Welcome to Jobless Growth: Why India is facing an unemployment crisis
Why is an economy apparently on the upswing not being able to generate enough new jobs? Welcome to jobless growth.
At 8 pm every day, 200 young technicians at pathology giant Thyrocare Technologies begin work at its automated clinical chemistry laboratory at Turbhe in Navi Mumbai. For the next 12 hours, they operate a range of state-of-the-art diagnostic equipment, which can process up to 200,000 investigations a night for thyroid, kidney and liver diseases, testing nearly 45,000 samples flown in from 1,300 collection centres in India. What would have taken several days of investigation by at least 1,000 technicians a decade ago is now being done by a workforce a fifth the size in less than a day. "Many job-seekers are qualified for the job, but not skilled," says A. Velumani, the company's CEO, who ensures freshers are given specialised training. The new challenges are exciting and even lighten the manual load, but that's for a lucky few. For the majority of jobseekers in the healthcare segment, the prospects are grim, with little job security and salaries roughly half what large diagnostic chains may offer.
Every month, a million Indians become age-eligible to join the workforce, but the growth in jobs has not kept pace with the rising number of aspirants. The result: unemployment has been on the rise, despite India supposedly being one of the brighter spots in a slowing global economy. Thirty-three-year-old Ratna Shankar Choubey, a father of two, in Bihar recently lost his job for resisting a change from being a permanent to temporary in the company. "Employment creation will be one of our greatest challenges for the next decade," says Jayant Sinha, minister of state for finance. India's unemployment rate grew from 6.8 per cent in 2001 to 9.6 per cent in 2011, according to Census 2011 data.
The big picture
The situation has only worsened since, thanks to weak industrial growth, a struggling agriculture sector with widespread drought, cost rationalisations in several sectors and the knock-on effect of a global slowdown. Also, traditionally labour-intensive industries are beginning to increasingly mechanise their operations. While it makes them more productive and profitable, it also shrinks job opportunities.
According to the labour ministry's 27th Quarterly Employment Survey of eight employment-intensive industries- textiles, leather, metals, automobiles, gems & jewellery, transport, IT/BPO and handloom/powerloom)- there were 43,000 job losses in the first quarter of FY 2015-2016. The second quarter was better, with 134,000 new jobs, but even then the 91,000 net new jobs created in the first half of FY 2015-16 look desultory.
At their peak, these sectors had added 1.1 million jobs in 2010. In the following five years, however, 1.5 million jobs were lost. FY 2014-15 saw a spurt, with 500,000 new jobs added as compared to 300,000 the year before, but it was still half the peak figure. There have been no signs of recovery in FY 2016; in fact, there is a decline.
One reason for the decline in jobs could be a reduction in contract workers (nearly 70,000 of them were retrenched in the first half of FY 2016, compared to 161,000 additions in the first half of FY 2015). Says labour and employment secretary Shankar Aggarwal: "Contractualisation is a universal phenomenon. The system of production of goods and services is different. Value addition is happening across the world and, depending on the circumstances, people decide where to go. We are witnessing a decline in growth across the world. To get jobs, we need flexibility in hiring."
Employment in export units, reeling under shrunken global demand, also saw a sharp decline. There were only 5,000 job additions in the first half of FY 2016 compared with 271,000 in the corresponding period of FY 2015. In the automobile sector, for instance, there were 23,000 job losses in export units compared to the 26,000 job additions in the other seven labour-intensive sectors in the second quarter of FY 2016.
Downsizing pain
Large manufacturers are trimming operations, throwing many jobs into jeopardy. Nokia, locked in a tax dispute with Indian authorities, shut down its handset-making factory in Chennai in November 2014, rendering 8,000 workers jobless. For Microsoft, the new owner of the Nokia handset brand, making smartphones in China and Vietnam was cheaper. Meanwhile, some MNCs in the financial sector have also recently exited India, after finding the domestic competition tougher than they had bargained for. Following on the heels of Goldman Sachs and Nomura, JP Morgan Asset Management of the US exited its onshore India-based mutual funds business, selling out to Edelweiss Asset Management, the seventh foreign-sponsored fund house to exit the Indian MF business in the past three years. Cement major Lafarge is also planning an exit, after selling its 11 mt business here. Hardly a surprise as the global cement industry is beset by overcapacity and weak demand.
"We've only been downsizing in the last few years, especially in infrastructure," says Sunil Kanoria, president, Assocham, and also vice-chairman, SREI Infrastructure Finance Ltd. "The financial situation is so bad, companies are struggling to get more resources."
