India’s Big Government
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As per this method, the rate of unemployment was 5 per cent. The rate was 4 per cent for males and 8.7 per cent for females. These were the figures that were highlighted in the media.
The second method is called the Usual Principal and Subsidiary Status (UPSS) Approach. Here, “a person who has worked even for 30 days or more in any economic activity during the reference period of [the] past twelve months is considered as employed under this approach”.
Hence, an individual might not have had a job for 11 months during the course of a year and still would be considered employed. As per this approach, only 3.7 per cent of the workforce was unemployed. The rate was 3 per cent for men and 5.8 per cent for women.
What this clearly tells us is that the definition of unemployment is fairly broad and, given that, just looking at the rate of unemployment will not give us a clear picture. Take a look at Table 4.2, which gives us a much clearer picture.
What does the table tell us? Only 60.6 per cent of the individuals who were available for work all through the year were able to get work for the entire year. In rural areas, this figure was at 52.7 per cent. This basically means that close to half of rural India cannot find work for all 12 months of the year.
Table 4.2: All-India percentage distribution of persons available for work for 12 months (UPSS approach).
Source: Report on the Fifth Annual Employment-Unemployment Survey, 2016.
In urban India, 82.1 per cent of the individuals who were available for work all through the year were able to find work for the entire year. This explains why people migrate from rural areas to urban areas. Other than the wages being higher, the chances of getting regular work are also better in urban areas.
In fact, this is the real thing that the media reports should have talked about. But then unemployment at a five-year high was a simplistic (not to mention sexier) headline.
Furthermore, the situation on this front is more or less the same since the last survey was carried out, in 2013-2014. As per the last survey, 60.5 per cent of individuals who were available for work all through the year had been able to find work for that entire year. In rural areas, this figure was at 53.2 per cent. The figures are more or less similar to those of the latest survey.
Indeed, this is where the big worry for India lies. That a huge proportion of the population is not able to find work all through the year.
Another factor that was not highlighted in the media is that India is a land of reluctant entrepreneurs. Why do I say that? Look at Table 4.3.
Table 4.3: Category-wise employment figures (in percentage).
Source: Report on the Fifth Annual Employment-Unemployment Survey, 2016.
Close to half of the workforce is self-employed. Some commentators have romanticised this in the past and said that India is a land of entrepreneurs. That is basically rubbish! These people would switch to other jobs if jobs were available in the first place. Why do I say that? Take a look at Table 4.4.
Table 4.4: Category-wise percentage break-up of earning levels.
Source: Report on the Fifth Annual Employment-Unemployment Survey, 2016.
What does this table tell us? It tells us that the regular wage/salaried class of workers make the maximum money. Take the case of the self-employed. More than two-fifths of the self-employed make only up to Rs. 5,000 per month. In the case of the salaried, this is much lower, at 18.7 per cent.
Hence, it doesn’t take rocket science to figure out that, if jobs were available, many of India’s reluctant entrepreneurs would gladly take them on. There is another reason for this. Take a look at Table 4.5.
This table tells us very clearly that around 63 per cent of the self-employed are able to find regular work. In comparison, close to 93 per cent of the salaried and those on wages are able to find work all through the year. In the case of casual workers, the situation is even worse, with only around 42 per cent being able to find work all through the year.
And these are India’s main problems when it comes to unemployment—the lack of regular work and formal jobs. Hence, looking at the unemployment statistics in isolation doesn’t make much sense. Over and above this, there are around one million individuals entering the workforce every month.
Table 4.5: Category-wise percentage distribution of persons available for work for 12 months.
Source: Report on the Fourth Annual Employment-Unemployment Survey, 2014.
This trend is expected to continue over the next 15 to 20 years. The chances of individuals who are currently entering the workforce finding proper formal jobs remain low. Of course, they will manage to do something and earn something. This would mean that the overall unemployment number will remain low, as is the case currently. But most of the individuals entering the workforce won’t be able to find regular work.
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The data regarding the informal sector is, at best, shaky. Also, getting the latest data on the informal sector, even though it comprises such a large proportion of the workforce, is difficult. Nevertheless, there is some data and some important conclusions can be made.
The first thing that can be said is that the overall rate of job growth has been falling over the years. Between 1972-73 and 1982-1983, jobs grew by 2.4 per cent per year. The surprising thing is that this was really not the time when India saw high economic growth. The GDP growth, or economic growth, during the period was at 4.7 per cent per year. Between 1983-1984 and 1993-1994, the economic growth increased to 5 per cent per year. The employment growth rate, though, fell to 2 per cent per year.
