Since 2004-05, for the first time in the history of India, more workers have left agriculture for productive work in industry and services

Higher than normal inflation, high current account deficit, a depreciating rupee and slowing GDP growth might hold true in recent times. However, when it comes to employment, the facts are quite different as between 2009-10 and 2011-12, non-agricultural employment grew rapidly.

Between 1999-2000 and 2004-05, National Sample Survey (NSS) data reveal that nearly 12 million joined the labour force. However, the number of non-agricultural jobs created per annum was much lower — 7.5 million. Non-agricultural employment increased between 1999-2000 and 2004-05 (which coincides with the time the National Democratic Alliance was in power) by 37.5 million over the five-year period, i.e., 7.5 million new jobs in industry (manufacturing and construction) and services per annum.

Growth of non-agricultural jobs

The number of non-agricultural jobs between 2004-05 and 2011-12 increased by 52 million over seven years, i.e., by 7.5 million per annum again. However, since 2004-05 fewer people joined the labour force. This meant that fewer people were looking for work, but the number of non-agricultural jobs created was as many as before; the open unemployment rate fell.

The important point is that millions left agricultural work after 2004-05 on account of many new opportunities. Although 37 million persons left agriculture during the periods 2004-05 and 2011-12, they found work in non-agricultural activities, both rural and urban. In comparison, 20 million new workers joined agriculture between 1999-2004. At India’s stage of development, more workers joining agriculture at a time when agricultural productivity is very low is exactly the opposite of what is expected, since agricultural productivity is already lower than comparator countries. Incomes fall when a sector has more workers than needed. Development implies that workers leave agriculture for more productive work in industry and services, and total factor productivity increases in the entire economy. Every developing country is supposed to undergo this structural transformation.

Since 2004-05, this transformation has been happening for the first time in the history of India. Of the 60 million additions to the workforce between 1999-2000 and 2004-05, a third (20 million) joining agriculture indicated growing rural distress, on account of the slow growth in agriculture between 1996 and 2005.

Agriculture has grown much faster since 2005. In fact, during the 11th Plan, agricultural output grew at 3.2 per cent per annum (2007-12) on average, despite crippling drought in 2009-10. The share of agriculture in the workforce has been in decline for decades (falling to 49 per cent in 2001-12). However, the absolute numbers in agriculture have always grown till 2004-05. So, fewer workers were producing more output in agriculture, farm mechanisation increased, and productivity grew.

There was another development. Unskilled workers who left agriculture flocked to construction employment. Such employment increased by only eight million (17 to 25.6 million) during 1999-2000 to 2004-05. But it grew sharply to 50 million by 2011-12. This was an increase from under two million a year to seven million a year. While a part of this increase in construction employment was in housing real estate, it was infrastructure (roads, bridges, airports, ports, energy projects) investment which drove most of the employment growth.

Rural areas also saw significant growth in non-farm construction-related employment: government investment in rural housing for the poor (Indira Awas Yojana) grew, as did rural roads and other rural construction investment (Pradhan Mantri Gram Sadak Yojana and the Mahatma Gandhi National Rural Employment Guarantee Act). In addition, $475 billion worth of infrastructure investment materialised during the 11th Plan period.

Increasing employment was accompanied by rising wages. Wages were stagnant between 1999-2000 and 2004-05, especially rural wages. However, two factors drove wages upward after 2004-05. First, as a result of MGNREGA and rising minimum support prices for government procured cereals, a floor wage was created in the rural areas. This along with an increasing demand for labour in construction led to a tightening of the labour market, both rural and urban. This led to a knock-on effect on urban unskilled wages as well. A second reason for the rise in wages for unskilled/semi-skilled workers was the demand for labour in construction — which is treated as non-manufacturing industry.

The prophecy of a recent CRISIL report that employment in industry will fall in the next five years, and that workers will go back to agriculture is baseless. If anything, the 12th Plan projects an investment of $668 billion in infrastructure over 2012-2017, which should sustain employment growth.

Growth in service jobs

Most importantly, services jobs grew by 11 million, and manufacturing employment increased by a remarkable nine million in two years alone (2009-10 and 2011-12), although manufacturing employment fell in absolute terms by three million between 2004-05 and 2009-10. It is crucial to understand why non-agricultural employment has risen rapidly between 2009-10 and 2011-12. After 2004-05, demand for a number of consumer goods has grown sharply, which is reflected in the rise in consumption expenditure to 2011-12. This rise of consumption expenditure shows that the numbers of poor fell from 407 million (Tendulkar line) in 2004-05 to 356 million in 2009-10, and further to 269 million (2011-12).

For the first time in the history of India, there was a decline in the absolute numbers of the poor after 2004-05; until then for nearly 30 years (1973-74 to 2004-5), there was a fall in the percentage, but not in the absolute numbers of the poor (322 million poor in 1973-74 and 302 million poor in 2004-05, by the Lakdawala poverty line). The decline in poverty was driven by a rise in real wages. This rise in real wages and an increase in consumption expenditure have driven demand for goods to the bottom of the pyramid, as poor people have emerged out of poverty.

The new non-poor demand simple manufactured consumer goods: processed food (biscuits, milk), leather goods (shoes, sandals), furniture (plastic chairs/tables, wooden furniture), textiles, garments and mobiles. All these product areas and services saw a dramatic increase in employment between 2009-10 and 2011-12, primarily because these simple, low-end products (at least those consumed by the new non-poor) are produced in the unorganised sector, using labour-intensive methods.

A new inclusive dynamic is in place in the Indian economy, which is difficult to reverse. There is a feedback loop between increasing demand, and production to meet that demand, that generates employment among those who will consume the products that are produced.

(Santosh Mehrotra is Director-General, Institute of Applied Manpower Research, Planning Commission, New Delhi.)

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