The Jobs Precipice

India needs 16 million new jobs a year for the next 15 years. What can the government do to fix the crisis? Experts weigh in

The year was 2013. Narendra Modi, the prime ministerial candidate of the BJP, was on a campaigning spree, attacking the UPA government on corruption and non-performance and promising radical transformation in all spheres if voted to power. At a rally in Agra, he made a promise that is returning to haunt him. “If the BJP comes to power,” he thundered, “it will provide one crore jobs which the UPA government could not despite announcing it before the last Lok Sabha polls.”

Cut to 2017. In May, a Labour Bureau quarterly report on employment noted that a mere 230,000 jobs were created in eight key sectors from April-December 2016, a far cry from Modi’s 2013 promise. This, when over a million aspirants enter the Indian job market every month. Further, the Central Statistics Office said GDP growth slipped to 5.7 per cent in the April-June quarter, the lowest in three years, with manufacturing growing at a five-year low of 1.2 per cent, from 10.7 per cent a year ago. Core sector growth, on the other hand, rebounded to a fivemonth high in August to 4.9 per cent and manufacturing activities grew for the second consecutive month in September. Small consolation, though, for job seekers: the Centre for Monitoring Indian Economy estimates that about 1.5 million jobs were lost during January-April 2017, the first quarter after the November 2016 demonetisation exercise. Worse, India is set to see a further 30-40 per cent reduction of jobs in manufacturing compared with last year, according to recruitment firm TeamLease Services.

With a general election in less than two years, the dearth of jobs could prove the Achilles’ heel of the Modi government even as it is struggling to pump prime a staggering economy, rein in the high prices of essential goods and rectify anomalies in the Goods and Services Tax (GST). As the clamour for a stimulus and lower interest rates grows louder, the Reserve Bank of India, in its fourth bimonthly monetary policy statement on October 4, chose to maintain status quo on the repo rate, and reiterated the need for recapitalising banks. The government, meanwhile, is hopeful of filling vacancies in the central and state government, including, significantly, in 244 PSUs. There is also talk of expanding the Apprenticeship Act, which regulates the training of apprentices in industry and sets the minimum age of their induction at 14 years. The government had earmarked Rs 10,000 crore to train five million apprentices by 2020, but is hopelessly behind targets. There’s talk of sharpening the government’s focus on the scheme, as also a ramp-up in public expenditure on infrastructure.

A MOUNTING CHALLENGE

The Opposition is losing no time hauling up the government over its failure to create jobs. “Currently, we are not creating enough jobs,” Congress vice-president Rahul Gandhi said at the University of California in Berkeley recently. “Thirty thousand new youngsters are joining the job market every single day, yet the government is creating only 500 jobs a day,” he said, even as he admitted that the UPA government too faced the same challenge.

Somewhat cornered, Modi, addressing company secretaries in New Delhi on October 4, said that the government was committed to reversing the setback to growth in the April-June quarter.

“India could have been sailing smoothly at 10 per cent plus growth, but for the spate of disruptions, including demonetisation, GST, RERA and the new bankruptcy norms,” says Niranjan Hiranandani, managing director of the eponymous Mumbai-based real estate group. While individually they may carry a broad range of benefits, together they have inflicted collateral damage much more than was anticipated. The real estate sector, which creates 1.5 million jobs, has been among the worst hit. Home sales fell 26 per cent in the Delhi-National Capital Region in the first half of 2017 as demand nosedived post-demonetisation, according to real estate consultants Knight Frank. This, they add, despite a 20 per cent correction in prices in the 18 months to June. Unsold inventory in the Delhi-NCR market stood at a staggering 180,000 units—the highest in the country—and it will take developers four-and-a-half years to sell it.

Other sectors have suffered too. In the past three years, as many as 67 textile units are reported to have shut down across the country, rendering 17,600 people jobless. In November 2016, India’s largest engineering firm, Larsen & Toubro, sacked 14,000 employees, or 11.2 per cent of its workforce, as business slowed down and digitisation left many employees redundant. India’s storied IT companies, including Tech Mahindra, Wipro and Cognizant, laid off tens of thousands of staff as global business grew tougher. The banking sector wasn’t spared either. HDFC Bank laid off 11,000 workers over three quarters to March 2017 citing digitisation. Yes Bank eliminated more than ten per cent of its workforce—2,500 jobs— citing increased redundancy, poor performance and the impact of digitisation. According to the employment outlook released by the Manpower Group for the second quarter of 2017, hiring intentions in corporates are five percentage points weaker compared with the previous quarter and 20 percentage points lower yearover-year, resulting in the weakest forecast since the survey began in 2005. In the informal sector, on which there is insufficient data, the scene could be worse, as lakhs of workers go jobless as construction projects dry up given the unprecedented investment slowdown.

