XIV

Jobs in India

Amitendu Palit

It’s hardly surprising that for a country with a population of 1.3 billion, which is nearly 18 per cent of the global population of 7.6 billion,¹ employment will be one of the foremost public policy concerns. The concern has aggravated as India has added almost a billion people to itself since 1947. Over the last couple of decades, the quality of the concern has changed dramatically with India beginning to realize the long-term implications of labour-saving technological innovations displacing existing jobs and bringing down creation of new ones to a trickle. Dwindling jobs and livelihood prospects have serious social, economic and political ramifications for a country itching to maximize its demographic dividend.

The concern over the country creating less and less jobs and fast losing the existing ones was highlighted by none other than India’s 13th President, Pranab Mukherjee. Less than eight months before stepping down from office in July 2017, Mukherjee drew attention to the problem in as blunt a manner as possible:

We must turn our evolving demographic configuration into strength. For that, adequate job creation is a priority. The job creation figures of 1.35 lakh in 2015, which is the lowest in seven years, are not encouraging. With machines fast replacing men, we have to look at a paradigm shift. We have to prepare our youth, who are buzzing with innovative ideas, to turn into entrepreneurs. We also have to enable our students-turned innovators-turned entrepreneurs to be able to successfully harness the market.²

As a lower-middle-income country still grappling with the challenge of lifting a substantial part of its population from poverty, inability to create jobs and the consequent lack of sufficient livelihood opportunities can aggravate poverty, more so since India’s population continues to increase. With India fast catching up with China as the world’s most populous country,³ the ominous possibility of more and more young people entering the workforce to find themselves jobless is indeed real. Rising unemployment, apart from impacting poverty, will increase social tensions and unrest. This is evident from the increasing number of communities demanding reservations in public sector employment such as the Jats in Haryana and the Patels in Gujarat.

The problem of low growth in jobs is compounded by the loss of jobs to automation. This heavily complicates long-term employment policymaking in an economy aiming to capitalize the demographic dividend of a large young population. The demographic dividend from a steady supply of young labour to various sectors of the economy, who, in turn, would save, consume both wage and non-wage goods, and invest productively in sustaining various sectors—thereby creating virtuous forces of economic growth on both supply and demand sides—would remain unrealized if the jobs deficit constrains youth employment. Greater absorption of young people by the economy would increase consumption of both wage and non-wage goods and also increase savings and investment. But if the jobs deficit does not allow such absorption, then the demographic dividend would remain unrealized. This would imply failure of labour-intensive industrialization in a labour-surplus emerging market economy creating obstacles for national economic aspirations and development plans. The dual challenge of reversing lower job growth and preventing job losses emerges as probably the most significant public policy imperative in modern India. The grimness of the situation becomes more stark given the fact that jobs need to be ‘productive’ and ‘decent’ by ensuring they fulfil individual and national aspirations.

Structural Transition Not Employment-Intensive

India’s structural transformation over the last seven decades has resulted in services contributing more than 60 per cent of its national output. Both manufacturing and agriculture now have shares of less than 20 per cent in the national economy.⁴ The higher contribution of services to the national economy has been accompanied by lower shares of agriculture and manufacturing, with the combined share of the latter reducing from 43 per cent in 1991–92 to 32 per cent at present.

While many service industries, led by IT and including finance, hospitality, education, health, real estate, retail, entertainment, transport, communication, have generated new jobs, they have not been as much as the economy requires given the rising population and youth bulge. Indeed, agriculture and manufacturing, notwithstanding their lower contributions to GDP, continue to be providers of livelihood for many, particularly agriculture, which accounts for almost half of the total workforce employed in the country, and is the main provider of rural jobs for both men and women.⁵ This is in contrast to services (as represented by the tertiary sector in employment surveys conducted by the National Sample Survey Organization) that is now the largest provider of jobs for both men and women in urban areas, underscoring the urban bias that services have had in generating employment. The latter bias has created multiple employment opportunities for urban women in services like the construction industry, retail trade, IT-based call centres, business process outsourcing (BPO) establishments, hospitality establishments, financial enterprises and educational institutions. However, these opportunities should not obliterate the fact that services have failed to generate jobs in rural areas that continue to depend critically on agriculture, and partially manufacturing, for employment. The nature of jobs created by the ‘new’ urban services are also those that require skills greatly different from those of most rural workers, making the latter unsuitable for the former.

