2014-2015 and 2010-2011.
So things in 2015-2016 on the unemployment front were a little worse in comparison to 2011-2012, but a lot better than in comparison to 2009-2010. Also, it is important to understand that at any point of time there will be some unemployment in any economy. People will be in between jobs. Some people might have got fired. Some companies might have shut down, rendering people unemployed. Some businesses could be seasonal. Some skillsets which were in demand might get outdated, and so on.
For a labour market to have flexibility, some unemployment is necessary. A labour market which has 100 per cent employment will make it difficult for employers to hire people. Once these factors are kept in mind, a rate of unemployment of 5 per cent is not that high at all.
With that distinction out of the way, how worried should we be about India’s so-called high rate of unemployment? Answer: We should be very worried. But isn’t that a contradiction to what I have said until now? Yes, it is. Allow me to explain.
What the media did not tell us in the newsreports is how unemployment is defined. For how long does one need to be unemployed to be counted as unemployed? And this is where things get interesting.
The Labour Bureau essentially measures unemployment using two methods. The first method is called the Usual Principal Status (UPS) Approach. In this approach, “the major time spent by a person (183 days or more) is used to determine whether the person is in the labour force or out of the labour force”.
Hence, under this method, anyone who has a job for 183 days or more during the course of the year is considered employed. What does this mean? It means that an individual might have been unemployed for close to half the year but still would be considered to be employed.
