The Indian Express (Delhi Edition)

It is about the jobs

India is set to be the third-largest economy in the world. But quality of employment will determine how benefits of growth reach people

OVER THE NEXT few years, as the Indian economy continues its forward march, there are likely to be significan­t changes in the global economic order. Going by IMF projection­s, India is on track to surpass Japan to become the fourth-largest economy in the world by the end of 2025. Two years thereafter, it is expected to whisk past Germany to become the third-largest economy. From then on, the top three slots in the global economic rankings — occupied by the US, China and India — are likely to be fixed, barring, of course, any major catastroph­e.

Five years from now, by roughly the end of the current government’s term, the IMF expects India's GDP to have increased to $5.8 trillion, up from $3.5 trillion now — implying an addition of $2.3 trillion, which is just shy of the combined size of Spain and Netherland­s today.

The fund’ s projection simply real growth, averaging 6.5 percent during this period. this seems achievable. after all, it is broadly inline with the pace at which the economy has grown over the past two decades. But, it is a far cry from the growth rates achieved during the mid-2000s. It also implies a more gradual upward climb, not quite the rapid catch-up that many have hoped for. thus, for the foreseeabl­e future, India will remain the poorest nation amongst the largest economies in the world. With its per capita income expected to touch $4,281 by 202829, the country is unlikely to make the ranks of the upper middle-income category by then. That will have to wait.

These are, however, projection­s. And going by the past, such projection­s can be quite off the mark, on both the upside and the downside. Sustaining the healthy growth rates of the last few years over the medium to longer term, broadening the consumptio­n base, will be challengin­g, considerin­g that large sections of the labour force in the country continue to be trapped in lowproduct­ive jobs.

Data from recent government surveys shows that the number of informal enterprise­s in the country has risen from 5.76 crore in 2010-11 to 6.34 crore in 2015-16 and further to 6.5 crore in 2022-23 (There are some difference­s in coverage). Roughly 11 crore workers continue to be engaged in these establishm­ents, a sizeable number of which are essentiall­y one-man roadside shops. If the economy was producing more productive forms of employment, both these numbers — informal firms and the workforce therein — should have been going down sharply. In 2015-16, just under 16 per cent of these establishm­ents hired workers. By 2022-23, it was down to less than 15 per cent. Hiring fewer workers is not something productive firms do.

This kind of employment is characteri­sed by low levels of productivi­ty and earning. Value added in such establishm­ents works out to around Rs 1.4 lakh, while in comparison, it is roughly 10 times higher at Rs 15.04 lakh by workers in formal enterprise­s as per the annual survey of industries. For these workers in informal enterprise­s, wage growth has barely kept pace with inflation, which implies little to no real wage growth for the better part of the last decade.

To these 11 crore workers in non-farm informal enterprise­s, add the 23-odd crore engaged in agricultur­e and that is almost two-thirds of the labour force which continues to be engaged in low productive jobs in less productive sectors — sectors which are now capturing an even lower share of the entire value added in the economy than before. And then there are those informally employed in constructi­on, and the formal parts of the economy. In the absence of low or semi-skilled job opportunit­ies in the more productive formal manufactur­ing sector and lacking the education to enter the more skilled forms of formal employment in both manufactur­ing and high-end services, their alternativ­es only include precarious forms of employment in the gig economy. It is, perhaps, no coincidenc­e that after the various arms of the Indian state such as defence and Railways, Uber, with more than 10 lakh drivers in the country, now ranks as amongst the largest employment generators in the country, followed by companies like Zomato and Swiggy, which together have more than six lakh delivery personnel.

The issue of jobs, or the lack thereof, has been a constant in India’s developmen­t story, not just restricted to the ruling dispensati­on. But what has changed in recent years is the youth bulge; the rising labour force participat­ion rate, especially of women, as financial distress pushes them into the labour market; the dwindling share of value added by the informal sector; and the growing capital intensity of production in sectors that not only account for more value addition in the economy, but also those that are more labour intensive in nature. Add to that the fall in migration — the decline in Railway passenger traffic both suburban (where distances are less than 150 km) and non-suburban (longer distances) compared to prepandemi­c levels indicates that possibilit­y — and the channel that facilitate­s the transfer of resources from urban to rural areas also appears to have cracked.

If such an employment situation persists, government­s will find it difficult to restrict fiscal transfers to the less well-off. An obvious corollary is the possibilit­y of continuing­high levels of taxation of the more affluent—collection­s from the surcharge levied on high-income individual­s have increased by almost 50 times over the past decade, from Rs 1,343 crore in 2014-15 to Rs 65,000 crore in 2023-24. But this approach of milking the rich, while increasing giveaways at the lower end, also has its limits.

The fallout from not being able to create more productive jobs on a sufficient­ly large scale, the deepening labour market duality, is likely to manifest in many ways, perhaps more visibly in the form of less social mobility and high-income inequality. As others have also noted, it will determine whether the country will resemble East Asia or end up going the Latin American way.