(GIST OF YOJANA) Indian Economy: Boosting Employment [SEPTEMBER-2018]

(GIST OF YOJANA) Indian Economy: Boosting Employment


Indian Economy: Boosting Employment

India is, and will continue to be in the near future, a substantially informal economy. There are several transitions going on rural to urban, agriculture to non-agriculture, informal to formal, subsistence to wage employment, life-time employment to short duration contracts, and employer employee relationships to self employment. These transitions, simultaneous and not sequential, sometimes pull in opposite directions. That’s perfectly understandable in a large and heterogeneous economy with segmented labour markets.

Regions with relatively abundant labour supply can co-exist with regions with relative labour scarcity. Segments with low skills can coexist with segments integrated into global labour markets. Given this, it follows that reliable employment data cannot be extricated from enterprise surveys, unlike countries where many more people are in employer-employee relationships. There are, and will continue to be, enterprise surveys. But their utility is limited. Reliable employment data will emanate from household surveys. Unfortunately, official and large-sample household surveys are dated. The last year for which we have such NSS data are 2011-12. Therefore, data on employment are unsatisfactory. This will begin to be rectified from the last quarter of 2018, with annual (unlike the historical five-yearly) employment surveys, subsequently supplemented by quarterly ones. Growth should lead to employment creation. Therefore, the best thing governments (Union or State) can do for employment generation is to create an enabling environment for growth.

Easing Compliance Costs

We shouldn’t lose sight of this bit of the present government’s agenda, easing compliance costs of doing business (not to be interpreted as corporate sector manufacturing alone) and public expenditure to ensure access to inputs (physical and social infrastructure) required to trigger growth, employment and entrepreneurship. There is plenty of entrepreneurship in the country and this entrepreneurship isn’t necessarily reflected in a legal identity for the enterprise. This is what Start up India, Stand Up India and the Mudra Yojana are about. In passing, not only has entry been eased for entrepreneurship, so has exit. (This is the first time there are exit provisions for an unincorporated enterprise that are delinked from personal bankruptcy.) The government cannot provide jobs to everyone. Nor should everyone seek to become an employee. The focus should no longer be on jobs, which suggests employer-employee relationships and life-time contracts. Instead, the focus should shift to employment, which can indeed be short-term and contractual.

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Labour Intensive Growth

Let me now flag some issues that warrant discussion, if not debate. First, India is relatively more endowed with labour, not capital. Therefore, growth should be labour intensive, unless the capital/labour choice is distorted. That input choice is a function of the relative prices of labour and capital. Arguments are advanced about artificially high costs of labour in the organized sector, interpreted not just as wage costs, but also compliance costs of labour legislation. However, post1991, these compliance costs have not increased. If at all, they have declined. (One should mention the Shram Suvidha portal.) So why has the capital/labour choice become even more warped? The answer can only be found in a relative decline in cost of capital, reinforced by subsidies (read tax exemptions) given to capital usage. Note that the present government has sought to neutralize this by subsidizing new employment. Second, why are there complaints about labour shortage in some parts of the country, spliced with excess labour supply in others? Clearly, the disintermediation between prospective employers and employees isn’t working very efficiently. The phenomenon of labour contractors who are not registered is also known. As one of the initiatives of the present government, one should therefore mention the National Career Service portal. Third, why is there an increasing gap, to the extent data exist, between work force and labour force? Why are work force participation rates declining, not just for females, but also for males? While increasing female work participation rates is part of any reform agenda, the decline (subject to unsatisfactory data) remains a conundrum.

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