Expanding further on the relationship between structural transformation of the economy and low job growth, the inability of services to generate jobs commensurate with its contribution to the national economy has given rise to ‘jobless growth’. The phrase describes a situation where notwithstanding high economic growth, the economy is unable to create jobs and provide employment. While many service industries in India have created jobs, comparatively, growth in services has been less job-intensive than their similar growth in other emerging markets like China, Russia and Brazil. The share of services in India’s employment increased by 4.7 per cent during 2001–14,⁶ while those in the latter three economies increased by 34.3 per cent, 7.2 per cent and 17.2 per cent respectively.⁷ This is regardless of services growth in India being among the highest in the four countries. Whether the disconnect between rate of growth in services and its ability to employ is due to specific characters of the service industries, or on account of other specific structural issues in the economy impacting labour force participation rates and employment is debatable. But there is little doubt over the structural transformation of the Indian economy resulting in jobless growth, which portends critical prospects for future employment generation.

The crisis of employment in India must also be looked at in the context of significant changes taking place in the labour market, including in the Labour Force Participation Rate (LFPR).⁸ The Labour Bureau’s estimates point to the LFPR for 2015–16 having declined to 50.3 per cent from 52.5 per cent in 2013–14.⁹ Assuming a population of 1.2 billion, the reduction reflects a drop of more than 20 million in new entrants to the labour force. A lower LFPR is accompanied with higher unemployment with proportionally greater increase in rural unemployment, which, upon further disaggregation, reveals greater unemployment for rural women. The trend is representative of greater employment for urban women in services along with a reduction in employment opportunities for rural women. Lower LFPR follows lesser participation of women in the labour force, which can be attributed to various sociocultural factors (e.g. household responsibilities, difficulties in taking up work outside home). At the same time, for urban women in particular, greater pursuit of education is also a factor delaying their entries in the labour force. Nonetheless, female unemployment is an area of concern for the economy given that it is characterized by underemployment. This pertains to conditions where many of the persons who are reported as ‘employed’ or ‘workers’ in official publications do not get work for the entire duration of their stay in the labour force. And even those who get some work or another for the entire duration may be getting it for only a small fraction of the time that they are available for work. This apart, some may be working on jobs, which do not allow them to fully utilize their abilities, or from which they earn very low incomes.¹⁰

Automation and Displacement

The complexities of structural changes in India’s labour market and the employment prospects for millions of Indians have been aggravated by the rapid advent of labour-saving technologies, such as artificial intelligence and robotics. In this respect, India’s predicament is similar to that of countries in other parts of the world—developed and developing alike—and for policymakers, in all of which, automation is complicating the challenge of generating jobs and preserving employment. There is little doubt that policymakers across the world have been short-sighted in anticipating the impact of economic globalization and technological advancement on jobs. While the former, through fragmentation of production and relocation of its various stages in different countries based on comparative advantages of skills and wages, did generate jobs in several parts of the world through outsourcing, the latter has begun chipping away at existing jobs by shifting human functions to automation. The deleterious consequence of economic globalization and technological advancement on traditional jobs has been best described by celebrated physicist Stephen Hawking: ‘The automation of factories has already decimated jobs in traditional manufacturing, and the rise of artificial intelligence is likely to extend this job destruction deep into the middle classes, with only the most caring, creative or supervisory roles remaining.’¹¹ Taken forward, the impact of ‘job destruction’ is grave from not only an economic perspective, but also in terms of the sociopolitical impact it would have on economies and societies, particularly those like India that are saddled with the limitation of weak governance.

Businesses have responded to automation by downsizing labour-intensive operations. In India, the effect is being experienced across multiple industries and sectors that have typically been major employment providers. The IT industry is a relevant example of the impact of automation on India’s labour market. Hailed widely as one of the prodigious outcomes of industrial deregulation and economic liberalization since the early nineties, IT is one of those service industries that has generated jobs at various levels of skills for both men and women. Various studies and experts are repeatedly pointing to the employment contraction that the industry is suffering from and would experience in future. The views range from the industry losing 25,000–50,000 of new jobs each year currently being created along with displacement of middle-level managerial jobs¹² to loss of more than 600,000 low-skill jobs in the foreseeable future.¹³

These projections of job losses highlight the fact that a large number of existing jobs are getting redundant as human skills hardly fetch value in an environment where technological improvement is the key driver of productivity as opposed to more hands-on the jobs. The development has implications for the supply-side dynamics of the labour market, in the sense of new skilled entrants to the workforce, particularly the large number of engineering graduates, not being suitable for the new jobs. Globally, advances in automation have been accompanied by increasing redundancy of multiple skills—India’s IT/BPO sectors are major examples. Greater digitalization of functions, apart from displacing jobs, has generated demand for new skills consistent with, and required by, digitally run and managed industrial processes. The most hard-hit as a result have been clerical and low technology-intensive skills. Demand for these skills from the IT sector enabled a large number of urban youth, including women, to get employed since the final years of the last century. Now, however, the situation is markedly different with even graduate degrees in engineering (BTech) becoming increasingly irrelevant for companies as the latter focus on more specialized skills.¹⁴

