Slowdown to re-direct 12 million to farms: Crisil

Study shows non-farm employment will decrease more than 25% to 38 mn in FY 2013-19 compared with 52 million seen in FY 2005-12

Non-farm jobs are set for a decline over seven years says Crisil Research.

In a study the research firm estimates non-farm employment will decrease more than 25% to 38 million in FY 2013-19 compared with 52 million seen in FY 2005-12.

"In the seven years to 2018-19, India’s working age population would have swelled by over 85 million. Of these, 51 million would be seeking employment. Providing jobs to its fast-growing labour force in the current scenario of slowing GDP growth will pose a significant challenge for the economy," Crisil said in its study.

Crisil explained that the difficulty of this task is compounded by the increasingly ‘jobless’ nature of growth in recent years.

This is the direct result of two factors: first, GDP growth is now increasingly driven by the less labour-intensive services sectors such as IT/ITES, and business and financial services.

As these sectors require only around one or two people to produce Rs 1 million of real value-added GDP, higher growth in these sectors does not create large-scale employment.

Second, the labour dependency of the manufacturing sector - which once used to be the most labour-intensive sector barring agriculture - has diminished considerably as complicated restrictive labour laws and technological progress have encouraged automation.

“It is desirable to pull more and more people out of agriculture since it is a low-productivity sector, with only a 14% share in GDP, but around 49% share in employment. The old trend of migration from agriculture will reverse with fewer non-farm job opportunities coming in the way of achieving this," said Mukesh Agarwal, President, Crisil Research.

The ability of relatively labour-intensive sectors such as manufacturing to absorb labour has diminished considerably in the face of rising automation and complicated labour laws. The employment elasticity of manufacturing - defined as the percentage increase in employment for every percentage point increase in manufacturing GDP - deteriorated sharply to an average 0.17 in the seven years to FY 2012 from 0.68 in the seven years to FY 2005.

The trends and pattern of employment offers two specific insights to policymakers for accelerating job creation in the Indian economy. First, there is a need to accelerate economic growth by alleviating constraints, especially on corporate and infrastructure investments. Second, appropriate policies will have to complement high growth for facilitating the required job creation in the manufacturing and services.

“Apart from GDP growth, India needs to raise the demand for labour, especially in the manufacturing sector, by simplifying labour laws and debottlenecking labour-intensive industries such as textiles, gems and jewellery and leather. Policymakers should also focus on expanding the health, education, construction sectors. This will not only raise India’s growth potential, but also generate a significant number of jobs,’’ added Agarwal.

It will also be critical to ramp up the supply of skilled workforce. Crisil interactions with industry show that around 70% of graduating engineers are not employable (they need intensive training) because of lack of technical or soft skills.