The recent policy disruptions apart, the economy was going through a rough patch already. Manufacturing was stuttering despite the government’s high-decibel ‘Make in India’ campaign. Acquiring

The mood in the government has shifted finally from blaming paucity of data to acknowledging that lack of jobs is a real problem

land for setting up manufacturing units continued to be tough, even as the Centre passed on the onus of framing land acquisition laws to individual states. Private investment growth has been falling since 2012, and was in the negative territory for much of 2016. The country still ranked a low 130th in the World Bank’s ease of doing business rankings in October 2016.

EMPLOYMENT PRECIPICE

India’s job challenge is staggering, to put it mildly. The country needs to create 16 million jobs a year for the next 15 years to take advantage of its “demographic dividend”, according to the India Employment Report 2016 authored by Ajit K. Ghose, an honorary professor with the Institute of Human Development in New Delhi. A working group led by Ghose is helping the NITI Aayog chart out a strategy and vision for the government to tackle the jobs challenge by 2022.

Experts warn that categorising jobs according to sectors may be misleading, especially when technology has seeped into all spheres of activity in a big way. “Job growth in every sector is dependent on the other,” says R.C. Bhargava, chairman of Maruti Suzuki, India’s largest car maker. Services, for instance, including banking and insurance, cannot grow without growth in manufacturing. IT and IT-related services too have major clients from the manufacturing sector. However, the sector has seen neglect for decades, so much so that in some key areas like textiles, India has ceded its leadership to countries such as Bangladesh and Vietnam. TeamLease, in an internal assessment of its over 2,500 corporate clients, found that entry-level jobs are at the highest risk as companies continue with their cost-cutting measures amid concerns over low growth. Adding to the manufacturing woes is the implementation of new digital technologies like the internet of things, cloud computing and artificial intelligence in the manufacturing process, making traditional jobs obsolete. These technologies, along with a squeeze in services, are affecting IT jobs too.

However, changes in the IT sector have been gradual, not abrupt, believes R. Chandrasekhar, president of industry body Nasscom. “If at the turn of the millennium, a 100 per cent increase in revenue led to a 100 per cent increase in head count, today, such an increase in revenue would require only half an increase in headcount,” he says. Reports of massive layoffs in the IT sector, he feels, is a ‘misrepresentation’. “Even if one per cent of employees are let go on account of performance, the industry as a whole would be shedding 40,000 people a year. But five per cent are being hired.”

Yogesh Misra, vice-president, Thomas Assessments, a talent assessment firm, says hiring forecasts of companies could have hit a low. “Increasingly, we are seeing demand for more skilled jobs. Fifteen years ago, Genpact was hiring large numbers for its voice-calling jobs; they have since been replaced by chat-bots,” he says. Sales jobs are drying up, and people are moving to online selling, digital marketing. Entrylevel jobs have moved to Tier II and III cities, where real estate is cheaper, he adds.

Hitesh Oberoi, co-founder of naukri. com, explains that while everybody is lamenting the IT slowdown, the sector is creating 2.3 times the jobs it was doing 10 years ago. Companies have tripled in size, and they are hiring since there is attrition.

“However, sectors like construction, real estate, power, energy, infrastructure are destroying jobs, not creating them. There has been a 30 per cent decline in job creation since 2007-08 (in these sectors),” he says. Real estate and telecom are markedly down in hiring, while jobs are being created in healthcare, education, hospitality and travel (see graphic on hiring trends). “There are growth sectors, sectors with temporary slowdown and sick sectors such as manufacturing” Oberoi adds.

SHORTCUT IS NO SOLUTION

Given the pain in the economy, how do we revive growth? Experts recommend a three-pronged solution: short, medium and long term. Steps at the macroeconomic level—measures to boost consumption, revive exports, improve private investment—should be complemented with stimuli for specific sectors. Some say that in the short run, only relief programmes (special employment schemes such as the Mahatma Gandhi National Rural Employment Guarantee Act or MGNREGA), rural infrastructure-building programmes in roads, housing and toilet construction can be implemented. Other measures recommended include lowering of tax rates across the board, including corporate tax rates, reviving the PPP (public-private partnership) model in infrastructure, and long-term measures such as easing the land acquisition process.