Avantha Group firm Crompton Greaves is reportedly divesting its consumer business for Rs 2,800 crore. A.M. Naik, chairman, Larsen & Toubro (L&T), has gone on record saying the engineering and construction giant will exit all businesses with revenues under Rs 1,000 crore, even if it means closing some without finding buyers. The $35 billion Essar Group is reported to be in talks to sell part of its refinery business as well as a portion of its ports business to pare its steep debt.
Even some celebrated start-ups, touted as the next big thing, have found themselves in a tight corner. TinyOwl, a two-year-old Mumbai-based food ordering software start-up, is still in dire straits, even after it fired hundreds. Zomato, yet another food tech company, laid off 300 employees, or 10 per cent of its workforce, last year as the business went through a squeeze.
Growth without jobs
Many wonder why an economy supposedly growing at a rate of over 7 per cent is not creating enough jobs. Economists say this is because more work is now being done with fewer employees. "The economy is generating less jobs per unit of GDP," says D.K. Joshi, chief economist at ratings and research firm Crisil. Illustratively, in manufacturing, if 11 people were needed to execute a piece of work that generated Rs 1 million worth of industrial GDP a decade ago, today only six are needed. Joshi's verdict: "The economy has become less labour-absorbent."
Other corporate analysts offer similarly sobering opinions. "India's 7.5 per cent growth is based on the gross value added methodology, which is being debated, and the growth could be closer to 5 per cent," says Ajit Ranade, chief economic advisor with the $40 billion Aditya Birla Group. "Moreover, this growth is capital-intensive, not labour-intensive." D.K. Shrivastava, policy advisor at consulting firm EY, explains, "Whatever growth there is does not seem to be translating into jobs. Either the growth is in sectors that are not employment-intensive, or overall growth is overstated."
This year's Budget had specific provisions to expand productive employment, while also giving a push to certain sectors of the rural economy and infrastructure that would create jobs. The move to encourage small and medium enterprises to hire more workers while the state pitches in with provident fund contributions, and the emphasis on roads and other infrastructure are all good measures. However, it will take a lot-particularly significantly increased investments by both private business and the state-before real benefits appear. As things stand, private investments have been static, and with the government firm on its fiscal consolidation targets, public spending too is somewhat constrained.
Ajit Gulabchand, chairman of the $650 million Hindustan Construction Company in Mumbai, laments: "New job creation is poor because the investment cycle has not kickstarted. We are in a slow economy and the global slowdown is not helping." The government could incentivise job creation by giving infrastructure a push, finding a way to lower interest rates and improve ease of doing business, he says. In his assessment, "the economy will take 2-3 years to get into the fast mode of growth."
Others blame higher levels of automation for the job squeeze. "The growth rate in jobs has distinctly slowed down with significant improvements in automation and productivity," says Rajeev Dubey, group president, HR & Corporate Services, of the $17 billion Mahindra & Mahindra. CII president Naushad Forbes attributes the job squeeze to the slow pace of labour reforms. "It has dissuaded companies from creating formal employment, and incentivised investments in automation."
The India Exclusion Report 2013-14 by the Delhi-based Centre for Equity Studies, an autonomous research and social justice advocacy institution, says only 27 million jobs were added in the supposedly high-growth period of 2004-2010 compared with over 60 million between 1999 and 2004. The BJP, in its election campaign, highlighted the previous government's failure to create jobs, reiterating that while the UPA could create only about 1.5 million jobs a year on average in the 10 years it was in power, the earlier NDA regime had created over 10 million a year. Accordingly, one promise the BJP made in the run-up to the 2014 election was that it would create 10 million jobs a year, leveraging the power of youth below 35, who comprise 65 per cent of the population-the much talked about 'demographic dividend'.
The government's Make in India jamboree held in Mumbai this February saw investment commitments of Rs 15 lakh crore from Indian and overseas investors, but those projects are still largely on paper. The programme aims to increase the share of manufacturing in GDP from the current 16 per cent to 25 per cent by 2022, and create 100 million additional jobs by then. But experts say this may not be an opportune time for a manufacturing-led model of the sort that created 64 million jobs in China between 2011 and 2016. "Creating manufacturing jobs will be tough with the advent of robotics," says Ranade.
Manufacturing blues
Currently, the manufacturing sector has an overall employment share of 12-13 per cent. While this share has been growing, even if gradually, in the past decade, the number of workers per factory has been dropping in the past 3-4 decades due to increased outsourcing. Moreover, the growth has not been consistent across the country and is primarily in mid-sized factories and through informal employment.
