A series of surveys by the Labour Bureau indicate that 60 years of planned development and three decades of high growth notwithstanding, India’s labour market not only displays many features of a pre-modern economy, but reflects a growing inability to absorb its large, young and still growing labour force.
With official attention focused on GDP growth rates in an ostensibly “emerging” India, other revealing evidence regarding its economic structure is often ignored. For example, one dataset that reflects the gradualism associated with India’s rise as a modern economy relates to the labour market. Available data on the structure of that market suggests that the much-touted objective of “inclusion” remains largely unrealised, despite three decades of relatively high growth. The evidence also indicates that India is not on track when it comes to exploiting the “demographic dividend” offered by the age structure of its population in which younger age groups dominate.
The most recent evidence available on India’s labour market structure comes from the first of what is planned as a series of annual surveys on employment and unemployment by the Labour Bureau under the Ministry of Labour and Employment. This first survey relates to 2009-10. Since it lacks a comparator, it offers only a photographic picture of the structure of the labour market. But that picture is quite revealing.
The survey estimates that out of a population of 1182 million in 2009-10 (74 per cent of which is in the rural areas) as much as 63.5 per cent was in the working age group of 15-59 years. However, only 32.5 per cent of the overall population and 46.5 per cent of the working age population is actually employed. Even if we add those who are “seeking and available for work” but not currently employed, the labour force amounts to just 35.9 per cent of the population. The figures for rural and urban areas are 36.5 and 34.0 per cent respectively. Given the fact that India is home to a relatively young population, this figure does appear to be low. This is possibly partly also because lack of easy access to decent work discourages many from entering the labour force.
Interestingly, despite the relatively low labour force participation rate for a population that is relatively young, the unemployment rate, at 9.4 per cent of the labour force is quite high. This is surprising because given the hugely inadequate social security system, being out of work is not considered to be an option for most Indians, who need to earn something to survive. According to the survey only 16.3 per cent of those employed claim to be receiving some kind of social security benefit, involving any one of the possible benefits such as provident fund, gratuity, health care & maternity benefits, pension etc. In the circumstances, unemployment essentially involves falling back on family or kinship based support structures, to the extent that that is possible at all. If yet the respondents report a high level of unemployment, conditions in the labour market must be particularly adverse. The implied lack of adequate decent work opportunities also seems to be contributing to the extremely low levels of female participation. There were only 279 females in the workforce for every 1000 males with the figures for rural and urban areas being 299 and 222 respectively.
Evidence on the nature of employment also points to the limited and “flexible” nature of the labour market. The category of self-employment dominates with 43.9 per cent of the workforce reporting themselves as self-employed, 39.3 per are employed as casual labour and only 16.8 per cent in regular wage or salaried employment. There are two reasons for this structure. The first is the preponderance of employment in the agriculture, forestry and fisheries sectors, where self employment and casual work tends to be high.
According to the survey, 57.6 per cent of the workforce in 2009-10 was in this group of sectors. The sector accounts for a much larger proportion (57.2 per cent) of the self-employed and 46.7 per cent of casual workers. The second reason is, of course, the persistence of casual and self employment even in sectors outside of agriculture.
Gradualism in development is visible in the occupational distribution of the work force as well. Of the total employed only 8.9 per cent are engaged in manufacturing, 1.8 per cent in electricity, 7.5 per cent in construction and 25.2 per cent in services of various kinds. There are two noteworthy features of this evidence. First, it shows that the principal commodity producing sector outside of agriculture, viz. manufacturing, accounts for an extremely small share of employment, pointing to the inadequate diversification of commodity production and the presence of a top heavy, capital intensive manufacturing sector. Second, despite the fact that much of the increment in GDP during the high growth years came from services, which now accounts for more than half of national income, the contribution of that sector to employment is just 25 per cent. That is, even services growth has a top heavy structure resulting in an inadequate responsiveness of employment to increases in income.
Even within services, organised sector employment seems to be substantially in the public sector. The category community services, which is likely to consist of a set of services provided by government, has the highest share in regular wage or salaried employment. As much as 22.7 per cent of regular salaried/wage employment is due to this sector, with manufacturing following with a significantly lower 15.3 per cent. The only other sectors that accounted for more than 10 per cent of the regular wage/salaried workers were agriculture (12.1 per cent) and others (17.2 per cent).
Finally, the results indicate that the other characteristic of modern economic development, which is the rise to dominance of impersonal forms of economic organisation such as joint stock companies, has yet to realise itself fully in India. Close to 50 per cent of workers are employed in proprietary enterprises, and just 10 per cent in public or private limited companies. In terms of size too, most workers (65.8 per cent) are employed in small enterprises employing less than 10 workers. In other words, 60 years of planned development and three decades of high growth notwithstanding, India’s labour market not only displays many features of a pre-modern economy, but reflects a growing inability to absorb its large, young and still growing labour force.
In sum, much of India labours in relatively small units that are still backward in terms of the form of organisation, and does not have employment that is secure, would be reasonably well paid and offers social security benefits to take care of periods when the worker is out of work. In fact, even now a significant number of those in the labour force is unemployed. India is neither a modern, frontline economy when it comes to its world of work, nor is it inclusive in the distribution of the benefits of its high growth. This, rather than the lack of flexible labour markets or higher growth rates, should be the focus of attention.