Job creation: Informal sector’s role

Author: 
Subrata Majumder

The success of Modinomics, or say Make in India, has been endorsed by World Bank in its recent Ease of Doing Business (EODB) series of 2017. It ramped up India’s ranking from 130 to 100 in the survey. Though it is abysmally low, the spurt in score was a significant achievement. India was the first nation which could get such a big leap within a year in the survey.
But, EODB was silent on job creation. Significantly, EODB 2017 is entitled ‘Reforming to Create Jobs’. The report included measures for labour market regulations, which were not included earlier.
Widespread debates waded into controversy on the success of Make in India, since it failed to show job creations. Analysts and critics wondered why the success of Make in India has not unleashed green shoots for job opportunities parallelly . While GDP growth sustained over 7 percent during the three years of the Modi regime, stock markets roared despite sudden downturn in growth during the first quarter of 2017-18; foreign investment surged and inflation was brought down to the comfortable zone; why hasn’t then job creation perked up?.
Instead, the job market witnessed labour market contraction. As per Economic Survey of 2015-16, the rate of unemployment increased from 3.8 percent in 2011-12 to 5 percent in 2015-16 in eight labour intensive industries. In 2015, only 1.35 lakh jobs were added in eight labour intensive industries, compared to 9.3 lakh in 2011-12. From July 2014 to December 2016, only 6.4 lakh jobs were created, compared to 1.28 million jobs created from 2011 to December 2013.
What lies behind this paradoxical growth between Make in India and job contraction? The fallacy lies with the employment structure and manufacturing growth under Make in India. In India, the informal sector is the chunk labour absorbent. According to NITI Aayog report on Three Year Agenda (2017-18 to 2019-20), 83 percent of workers in India are self-employed, casual or contact workers. They are all in the informal sector. With the advancement of technology and modern industries, the entrepreneurs in organized sectors have chosen to stay away from labour-intensive industries and opted for highly capital or skilled-labour intensive technologies in the industries. These led a number of labour-intensive industries to adopt technology-oriented and more mechanised factories, which resulted shrinkage in employment.
Till three ago, a few were manufacturing mobile phones after Nokia pulled down its shutters in India. Today, 100 million mobile phones are manufactured in the country, meeting more than half of the domestic demand.
According to Crisil research, 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. Airing similar view on the disproportionate growth between manufacturing and job creation, the policy adviser of Ernst and Young said that “this growth (Make in India) is capital- intensive”.
Another reason that eclipsed job creation was the lag in the initiative of domestic investors. Domestic investors constitute larger shares of investment, with about two- thirds of the total investment in the country. The reasons for the lag were the difficulties to cope with new procedures invoked by reforms and the challenges to zero corruption by Modi’s strong-handed governance. Demonetisation and GST are cases in point.
Demonetisation and GST might have impacted the informal sectors gravely. But, the global institutions considered them as a temporary hiccup while endorsing India’s growth trajectory. GST has unanimously been accepted as a historic reform in taxation with an aim for simplifications. But, coping with new changed procedures and more changes in the offing to further simply, has become uphill tasks for the informal sectors.
Slump in exports is another factor, which led to failure in job creation. Export supported jobs are a major chunk of job opportunities in informal sectors. About 30 percent of India’s exports are from labour-intensive industries. Export growth deepened into volatility due to global slump, and caused depressed mood in the industry for job creation. According to empirical studies by the Export Import Bank of India, India’s export supported jobs increased by over 9 percent from 1999-2000 to 14.5 percent in 2012-13. With exports deepening into downtrends consecutively for two years of the Modi regime, the export supported jobs witnessed bad days.
Given that the Indian economy is embedded into the global economy and with the advancement of technology and modern industry concept, resurgence of informal industries, or say small scale sector, warrants tithe supporting industry model, which Vietnam adopted for their success in industrial growth.
Supporting industries are group of manufacturing industries that supply parts and components or process them for the assemblers, such as automobile, electronics and precision equipment. Supporting industry is low cost capital intensive and high labour intensive with high-skilled labour.
In Vietnam, supporting Industry proved a boon to the growth of domestic automobile industry. The country has reached 90 percent of localization in manufacturing motorbikes. Vietnam is the second biggest manufacturer of motorbikes in ASEAN. Foreign investors played an important role in the development of the supporting industry. This led to flow of foreign investment in Vietnam.
Electronic industry is a supporting base industry. Manufacturing of mobile phones and electronic components are low capital and high labour intensive industries. There are several factors which favour India as a better destination for mobile phone and electronic component manufacturing. Cheap wage, low land cost, availability of highly skilled labour forces can prove propitious for development of mobile and electronic component manufacturing in informal sector.
India is inching towards digitization. Digitization and Smart City will be the boost to growth by 2026-27, according to Morgan Stanley. In these perspectives, supporting industry model will play a crucial role, unleashing enough job opportunities to the aspirants. (IPA)

Monday, 13 November, 2017