After this, employment growth became even worse. Between 1993-94 and 2004-2005, the economic growth stood at 6.3 per cent per year; nevertheless, the employment growth fell to 1.8 per cent per year. And between 2004-2005 and 2009-2010, when the economic growth was on fire, at 9 per cent per year, the employment grew at only 0.22 per cent per year.141
In fact, as Mihir S Sharma points out in Restart—The Last Chance for the Indian Economy: “In the years between liberalisation in 1991 and today, jobs have grown at an average of only 1.6 per cent per year.”142
The 66th Round Survey of the National Sample Survey Organisation (NSSO) found that, between 2005-2010, there had been almost no job creation. The government did not like what it found and ordered another large round survey in 2012, something that would have otherwise happened only in 2015. This survey, the 68th Round Survey, found that 15 million (1.5 crore) jobs were created in the two years between 2010 and 2012.143
The creation of 15 million jobs basically means that around 7.5 million (75 lakh) jobs were created on an average per year. But assuming that this job growth has carried on since 2012, even that many jobs is not enough to ensure that everyone who is entering the work force gets a job. India needs almost one million jobs to be created every month on an average. And that, clearly, is not happening.
In fact, as the Economic Survey of 2014-2015 points out:
The data on longer-term employment trends are difficult to interpret because of the bewildering multiplicity of data sources, methodology and coverage. One tentative conclusion is that there has probably been a decline in [the] long-run employment growth in the 2000s relative to the 1990s and probably also a decline in the employment elasticity of growth: that is, a given amount of growth leads to fewer jobs created than in the past. Given the fact that [the] labour force growth (roughly 2.2-2.3 per cent) exceeds [the] employment growth (roughly about 1½ per cent), the challenge of creating opportunities will remain significant.
Regardless of which data source is used, it seems clear that [the] employment growth is lagging behind growth in the labour force. For example, according to the Census, between 2001 and 2011, [the] labour force growth was 2.23 per cent (male and female combined)…. Most estimates of employment growth in this decade [are] closer to 1.4 per cent. Creating more rapid employment opportunities is clearly a major policy challenge.
One reason why enough jobs are not being created is because of what economists call falling labour inte
nsity. Economic growth now generates fewer jobs in the non-farming sector (basically the industry sector, which includes manufacturing, construction, mining and utilities, plus the services sector) than it used to earlier. For every 1 per cent increase in the GDP, the non-agricultural employment went up by 0.52 per cent between 1999-2000 and 2004-2005. This fell to 0.38 per cent between 2004-2005 and 2011-2012.144
Hence, economic growth does not translate into the same number of jobs as it used to in the past. This basically means that economic growth is less labour intensive. This has happened primarily because of two reasons. First, economic growth is now driven by less labour-intensive sectors like business and financial services, as well as information technology and information technology-enabled services. These sectors require only one or two people to produce Rs. 10 lakh of real value added to the GDP. This basically means that faster growth in these sectors does not necessarily translate into jobs.145
The second reason for the low labour intensity lies in the fact that the manufacturing sector in India has encouraged automation and decreased its labour dependency. This has primarily happened because of the huge number of labour laws that India has.146 This also increases the cost of compliance for any business looking to expand through hiring more people.
Hence, enough jobs are not being created. As Sharma writes: “If these young people have to be absorbed, then jobs must grow at [at] least 3 per cent a year—almost twice the rate at which they have since liberalisation. This is simply not happening.... According to the last Census, 47 million (4.7 crore) Indians under the age of 25 are already [emphasis original] looking for regular work, but not finding it.”147
This basically means that, of the nearly 12 million Indians entering the workforce every year, only around half will find jobs. So how can that be a demographic dividend? The other thing that needs to be mentioned here is that job growth in urban areas has been much faster than the corresponding job growth in rural areas.
The employment in rural areas grew at 2.1 per cent per year between 1972-73 and 1982-83. It fell to 1.7 per cent per year and 1.4 per cent per year during the next two decades, respectively. Between 2004-2005 and 2009-2010, rural employment declined at the rate of 1.65 per cent per year. When it comes to urban areas, the employment growth rate stood at 4.1 per cent per year between 1972-1973 and 1982-1983. Over the next two decades, it stood at 3.2 per cent per year and 3.3 per cent per year, respectively. Between 2004-2005 and 2009-2010, the employment growth was at 1.8 per cent per year.148
This, again, explains why people migrate from rural areas to urban areas. As per the 2001 Census, around 30.7 crore, or nearly 30 per cent of the population, were internal migrants.149 Projections suggest that, as per the 2011 Census, this number has gone up to around 40 crore, or around 33 per cent of the population.150 This was up from the 27.4 per cent of the population figure in 1991.151 Needless to say, migration from rural to urban areas creates its own share of social, economic and political challenges.
Other than the lack of employment opportunities, there is a huge wage gap of around 45 per cent between rural and urban India. Even after adjusting for the higher cost of living in urban areas, the wage gap is still around 27 per cent.152 This difference in wages also leads to more people migrating.
Furthermore, employment generation becomes even more important given that there is huge disguised unemployment in the rural areas. Disguised unemployment essentially means that there are way too many people trying to make a living out of agriculture. On the face of it, they seem employed. Nevertheless, their employment is not wholly productive, given that agricultural production would not suffer even if some of these employed people stopped working.153
Agricultural production currently forms around one-sixth of the Indian economy. Nevertheless, it employs half of India’s population. This explains why there is widespread disguised unemployment in the agriculture sector. There are far more people employed in it than the sector requires. Hence, only 17 per cent of those who depend on agriculture for a living depend only on the income that they make from agriculture. 154 Everybody else does something else additionally to earn an income.
