The Congress and the BJP manifestoes for the general elections talk about the need for raising employment numbers in multipliers but hardly show any understanding of where to maximise those. For both, the Holy Grail is rising of the profile of the micro, small and medium enterprises to secure expansion of jobs.
But all available data shows this will hardly help make any serious dent in the unemployment numbers because this sector too has become capital intensive. In other words, units in this sector are employing less labour and more capital to produce each unit of output.
The Planning Commission numbers show that in the unorganised manufacturing sector, value added per worker has come down by over 5 per cent in the last decade. Remember that almost 99 per cent of the sector is micro and small industries and so form part of the unorganised sector. Independent studies also show production per employee for the MSME sector at constant prices in FY08 was lower than 30 years ago. So while employment has risen in the sector, it has been at the cost of reduced efficiency of those employed.
For instance, in the 20-year reform period there has been a 338 per cent rise in the number of units in the MSME sector. It has been accompanied by an almost equal 339 per cent rise in employment in the sector. At one level, this is gratifying. But the trend in productivity shows that each additional labour brought lesser benefit for the unit in its production.
The rush to get employed here was an obvious corollary to the drop in employment avenues in the farms. The compounded annual growth rate for farm jobs was a negative 1.04 per cent in the UPA years.
And since job avenues in trade, hotels and restaurant too fell (CAGR minus 0.5 each) in the same period, the overcrowding in the MSME sector was expected. The absence of any credible skill training programme for the surplus farm workers magnified the impact.
Essentially, the same forces which made the large manufacturing units go for more capital intensive process have made the MSME units too reach out for the same. In the same post-liberalisation era, fixed investment in the sector i.e. capital, has risen by a mammoth 456 per cent. (All these are government data). The lion’s share of that high capital percentage would have gone to those units which were smarter and cut back on labour usage. So now, we have a sector supposed to be the vanguard of productive employment opportunities for Indian working age population, instead offering overcrowded units with poor productivity and low wages, borrowing expensive capital to compete with the rest of the world.
Raising productive employment possibilities in this critical sector would need far more homework than any of the parties have displayed any enthusiasm for, so far. Pushing just subsidy and more to MSMEs will not help.
Subhomoy is a Deputy Editor based in New Delhi.