Is India creating jobs?

The controversy over how many formal sector jobs does India crate in a year will never die down or will never be allowed to die down because it is a useful political football. It is up to the rest of us to sift the facts from polemics.

In October 2017, Mahesh Nandurkar of CLSA wrote a good piece on corroborating the jobs number by analysing the job creation by the 900 Indian companies that CLSA tracks. The numbers were healthy and lent credence – at least partially – to official claims.

In April, the Employee Provident Funds Organisation began releasing monthly data on EPFO joiners and leavers, etc. In May 2018, Mahesh wrote this piece in ‘Business Standard’. He writes:

If one reasonably extrapolates the latest available i.e. 2012 NSSO data, India’s total working population would be 500 million; of which 220 million is farm sector and 280 million is non-farm. Of the non-farm population, 70 million is formal and the rest is informal. Assuming similar proportions, of the 10-11 million new jobs needed per year, the number of formal jobs needed would be about 2-3 million/year.

Interestingly, he lists the job-creation incentives that various State governments have provided. Actually, that is sensible. A.K. Bhattacharya had, recently, listed state governments’ reform measures on land and labour.

Recently, several Indian state governments, such as Jharkhand, Gujarat, Andhra Pradesh, Karnataka and Madhya Pradesh have announced significant employment-linked incentives for garment manufacturers, considering labour intensity associated with the segment. These states offer employee cost assistance, covering up to 75 per cent of labour costs for a garment unit for as long as seven years. Jharkhand government, for example, has introduced a policy to give wage compensation of Rs 7,000/month (vs minimum wage of about Rs 8,500/month) for a period of seven years for every new person employed by a garment firm. Besides, there is a one-time support of Rs 13,000/ person as cost of training an employee that is granted. Similarly, the Gujarat government has introduced a policy for garment firms whereby the state government would provide up to 50 per cent of wages for a period of five years as payroll assistance.

He says that these schemes would have had the effect of formalising informal jobs and, in that sense, they are not new jobs. Pulak Ghosh and Soumya Kanti-Ghosh had addressed this partially by omitting all new EPFO joiners above the age of 26, in their study. May be, that is not enough and that divining job creation from EPFO records might still overstate true job creation. So, Mahesh says that one has to wait for at least two more years before EPFO data become a reasonably stable and reliable source for new job creation.

We must remember that Ghosh and Ghosh have also excluded EPFO joiners based on amnesty schemes and have excluded all those who had a single break in contribution in the data. Yet, as Mahesh says, State governments’ special job creation incentives might be one-off or non-continuous sources of job creation. To that extent, EPFO data might overstate true job creation.

That said, he says he would end with his favourite anecdote. It is an important one:

Currently in India, about 22 million new cars and two wheelers are sold every year. About 40 per cent of these sales are replacement demand. After removing the replacement demand, about 13 million first time car/two wheeler buyers are entering the market. If employment creation is such a big issue, where are these 13 million people coming from?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.