A major reason for this lies in the fact that the average size of a farmer’s landholding has fallen over the years. As the State of Indian Agriculture Report of 2012-2013 points out: “As per [the] Agriculture Census [of] 2010-11, small and marginal holdings of less than 2 hectare[s] account for 85 per cent of the total operational holdings and 44 per cent of the total operated area. The average size[s] of [the] holdings for all operational classes (small & marginal, medium and large) have declined over the years, and for all classes put together it has come down to 1.16 hectare[s] in 2010-11 from 2.82 hectare[s] in 1970-71.” (This can be seen from Figure 4.2.)
Figure 4.2: Decline in the average size of agricultural landholdings between 1970-1971 and 2010-2011.
Source: State of Indian Agriculture Report, 2012-2013.
The agriculture census is carried out every five years. Hence, the latest available data is that of 2010-2011. The trend of falling farm sizes can be clearly seen from Figure 4.2. As the same piece of land has got divided among more and more family members over the generations, the average holding has fallen dramatically. Even though quite a few migrate to the cities, they still keep their farmland.
What does not help is the fact that India does not have clear land titles. As the economist Hernando de Soto writes in The Mystery of Capital—Why Capitalism Triumphs in the West and Fails Everywhere Else: “In a developed country, the farmer’s son who wishes to follow in his father’s footsteps can keep the farm by buying out his more commercially minded siblings. Farmers in many developing countries have no such option and must continually subdivide their farms for each generation until the parcels are too small to farm profitably.”155
One of the major repercussions of this is that the agriculture per capita income is much lower than both the overall per capita income of India as well as the per capita income of those who do not work in agriculture. Let’s do some number crunching to drive this point home.
Data from the World Bank tells us that, in 2014, India’s population was 129.5 crore. The population growth rate in 2014 was at 1.2 per cent. Assuming that the population in 2015 grew at the same rate, the population for 2015 comes in at around 131 crore.
Around half of India’s population depends on agriculture. Hence, around 65.5 crore out of the 131 crore are still dependent on agriculture. Data from the Central Statistics Office (CSO) shows that, in 2015-2016, the total contribution of agriculture, forestry and fisheries to the GDP (at current prices) was Rs. 20,82,692 crore. The GDP at current prices does not take inflation into account while calculating the GDP.
Hence, the per capita income of every individual dependent on agriculture, forestry and fishing works out to around Rs. 31,797 (Rs. 20,82,692 crore divided by 65.5 crore).
Now, how do things look for the other half, which is not dependent on agriculture? Their total contribution to the GDP was Rs. 1,01,69,614 crore. Hence, their per capita income works out to Rs. 1,55,261 (Rs. 1,01,69,614 crore divided by 65.5 crore).
What these calculations tell us is that, in 2015-2016, those not working in agriculture earned nearly 4.9 times the amount of those working in agriculture. If we were to use GDP at constant prices (at 2011-2012 prices), the ratio comes up to 5.5. GDP at constant prices essentially adjusts for inflation. Another estimate puts the ratio between the per capita incomes of the non-agriculture and agriculture workers at 6:1.156
And this huge differential in the per capita income between those who work in agriculture and those who don’t is among India’s largest problems. This also shows the tremendous inequality present in the country between those who depend on agriculture for a living and those who don’t.
In fact, there is another important point that needs to be made here. Rs. 31,797 is the average per capita income of those dependent on agriculture for a living. Even within that low a level, there would b
e variations.
John Lanchester defines per capita income in his book How To Speak Money as “the total Gross Domestic Product (GDP) of a country divided by the number of people in the country…. It is a measure of how rich the country’s citizens are on average – though it is a very rough measure of that”.
The point being that the per capita income may not be the right representation of the total population, as many people may have an income lower than the per capita income. Let’s understand this through an example.
As Charles Wheelan writes in Naked Statistics—Stripping the Dread from the Data: “Imagine that ten guys are sitting on bar stools in a middle-class drinking establishment…. Each of these guys earns $35,000 a year, which makes the mean annual income for the group $35,000.”157
The software billionaire Bill Gates now walks into the bar. As Wheelan writes:158
Let’s assume for the sake of the example that Bill Gates has an annual income of $1 billion. When Bill sits down on the eleventh bar stool, the mean annual income for the bar patrons rises to about $91 million. Obviously none of the original ten drinkers is any richer. If I were to describe the patrons of this bar as having an average annual income of $91 million, the statement would be both statistically correct and grossly misleading.
The point being that the average, or the arithmetic mean, of a given set of numbers can be very misleading at times. One thing that clearly comes out through this example is that the majority of the numbers that constitute an average can be lower than the average.
As was clear in this example, ten out of eleven men in the bar had a lower income than the average income of $91 million. Here is another interesting example. As Robert Matthews writes in Chancing It—The Laws of Chance and How They Can Work for You: “The world’s men provide an excellent example – in the shape of their penises. Or, to be more precise, size: according to research, the average length is 13.24 centimetres, but the median value is 13 centimetres.”159