Short-term job creation looks near-impossible, Bhargava feels. “We have been focusing on the wrong kind of manufacturing for 60 years, and will have to pay the price,” he says. In the medium to long term, the growth strategy itself needs to be rejigged. Many believe India should follow China’s model in developing infrastructure—railway stations, metros, ports, national highways. “In China, a growth of 2.5 per cent in GDP came from housing, 2 per cent from manufacturing and another 2 per cent from infrastructure,” says Hiranandani. But that needs positive investor sentiment, currently missing in India. Bank credit has fallen by 50 per cent, adds Hiranandani. In many cases, credit is sanctioned but not availed of. New projects are not coming up as private investment is drying up. The role of the private sector in housing needs to be encouraged, as the government cannot do it all. “Focus on construction will also boost the steel and cement industry. We need to follow the rest of the world in development, not the US,” Hiranandani adds. He also recommends greater clarity on companies going through insolvency, since the public has its money stuck in these projects.

Construction and infrastructure can boost economic activity and jobs substantially, but they have been marred by time and cost overruns. “We need wellconceived projects,” says Arundhati Bhattacharya, chairman of the State Bank of India, the country’s largest lender. Banks are still ready to finance viable projects, she adds. However, as critical as supporting giant projects is extending help to small entrepreneurs. SBI, on its part, is holding camps for its Mudra loans for the small entrepreneur, and is working with financial experts who can handhold promising entrepreneurs through their projects. In banking itself, there is rising demand for business correspondents, and SBI has

trained 250,000 job aspirants in the last fiscal, with a placement rate of 49 per cent. It is also planning to tie up with the Confederation of Indian Industry to augment its rural training centres. Experts say recapitalisation of banks can also help them lend to businesses, given that bad loans to the extent of Rs 7.7 lakh crore (till March 2017) have weakened their capacity to lend.

SHARPENING SKILLS

Information technology is another sector that is losing its sheen as a significant job provider, with markets such as the US becoming more protectionist. Technological advances are also rendering the work force obsolete at a faster clip, as clients demand staff with expertise in cutting-edge technology. Nasscom’s Chandrasekhar says the time has come to look at technology jobs in non-technology sectors. Moreover, skilling initiatives have to be ramped up at the level of private firms as the government’s national skills development programme is not forward-looking enough. “The right kind of person for the job will come only when we use technology for skilling itself, such as online programmes supplemented with physical infrastructure,” he says.

Godrej group chairman Adi Godrej goes on to add that “skilling and training work in tandem with demand,” explaining how the economy must pick up for more jobs to be created. To give the economy that push, he reminds the government of “its promise to reduce corporate tax rates”.

Maruti’s Bhargava has a different take. “In the case of car companies, technology has not reduced employment. When a product becomes better in terms of cost and quality, sale increase, creating more jobs.” Similarly, naukri’s Oberoi is betting on digitisation, citing the role of e-commerce in reviving retail. The formalising of the economy is helping retail players and creating jobs in new categories, says Kishore Biyani, chairman of the Future Group. This could be the right time to boost consumption through lowering interest rates or giving government subsidies to certain

businesses. “The next round of growth will come from consumption,” he says.

INFORMAL JOBS IN PERIL

However, reviving the informal sector remains the biggest challenge. For one, it’s impossible to gauge the extent of joblessness given paucity of data which also impedes the government’s effort at targeted intervention. Within the government, however, there is a clear shift from dismissing jobless growth concerns and blaming patchy data collection to acknowledging that unemployment and job creation are real issues. “There is simmering discontent waiting to explode that we must prevent. We must act now,” says Rajiv Kumar, vicechairman of NITI Aayog.

Economists and policy observers say job losses as well as the slowdown in job creation has been the most severe at the grassroots level post demonetisation and GST compliance challenges, and spurring activity there would have a ‘trickle-up’ effect. Public employment generation programmes have been a major tool for creating additional jobs. The government has also increased budgetary allocations for anti-poverty programmes and employment generation schemes to supplement job creation. The highest ever allocation under the MGNREGA was made during 2017-18. As per data, about 51.2 million households were provided employment during 2016-17.

The larger debate continues to be over what India should focus on: manufacturing or services. Growth in the recent period has been driven by services, which in itself was owing to substantial inflows of foreign finance. Many believe India needs rapid manufacturing growth (and, correspondingly, manufacturing-led growth) fuelled by both export growth and expansion of the domestic market. Export growth (and thus growth of export industries) will require exchange rate management and some reform of tax and tariff structures, they say.

Jobs will remain a thorn in this government’s side, one it needs to deal with before 2019.