Lessons from India’s jobless growth story

Besides the above structural inadequacies with respect to the agricultural and manufacturing sectors of the Indian economy, the decision to go in for demonetisation and faulty implementation of GST in recent times has had a serious impact on growth in India.

Lessons from India’s jobless growth story

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Jobless growth means that the economy under consideration is experiencing growth, i.e., increasing GDP but at the same time either employment is constant or is in fact decreasing. This term was coined by economist Nick Perna in the early 1990s. Policy makers, academicians and political analysts have time and again shifted focus on the alarming situation of jobless growth in India, especially in the last two decades. The National Sample Survey Office’s (NSSO) estimates for the year 2017-18 show that India’s joblessness was 6.1 per cent of the labour force, which is amongst the highest since 1972-73.

In fact, this unemployment crisis seems to be cutting across location and gender. At 27.2 per cent, urban women are worst-affected, followed by their male counterparts at 18.7 per cent. More men in villages (17.4 per cent) are jobless than women (13.6 per cent). Although it cannot be disputed that the presence of jobless growth in India has been apparent for the past decade and more, the numbers today have become strikingly high. Starting from 2000, India was second only to China in terms of GDP growth. What is being hailed in India is the potential of demographic dividend – the large percentage of labour force (essentially in the age group 18-60 years) which is available for employment.

This age group is called the independent workforce as against the dependent population which consists of the age group 0-18 years (children) and above 60 years (older people). Thus, to understand whether India can take advantages of her demographic dividend it is imperative to examine whether growing GDP numbers have actually translated into increasing employment figures. As the economy develops, there is a conventional pattern of a movement of surplus labour from the traditional agriculture or informal sectors to the modern sector (industrial or formal sectors) of the economy.


This is not merely restricted to the theoretical understanding of the models like Lewis and Harris-Todaro but a similar pattern has also been exhibited by the East Asian tiger economies namely Taiwan and South Korea who had achieved a turning point in their development curve by the mid 1990S. As surplus labour gets exhausted, the real wages start increasing. This movement of higher wages essentially means an improvement in the skill and educational levels of the workforce along with the emergence of new industries which demand higher labour skills.

But what has been noticed in India is a slow rate of non-agricultural job generation despite massive escalation in the GDP. Manufacturing sector which is deemed to be the backbone of any economy has largely remained as a “missing-middle” for India in terms of the employment generation. The trends show that the size of the manufacturing workforce in the country has actually declined between 2004-05 and 2009-10 and in fact India experienced the highest GDP growth rate between 2005-2008 (2005-2006: 9.48%; 2006-2007: 9.57% and 2007-08: 9.32%).

The sluggish growth of the manufacturing sector has remained as a continuous challenge for India’s growth story. What can be deduced after studying the estimates from various quinquennial rounds of NSSO’s Employment- Unemployment Schedule is the behaviour of agricultural employment. When the GDP growth rate was the fastest i.e. between 2005-2008, there was a stagnation in the agricultural sector. The growth of the agricultural sector had come down from 3.62 per cent in 1990-91 to 1.97 per cent by 2004-05 and the share of agriculture in GDP has registered a steady decline from 36.4 per cent in 1982-83 to 18.5 per cent in 2006-07.

Yet this sector continues to support approximately 50 per cent of the workforce. Agricultural employment declined during the second half of the 2000s, which led to the slow growth of overall employment in India. Yet another unique feature of India’s journey of jobless growth is the employment pattern registered for rural women. Between 2004-05 and 2009-10, nearly 22 million women left agricultural work. While the first decade of the millennium witnessed a steep rise in female agricultural employment which was distress driven, the second had an equivalent withdrawal of women from the labour force.

What has been noticed as the possible reason for the movement of women back to the household during the latter period is improvement in the availability of income-earning opportunities for male members of the family. Thus, one can conclude that women enter the workforce only to supplement the income of male members of the family and if they start earning reasonably well, they withdraw from the workforce. This could then be taken to be one of the factors of declining employment while growth was increasing.

The recent trends characterize Indian labour market by three features: 1) There is a predominance of agriculture and the informal sector in total employment. This means that a majority of workers are self-employed and in low quality employment. There has been a slow growth of labour productivity in these sectors. 2) Poverty and distress lead to a situation of vulnerability where participation in the labour market is not out of choice but is governed by changes in the income level. This is clearly indicated by the number of women entering the labour force. 3) The decision to enter and exit the labour market is primarily a response to household earnings.

Besides the above structural inadequacies with respect to the agricultural and manufacturing sectors of the Indian economy, the decision to go in for demonetisation and faulty implementation of GST in recent times has had a serious impact on growth in India. Raghuram Rajan, ex-governor of the Reserve Bank of India, while addressing an audience at the University of Berkley in November 2018 stated that a 7 per cent GDP growth rate is not enough for the kind of people entering the labour market. India needs to create millions of jobs a year to take advantage of the demographic dividend and this can only happen if the Indian economy boosts up both the manufacturing and the agricultural sector.

Stop gap and knee-jerk reaction to the above crisis is not going to help the economy in the long-run. What has been seen in recent months is that the distress in the agricultural and informal sectors have now percolated to the formal sectors. This can be clearly seen by the shutdown policies of the automobile industry, the FMCG sectors amongst others as also the stress in the MSME sectors. All of the above requires recognition of the problem which is equally of the demand-side as it is of the supply side and simultaneously addressing it in all sectors of the economy.

(The writers are, respectively, Associate Professor, DCAC College, University of Delhi, Assistant Professor, DCAC College, University of Delhi and a student of Modern School, Vasant Vihar. The views presented in this article are solely of writers and do not reflect the opinions of the institutions that they represent)