India: Fastest Jobless Economy

India is on its way to becoming a $5 trillion economy. Numbers of reports also say that India is the fastest growing economy among major countries today.

In the recent budget, the government has announced huge increase in capital expenditures such as on highways and ports, which is expected to lead to the creation of jobs. However, the track record of the past many years puts a question mark. Why have jobs not been crated till now?

We need to understand the relationship between capital expenditure and job creation in a historical context. At one time the major mode of transport used to be horse cart. Then cars were invented. This led to the jobs of the horse cart owner disappearing overnight. However, a number of jobs were created in both the manufacture and cars. Further, transport by car was less expensive and, therefore, the use of transport increased. As a result, the total number of jobs in the transport industry increased. To take another example, at one time the major method of producing cloth used to be handloom. Then power looms were invented. The number of jobs in the handloom industry declined. However, the cost of producing cloths was reduced and the consumption of cloth increased. The result was net increase in the employment. In this same way today, robots are taking over many manufacturing and artificial intelligence taking over many intellectual jobs.

Another difference between the examples given above and the present situation is that of population growth. Previously, the population was growing at a very small pace. Therefore, when the horse cart and hand handloom were displaced, it was necessary only to create a sufficient number of jobs to absorb the displaced workers because population was relatively stable. Presently in India we are reaping what is called "demographic dividend." Because of the increase in the production of food and improvements in medical sciences, the life expectancy of our people has increased. The number of children who survived has increased. As a result, today, we have a very large population of youth in age of 12 to 25 years. These are entering the labour market at a very rapid pace. So, we not only have to create jobs for those workers that are displaced by the robots and artificial intelligence; but we also have to create jobs for the new youth that are entering the labour market.

A paper published by the Apeejay School of Management has assessed that an increase of 1% in the GDP leads to about 0.2% growth in employment in India. Another study has assessed that at the global level 1% increase in GDP leads to a growth in employment of 0.3%. This means that if we are able to attain the projected 10% growth rate, which is considered to be very high, even then the increase in employment will only be 2% which is highly inadequate to absorb the increasing number of youths that are entering the labour force. Therefore, business as usual will not work.

Capital expenditures have been increased in the Budget. This is most welcome. But it may not create the number of jobs that are required for our youth. In this situation we need to put in place an employment policy. We have to impart such skills to our youth which will continue to be in demand even if robots and artificial intelligence take over the jobs of manufacturing and intellectual works. For example, education requires one-to-one interaction between students and teachers, healthcare requires one-to-one interaction between nurses and patients, and tourism requires one-to-one interaction between hoteliers and the tourists.

Such jobs are not likely to be extinguished because of robots and artificial intelligence. The difficulty is that obtaining such skills requires much effort. The youth of our country are more focused on obtaining government jobs. They find that those who have got government jobs are making huge money while those who are not in government jobs are relatively poor. Therefore, they have less interest in obtaining skills of education, health and tourism. The government needs to reduce the salary of the government servants so that the youth no longer find government jobs to be attractive and start acquiring the skills which will give them jobs in the coming times. The second step to be taken is to encourage businesses to employ more numbers of workers. A businessperson has to decide whether to do a specified work by manual labour or by machine. For example, loading of trucks can be done by machines or it can be done by manual labour. The businessman may find it profitable to employ labour if it is efficient and the wages are less. However, the organised labour in our country is protected by labour law which makes it difficult to take work from them. There exists a further problem of unionisation which leads to derailing production processes.

Therefore, businesses are more inclined to use machines rather than labour. The solution is to simplify the labour laws so that a businesses can fearlessly employ larger number of workers and create more jobs.

The third step to be taken by the government is to provide tax relief small and medium industries who do more work by labour and less by machines. The difficulty is that GST has made a single rate of tax for all industries. Small industries are not able to compete with large industries. The market of small industries is increasingly getting transferred to large industries who are, in turn, using robots or automatic machines. This is leading to less growth of jobs.

That is the reason why 1% growth in GDP is leading to only 0.2% growth in employment in India against 0.3% growth in employment globally. The government should introduce two separate rates of GST for small and large industries. In Canada and United States, there are a number of GST rates yet it is possible to transport goods from one place to another place seamlessly. If we provide lower rate of tax for small industries then they will able to compete with large industries and create more jobs.

Even if we increase the capital expenditures and attain a 10% growth rate, even then the increase in employment will only be 2% which will be much less than what is needed. Therefore, we need special efforts to create jobs. Unless this is done, we will see a large unemployment and social disturbances arising out of the same.

(The author is former Professor of Economics at IIM, Bengaluru)

(The opinions expressed in this column are those of the writer. The facts and opinions expressed here do not reflect the views of The Hans India)