In the infrastructure and manufacturing sector, getting good talent at the leadership level, especially to handle profit and loss responsibilities with requisite commercial skills, is not an easy task, says Yogi Sriram, vice-president, corporate HR, L&T. What the country requires, he says, is youth oriented to working on the shop floor. The 'dignity of labour' remains an exotic concept in India. "Shuffling papers is seen as more dignified as compared to holding a torque wrench," he observes. The manufacturing sector has been losing people to the services sector, which is seen as more glamorous, and betterpaid. It's also much easier to switch jobs and gain international exposure here.
The services story
Yet, there are some areas that still stand out when it comes to job creation, notably the financial services and the financial technology sectors. For example, ever since the RBI granted licences to 10 new small banks and 11 payment banks in 2015, employment opportunities have been growing. The traditional banks have been opening new branches and hiring personnel to augment their services in the face of intense competition from the new players. Similarly, in financial technologies, the entry of outfits such as PayTM that combine technology with financial services is also giving a new impetus to job creation.
The other upbeat sector is e-commerce, which is flush with funds and investing heavily in logistics and lastmile delivery. "Broadly, supply chain, logistics and distribution-related jobs do well when there is economic growth and a pick-up in manufacturing," says E. Balaji, president, People Services, at TVS Logistics. "Logistics services grow at almost three times the rate of GDP growth, globally speaking."
Jobs below the radar?
Some skilling and data experts such as Mohandas Pai, chairman, Manipal Global Education Services, and Dilip Chenoy, former CEO, National Skill Development Corporation, argue that the data does not fully capture the movement in the economy. "When you talk of highest coal production or power generation or maximum roads built... these have not been achieved without creating jobs," says Chenoy.
Also, in India, the informal sector accounts for the larger chunk of jobs created. India has only about 30 million jobs in the organised sector and nearly 440 million in the unorganised sector. The Economic Survey 2015-16 highlights this conundrum: of the 10.5 million new manufacturing jobs created in India between 1989 and 2010, only 3.7 million, or about 35 per cent, were in the formal sector, where proper job contracts are signed between employers and staff, salaries are fixed and contributions to Employees' Provident Fund guaranteed under government labour laws.
The total number of establishments, according to the Survey, increased by 4.2 million between 1989 and 2010, but the formal sector accounted for just 1.2 per cent of this growth. The year 2000 marks an inflection point, when informal sector growth plateaus and employment falls even as formal sector employment picks up. However, the Survey states the informal sector could be credited with creating jobs and keeping unemployment low.
Industry leaders agree with this hypothesis. "Economists and policymakers seem to underestimate the contributions of the informal sector in creating employment," says R.C. Bhargava, chairman, Maruti Suzuki, India's largest carmaker. The company has not been making any substantial additions to its workforce, of late. However, when it rolls out 1.5 million cars a year, it also creates anywhere between 800,000 and a million jobs, Bhargava estimates. These jobs are in driver training, repairs, spare parts shops, insurance, dealerships etc. "This applies to a whole lot of other industries as well, where informal jobs are created in the thousands in the downstream sector," he adds.
Government data too does not capture this trend in informal jobs. "Organised sector employment captures only one side of it," says Jayant Sinha. "The entrepreneurial sector is very poorly tracked. Many of the jobs in the economy are created by the Flipkarts, Myntras and Snapdeals of the world, and these jobs are not picked up by the numbers. We are also focusing on traditional economy jobs like fisheries, embroidery etc."
The labour department is cognisant of the limitation of its data and is working towards expanding the scope of the survey. From July this year, it will include 10,000 establishments, up from the current 2,000-2,500 and expand to 18 sectors from the current eight.
Start-ups, the increased focus on medium and small enterprises and greater self-employment too do not get accounted for in the data. According to IT industry body Nasscom, 3-4 IT start-ups are born every day in India. In calendar 2015, 1,200 start-ups were launched in the tech space alone, a 40 per cent rise from 2014. India has the third highest number of start-ups in the world at 4,200, behind the US and Britain, but ahead of China and Israel. Nasscom estimates software start-ups will create 800,000 jobs by 2017.
Changing it winds
Meanwhile, the traditional IT sector is experiencing big change that will impact job profiles and opportunities. Automation, self-service portals, costsharing are all dampeners on job creation in the ITeS segment.
Customers are seeking more productivity and value addition. While this will require a higher level of skill, it will not result in more new job opportunities. The model of companies going to engineering colleges to recruit staff is changing. Disruptive technologies, such as social, mobility, analytics and cloud are offering new avenues of growth across verticals for IT companies. Artificial Intelligence (AI) is another upcoming area. Positions likely to be demand in the coming years include data scientists, retail planners, product managers and digital marketers. In certain instances, the advent of new technology will require more specialised skill sets. For example, interactive voice response (IVR) can easily manage a BPO unit of 500 professionals now, but we will still need technology professionals to ensure correct delivery of information through IVR.
