Dial ‘M’ for Manufacturing

The recent PLFS data, which show a historic decline in manufacturing employment, make one fact plain — India desperately needs a comprehensive industrial policy, absent since 1991

Updated - August 02, 2019 06:33 pm IST

Published - August 02, 2019 05:25 pm IST

Funskool's third manufacturing facility in India and second facility at Ranipet was inaugurated on Wednesday ( March 20, 2019). The new factory is spread across 61,000 sq/ft and is located at the SIPCOT industrial estate. The facility will focus on catering to the growing export market.
Photo : Bijoy Ghosh

Funskool's third manufacturing facility in India and second facility at Ranipet was inaugurated on Wednesday ( March 20, 2019). The new factory is spread across 61,000 sq/ft and is located at the SIPCOT industrial estate. The facility will focus on catering to the growing export market. Photo : Bijoy Ghosh

The Union Budget suggests that the government has not recognised the need to create more manufacturing jobs. For the first time ever, manufacturing jobs fell in absolute terms between 2011-12 and 2017-18, to quote the Periodic Labour Force Survey (PLFS) of the National Sample Survey Organisation (NSSO).

Further, during the same six-year period, the total workforce actually shrank from 474 million to 465 million, a first in India’s post-Independence history. While the unemployment rate for all age groups increased from 2.2% (2011-12) to 6.1% (2017-18), youth unemployment rate surged to a level never witnessed before in the Indian economy, increasing from 6.1% (2011-12) to 17.8% (2017-18). The PLFS data also show that while the number of persons searching for jobs tripled between 2011-12 and 2017-18, with the labour force growing at about two million people per year, the economy did not generate enough jobs. The total employment in the intervening years fell by 9.1 million, resulting in a historical increase in the unemployment rate (6.1% or 30.1 million people). Rise in joblessness among the educated youngsters, who preferred to remain unemployed rather than taking up low-paying jobs, contributed to this trend.

Jobs in other sectors

Here, we need to mention that it is no one’s case that India, considered to be the world’s ‘fastest-growing economy, is not creating jobs at all. For instance, jobs in services and non-manufacturing industry (in the areas of construction, mining and utilities) have grown in absolute terms between 2011-12 and 2017-18. However, a gain in these two fields is not enough to offset the loss in agriculture and manufacturing jobs. It also needs to be asserted that while a reduction in the number of people depending on agriculture is a positive development, a fall in manufacturing employment is a worrying reality.

We also need dispose off the concern that the PLFS data are flawed because they do not capture new type of ‘jobs’ such as platform economy employment created by ride-hailing services (like Ola and Uber); food delivery services (Swiggy and Zomato); and self-employment jobs created by Mudra loans. In reality, these are all informal/unorganised-sector jobs, which NSSO samples always capture. It is bizarre to assume that in an economy where four out of every five jobs are in the informal sector, agencies with nearly seven decades of conducting surveys would not capture such jobs.

Coming to the sector-wise unemployment figures, the number of people engaged in agriculture continued to decline at the rate of 4.4 million per annum — it fell from 232 million in 2011-12 to 205.3 million in 2017-18. This was consistent with the reduction in growth rate of agricultural output. However, as mentioned earlier, manufacturing jobs, which showed a total decline of 3.5 million, showed a dismaying downward drift. Further, the jobs categories under ‘non-manufacturing industry’ — mostly in the construction sector — showed a slow growth. There were only 3.6 million construction jobs added during the six-year period. Fortunately, the service sector contributed significantly. However, the employment growth in this sector, 17.1 million, as marginally lower than that in the period between 2004-05 and 2011-12, of about 20 million. In many cases, these jobs were seen as an an employment of last resort, especially for poorly educated migrants just out of agriculture.

The trend witnessed with regard to manufacturing employment as per the PLFS data is consistent with that shown by data from the Index of Industrial Production (IIP). It is likely that the informal sector registered negative growth in these years because of demonetisation, the introduction of Goods and Services Tax (GST) and slowdown in exports.

Budget proposals

Coming back to the Union Budget, some effort was made to create jobs in Micro, Small and Medium Enterprises (MSMEs) and construction, for instance, through the Interest Subvention Scheme. and programmes like Pradhan Mantri Awas Yojana (housing schemes for rural and urban areas). However, public investment in housing alone will not revive job growth.

To sum up, there is no alternative to a comprehensive industrial policy, absent in India since 2011. The National Manufacturing Policy announced in 2011 was never implemented. The result is that the share of manufacturing in GDP has remained stuck at 16% since 1991, while the share of employment in manufacturing has stagnated at around 12.5%. Meanwhile, manufactured imports continue to flood our markets.

Santosh Mehrotra is Professor of Economics at Jawaharlal Nehru University; J. Parida teaches at the Central University of Punjab

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