Claims, counter-claims on job creation

Author: 
K R Sudhaman

There is a saying that common sense is nonsense in statistics. To prove this point often a well known example is given. That is: a group of men wanted to cross a river. Before crossing, a statistician in the group calculated the average height of the group and average depth of the river and said it was safe to cross the river. At one point the river was 8 ft deep and in the end the group got drowned.

Statistics does not convey anything at times and this is very much true of job creations as data can be interpreted to show jobs are being created or lost. It has never been a case of jobless growth or full job growth. It has always been a case of the glass, half full or half empty.

Precisely for this reason the Modi government’s performance on job creation is not that discouraging as made out. There might be some job losses in the informal sector after demonetization but many new jobs have also been created especially in self employment and services sector and hence overall growth is positive.

It is a fact that job creation in the formal and organized sector has been less as corporate investment is yet to pick up after years of global recession. But 80-85 per cent of jobs in India are in the informal sector, of which adequate statistics is not available to make a clear assessment. Jobs are more than adequately created during the last four years in those informal sectors, which included self employment. Micro, small and medium enterprises are the main drivers of employment in the country and they too have started looking up with the effect of demonetization waning.

There is a pick-up in organized sector job creation as well in recent months with industrial sector growth kick-starting. The latest monthly survey shows that services sector activity returned to its growth track in March, driven by greater inflows of new work. Services sector accounted for nearly 60 per cent of India’s GDP.

The services sector activity follows greater inflows of new work. Firms have increased their staffing levels at the fastest pace in 7 years. The seasonally adjusted Nikkei India Services Business Activity Index improved from 47.8 in February to 50.3, indicating business activity stabilised during the month. The index below the 50-point mark means that there is contraction and above 50 means there is expansion. The headline seasonally adjusted Nikkei India Composite PMI Output Index too rose from 49.7 to 50.8 in March, driven by growth in both the manufacturing and service sectors.

Output growth in the manufacturing sector again outperformed the service sector, as has been the case since October-November last. Service providers too expanded capacity by raising their staffing levels, the quickest since 2011, reflecting improved demand conditions.

In response to efforts undertaken by the government to formalise the economy after demonetization and the rollout of GST, more people are gravitating towards employment as signalled by the latest PMI data. Indeed, job-creation has accelerated. The monthly survey is prepared on the basis of replies to questionnaires sent to purchasing executives in around 400 private service sector companies, the index signalled a faster expansion in output. This is good news for the Modi government as it is facing a lot of flak on job creation.

Government programmes like ‘Make in India’ that helped attract record foreign direct investment of over $60 billion annually during the last couple of years indicates that India is in a sweet spot and global investors are queuing up to set up projects in the country.

Demonetization in November 2016 and rollout of the game changing indirect tax reform Goods and Services tax did temporarily impact the informal sector but that has led to cleaning up of the economy and the tax system. This led to more revenue collection, thereby leading to more public expenditure especially in infrastructure, generating more jobs and consumption demand. In fact, unemployment remained high even during the boom years and that led to Modi’s opponents concluding that the $2.5 trillion economy was seeing a growth that is not employment intensive.

The emphasis on promoting small scale industries, particularly cottage and micro industries, is critical to address livelihood concerns of the vast majority. Today, there are nearly 5-6 crore micro, small and medium industries, including unregistered micro industries, employing a few persons. Small industries are needed for job creation as capital intensive heavy industries using automation and hi-tech cannot be the driver of employment. Rs 1-1.5 lakh investment is needed to create one job in small and cottage industries whereas Rs 5-6 lakh capital is required to create one job in hi-tech heavy industries. Also one car produced creates three jobs in the services sector like mechanics, drivers, cleaners etc. Likewise one truck or one tractor produced creates 7 jobs. So services sector is key to job creation.

The Modi government has taken several job creating initiatives. The trebling of highways construction, speeding up of rural roads, spending of Rs 8.5 lakh crore on expansion of railways and metro rail projects will push employment. FDI in food processing will also help job creation. This will also ensure better income to farmers. Under Mudra scheme Rs 6 lakh crore worth of loans of up to Rs 10 lakh per person have been dispersed to 12 crore beneficiaries since 2015. Mudra scheme is basically to help self employed persons like fruit or vegetable vendors, small repair shops and self employed eateries.

Improved road connectivity has ensured more industrial corridors and clusters leading to more jobs. Work is going on full swing in Mumbai-Delhi, Ludhiana-Kolkata, Vizag-Chennai, Chennai-Bengaluru and Bengaluru-Mumbai Industrial corridors. The government proposes to take up a few more industrial corridors in the coming years including extension of Vizag-Chennai corridor to Kolkata on one side and up to Tuticorin on the other side.

Self-employment accounted for 47% of India’s 470 million work force. As per government data, 215 million people are self-employed. Most of the self-employed are below the economic radar as they are homeless, office-less and unbanked. They rarely figure in government policies. Now Modi wants India’s self-employed to be visible, counted and strengthened. The backdrop is a growing realisation that the government or, for that matter, any future government will not be able to create formal jobs for over 6-7 million joining the country’s workforce annually.

With 80% of the workforce engaged in the cash-heavy informal sector, the attempt has been to integrate them into the economy. These earnings are not captured by job statistics resulting in deception of the economy and distortion of job opportunities. Whether adequate jobs have been created or not will always be debatable until poverty is eradicated. India has come a long way but there is still some distance to be covered. (IPA Service)

Friday, 27 July, 2018