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Slow employment growth is a grave challenge. Political urgency to address it is missing.

February 11, 2014 3:53:41 am

Slow employment growth is a grave challenge. Political urgency to address it is missing.

The recently released Employment and Unemployment Situation in India report of the NSS 68th round (2011-12) highlights some sobering facts. Labour force participation rate decreased for rural males by 1 per cent between 1993-94 and 2011-12 and increased by a meagre 2 per cent for urban males. Women’s participation rates declined across both rural and urban areas. Given the increase in India’s working-age population, these trends are disquieting.

India adds one million people to its working-age population each month. Its demographic advantage can make it an economic powerhouse, but only if employment growth can be revived. Given that the unemployment rate among the “youth” (15 to 29 years) is significantly higher — 5 and 8 per cent for rural and urban males respectively — than the overall rate, and unemployment among “educated youth” — 8.1 and 11.7 per cent for rural and urban males respectively — is even higher, slow employment growth is a matter of grave concern. It will be one of the biggest challenges for the next government.

While the need for labour law reform is widely acknowledged, even though it continues to be stalled by the lack of political will, other roadblocks to employment generation that lie in areas such as infrastructure, finance and the myriad interactions of the state with firms are not yet fully understood, much less addressed. The growth of firms translates into the growth of employment in an economy, and not just of large manufacturing firms.

Millions of small and medium-sized firms across the country need to be encouraged to grow, to be part of the organised sector, access formal finance and adopt modern technologies.

Power, water, roads, ports and airports are all of vital importance to the growth of firms. Without the means to access markets, trade and commerce will not be able to thrive. Similarly, without access to finance, businesses cannot get working capital or ramp up investment. Indian finance offers little scope of non-collateralised funding for firms with promising but untested business models. India’s public sector-led, heavily regulated banking industry, which has to lend to priority sectors and buy government bonds, has little to offer to the risky borrower.

Employment growth will require reform not just in labour laws, but in finance and infrastructure investment as well. These are huge challenges, but if the next government is unable to face them up front, we will continue to witness the low employment growth of the past. Importantly, with a growing number of young and educated working-age citizens, unemployment has the potential to cause even greater social and political distress.

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