The other interesting trend is the shift of ITeS jobs to Tier-2, Tier-3 cities and rural areas-a trend that may owe to simple cost effectiveness, but which will require higher emphasis on interpersonal and communication skills. The earlier euphoria over call centre jobs has all but vanished. Here, India seems to be losing out to countries like the Philippines and Malaysia which have staff trained in non-voice analytics and accounting work.
Hope on the horizon
Nonetheless, there are those who still see a glimmer of hope on the employment horizon. "India is among the few countries in the world that has a reason to be optimistic," says N.S. Rajan, member, Group Executive Council, and Group Chief Human Resources Officer at the $100 billion Tata Group. "This could be due to the favourable structural growth story or the presence of a huge demographic dividend or the stability that is provided by democracy." However, even these assets can only be redeemed if the requisite skills and capabilities and the right kinds of jobs are available, he concedes.
For all the turbulence, the significance of new economy enterprises should not be underestimated. These could be in education, healthcare, e-commerce and hospitality. More than half the companies that raised money through IPOs in the equity markets in 2015-16 were from these sectors. As Sebi chairman U.K. Sinha told India Today in December 2015, "This gives a signal that there is a shift happening in economic activity-new entrepreneurial energy is betting on new areas. The traditional sectors such as power and steel have not raised much in fiscal 2016."
This new economy-which is more digital and technology driven and is slowly but definitely changing how we live-from technology interventions in rural areas (the 'JAM' trinity of Jan Dhan Yojana, Aadhaar and mobile connectivity for targeted subsidies) to buying groceries online. India is on the cusp of a second-generation digital revolution, which will spread across the economic spectrum, from agriculture, rural, healthcare, education, retail, other services, manufacturing, and create a new set of jobs and render some existing ones obsolete.
The government, on its part, seems to have grasped this change: new 'thrust areas'-such as Digital India, Skill India, StartUP India and Make in India-all focus on creating an ecosystem that will generate jobs.
Pankaj Bansal, co-founder and CEO, Peoplestrong, an HR consultancy firm, talks about the rise of a 'gig economy'- one in which people will work on a skill- and need-based basis, doing two or more jobs in a year. HR consultants anticipate a digital divide in the country where the digital economy will demand very different skills, though some real economy vocations such as plumbing or carpentry will survive.
India's skill development minister, Rajiv Pratap Rudy, hopes to address the challenge through Industrial Training Institutes, but he also believes one needs to focus on the bottom of the pyramid, as "the volumes there are higher". "We need to understand that skill development in the country is being carried out by 22 ministries through more than 70 schemes," Rudy told India Today. While saying his ministry's mandate is not to create jobs, he agrees there are skills that have either been lost or are in decline because of the introduction of new technologies. "However, we need to understand there will always be a trade-off between technology and the workforce previously performing that task," he says.
S. Ramadorai, chairman, National Skills Development Council and advisor to the prime minister, speaks of the need to create skills portable across borders. "Green sectors such as solar energy and wind, besides defence and aerospace industry, construction, education and healthcare will be the new job creators," he says. Job profiles too will change. Mechanical engineers who can build robots will be in demand. "Look at the transformation in passport kendras. Too much manual work leads to inefficiencies. Digitisation is the solution," says Ramadorai.
It's evident India has missed the manufacturing export opportunity China had in the 1970s. Job creation will be a consequence of increased domestic consumption, which requires macroeconomic stability (low inflation and interest rates), reduced regulatory hassles, further decentralisation and an aggressive skilling campaign. Teamlease's Manish Sabharwal doesn't believe India will ever get to a situation like China's where 34 per cent of its labour force will be involved in manufacturing, up from the current 11 per cent, equivalent to post-industrial United States. However, getting to 20 per cent is possible and that would account for another 100 million jobs. "The good news is, policy moves are accelerating the five labour market transitions that are journeys to higher productivity-farm to non-farm, rural to urban, subsistence self-employment to decent wage employment, informal to formal, and school to work," says Sabharwal. Reforms in the labour market and a greater emphasis on labourintensive industries such as textiles are needed to boost formal employment and sustain urban demand growth. "The skilling challenge is across the board," he adds. Nearly 50 per cent of India's labour force on farms needs to transition to non-farm jobs, but often does not have the skills. "A million young men and women will join the labour force every month for the next 20 years, and many of them will have degrees but will be unemployable," he says. Not a pretty picture.
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