It is important to note the adverse ‘substitution effect’ that technological innovations like industrial robots and artificial intelligence have on the market. It is also not difficult to see why employers do not want to back off from inducting more of this in their businesses. Greater use of digital operations is firmly justified on the ground of efficiency notwithstanding the fact that the impact of these changes on employment is profound, particularly at a time when globally shares of wages in national incomes are either declining or remaining stagnant. Till some years ago, despite noting the advent of jobless growth, Indian policymakers and labour-market experts were content on rationalizing it as the traditional failure of the Indian economy to develop labour-intensive manufacturing and shift surplus agricultural labour to industry. Now, however, it is clear that even if manufacturing in India expands to contribute a much larger share of GDP than what it does now, it will be difficult to achieve high economic growth that is labour-intensive, given the advent of automation, which is fast replacing jobs from modern manufacturing. This phenomenon of premature deindustrialization is a major threat for developing countries and emerging market particularly populous nations like India.

The evidence about premature deindustrialization and the growing inability of manufacturing industries to create jobs is best exemplified by India’s automobile industry. Beginning with the Maruti 800 in the eighties—the quintessential small car for the Indian middle class manufactured indigenously through Indo-Japanese collaboration—India’s automobile industry has become a global hub for assembling passenger and commercial vehicles with almost all major automobile assemblers (e.g. Toyota, Honda, Suzuki, Ford, Hyundai, General Motors) working out of India. The industry has generated considerable employment across different categories of functions and skills, including engineering, marketing and financial. For an industry that has been at the forefront of automation and cutting-edge technological innovation to reduce costs and improve operational efficiency, the advent of automation has led to major operational shifts in its functioning and sharply slashed its employment absorption capacity.¹⁵ The adverse substitution effect of labour-saving technological changes is also evident in industries and sectors connected to automobiles, such as transport services and engineering with large corporations like Larsen & Toubro shedding thousands of jobs for digitalizing operations and cutting costs.

In a rather chilling portrayal of the prospects awaiting labour markets of emerging economies, the World Bank projects two-thirds of all jobs in the developing world to be vulnerable to automation.¹⁶ As the world’s most populous developing countries, China and India risk losing 77 per cent and 68 per cent respectively of their current jobs to automation (Table 2). The impact of automation on jobs in these countries would be felt across skills and organizations in both these countries as labour-saving innovations hasten. In addition to China and India, developing countries with comparative advantages in moderately skilled labour-intensive production like Ethiopia, Nepal, Cambodia, Bangladesh and Guatemala are also at significant risks of job losses from automation.

Table 2: Countries and Their Jobs at Risk Due to Automation (per cent)

Country	Unadjusted	Adjusted
Ethiopia	84	43
Nepal	79	41
Cambodia	78	40
China	77	55
Bangladesh	76	47
Guatemala	75	46
El Salvador	75	46
Angola	73	53
Albania	72	52
Thailand	72	51
India	68	42
Romania	68	49
Ecuador	68	49
Costa Rica	68	49
Macedonia	68	49

Note: Unadjusted and adjusted projections differ in terms of the latter being adjusted for slower pace of technology adoption; the former estimates do not account for such adjustment.

Source: a) World Bank (2016), Figure 2.24, chapter 2, p. 129, and b) http://www.businessinsider.com/countries-where-robots-will-take-jobs-2016-3?IR=T&r=US&IR=T/#15-macedonia-1.

The expected impact of automation on the labour market makes it evident that for an economy like India, it will affect not only low-skill, manual, blue-collar jobs, but also many of those that require more sophisticated skills. While on the one hand this vindicates the onset of premature deindustrialization, on the other, it creates new supply-side challenges, especially for skilling new entrants to the workforce, along with those displaced. Progressive irrelevance of several skills and shrinking ‘employability’ augments the challenge of managing job prospects for Indian policymakers, given an economy rapidly adding large numbers of young people to its workforce.

Looking Ahead

Over the next couple of decades, India is widely expected to become one of the world’s largest economies and at the core of a new global economic order dominated by large emerging markets that include itself along with China, Brazil and Russia. These optimistic expectations about India’s economic prowess might not be accompanied by sustained improvement of the living standards of its people unless it can address the looming deficit of jobs. Unlike in the past, idle labour can no longer be absorbed, except for short cyclical bursts, through expansionary development programmes for building infrastructure and enhancing supply of public goods. Sooner or later, these programmes and projects would also be forced to reorganize into more automated managements entailing lesser employment and fewer jobs.

India is not the only country affected by adverse employment prospects. But it is in a league of its own with respect to the complex implications of the jobs deficit given the fragility it nurses in its society and polity. Already, one can hear rumbles among the political class arguing for reservations in jobs in the private sector for addressing the deficit. Apart from fetching short-term political gains, such steps would only accentuate socioeconomic divisions further. India can barely afford such catastrophes if it is to emerge as a leading economic power. All stakeholders need to engage constructively in a productive discourse to see what could be the best options for creating more livelihoods in India.