What to do about 122 mn unemployed?

Penguin India and Samruddha Bharat Foundation’s book, Reviving Jobs: An Agenda for Growth, makes three types of recommendations on what should be done to create jobs: macro-level; meso-level; and social groups and sectors that specific attention from a job-creation perspective.

Santosh Mehrotra | May 23, 2020

What to do about 122 mn unemployed


Unemployment in India was already at a 45 year high in 2018; it has tripled since then to 122 million unemployed in April 2020, post pandemic, which is a catastrophe for India, and for its young in particular.

Reviving Jobs: An Agenda for Growth, makes three types of recommendations on what should be done to create jobs: macro-level; meso-level; and social groups (who are particularly impacted) and sectors that specific attention from a job-creation perspective. We briefly discuss each type of action in turn.


A Manufacturing Strategy is needed
The country needs an industrial strategy: there has been none since 1991. ‘Make in India’ is not a manufacturing strategy. Manufacturing share of both output and employment has not improved since economic reforms in 1991. There are five components of a manufacturing strategy that will generate new jobs:
(a) an explicit horizontal (or cross sectoral) manufacturing strategy (rather than a vertical or sectoral one that the present government seems to be following implicitly) which is aligned to trade policy rather than at cross-purposes with it (as has been the case since 1991);
(b) policy packages for the five labour-intensive manufacturing sectors (garments, textiles, leather, wood and furniture, food processing) that generate most jobs in manufacturing;
(c) cluster development programmes covering India’s 5500 clusters across the country;
(d) urban infrastructure development focused on mid-sized towns, especially those where manufacturing clusters are located;
(e) skill development programmes that are focused on clusters where jobs are located. For all this to happen, the industrial policy should be supplemented with an explicit employment policy so that the employment implications of the industrial strategy are kept in mind.

Taking stock of 29 million unemployed persons in 2018, a total of 71 million persons will need work between 2019 and 2024. In other words, Mahajan et al. estimate that India needs seven crore new jobs in the next five years. However, as unemployment has shot up post Covid, this number will rise by nearly 50%.

Some sectors create much more employment with a given level of investment than others. Hence, they argue that the sectors of employment opportunity are: regeneration of degraded natural resources like land, water and forests; construction, particularly lower-income housing and lower-end infrastructure; manufacturing in micro and small enterprises in clusters and small towns; services, which are labour-intensive. Mehrotra, in Chapter 1, had identified the same sub-sectors; Mahajan et al. go further and present estimates of how many jobs can be created in each of these sectors, and how.

Sectoral Industrial policies are needed
India became a success story in the IT sector and the pharmaceutical sector over the last 20 years, thanks specific government sectoral policies. India needs similar sector-specific industrial policies for job creation. In addition to smart sectoral policies, the book also identifies other policies that are cross-sectoral needed:
(a) depreciating the exchange rate;
(b) reform in labour laws; and
(c) infrastructure to meet industry needs.

Labour Law – Changes to the Four Labour Codes Required
Alterations are suggested in each code. A hasty merger of 35 Central labour legislation would not result in employment generation. Labour law should be market-oriented and market-friendly to allow ease of doing business in India. It makes suggestions at a granular level for all four codes (one on Minimum Wages has already been passed by Parliament in December 2019). The other 3 codes (Occupational Health and Safety, Industrial Relations and Social Security) are still with the Standing Committee on Labour of Parliament. They all need revision.


Practical support for SMEs and Informal Sector
For the informal sector, there are three eminently doable reforms that could unburden self-employed persons and their establishments in urban areas immensely.
Firstly, dual use (i.e. commercial and residential use) of residential areas should be allowed to facilitate self-employed people to work from home for most activities (except perhaps a small negative list).
Secondly, the electricity tariff should be uniform irrespective of its use, at least in residential areas (rather than being differentiated by whether a neighbourhood is residential or commercial).
Thirdly, house tax for residential properties should not be charged at the rate of commercial properties merely because it is being used by a self-employed person to carry out legal economic activity.

1 ‘Feedback & Grievance Redressal Mechanism’ meshed with relevant department & associations at Districts, State and National Capital to function in an Ombudsman like manner. Periodic analysis of complaints to enable grounded policy interventions and develop agenda for reforms for continuous improvement in Ease of Doing Business. To ensure accountability, an IT based framework needs to be designed with similar urgency and deployment of resources as was pursued for creating AADHAR to set up “dedicated desks” in every Government. Using Big Data / Digital Analytics the process will generate indicators for the next generation systemic reforms leading to continuous improvements in EODB.

2 Further, the entire licensing regime needs to be reviewed and a comprehensive study conducted to effect reforms such as making all licenses valid pan-India (like Driving Licence). Especially after introduction of Aadhar, GST and PAN, state wise registration should be abolished forthwith and all such licences should be valid pan-India.

3 With central assistance withdrawn, most District Industrial Centres lie in shambles today. The DICs need to be revitalized and reimagined building upon the global best practices of Small Business Administration (USA), SME Corp (Malaysia), Small & medium Business Corporation (SBC) (South Korea) among others. As the DICs sit on prime land in most cities, PPP/ consortiums could develop the land into creating public infrastructure like conventions centers, trade fair complexes and office space for start-ups to self-sustain themselves and carry out the mandated duties of DICs including data gathering, secretariat for local grievance redressal and feedback portal, advisory services and small ticket financing under self-employment schemes.

Promoting Mass entrepreneurship
India will be unable to generate sufficient quality wage/salaried jobs for the more than 5 million joining the labour force each year; facilitating mass entrepreneurship is essential. China may be an economy dominated by government-run enterprises and tech firms like Tencent and Alibaba, but their true success is their ability to harness the power of Mass Entrepreneurship. More than 13 million enterprises were set up in China between 2014 and 2017, 95 per cent of which are in the private sector. In 2018, they have scaled greater heights, with over 18,000 businesses being set up every single day. The paper presents a model whereby mass entrepreneurship can be replicated. The three sectors are construction, hospitality and food processing.

Construction accounts for 11 per cent of India’s GDP, and this proportion is growing rapidly. The industry is highly fragmented, with the largest companies accounting for only 20 per cent of the total market and half the firms being in the unorganized sector. This means there are lots of small firms. Moreover, a large number of youth are trained in construction programmes, which shows a lot of interest in them.

Hospitality is a sector with a lot of opportunities. Hotels and restaurants employed 7.8 million people in 2011–12 and 8.7 million people in 2017–18 (according to NSSO). It is highly fragmented as well, with the largest firms accounting for only 22 per cent of the industry. Crucially, demand outstrips supply in this industry by a factor of two. India needs 1.4 million hotel beds a night, but it has only 0.24 million. International tourist arrivals alone are expected to increase to 30.5 million by 2028. This vast and unmet demand in the hospitality industry presents a sustainable opportunity for mass entrepreneurs. BUT FOR THIS TO BE REALIZED, focus now has to be BUDGET HOTELS, for which land must be released by state governments, after choosing international tourist destinations.

The last sector is food processing, which is expected to grow at 11 per cent, and employs 6.4 million people (in 2011–12). The average number of workers per establishment is 4.2. This sector is conducive to high growth. Domestic and international demand is set to rise much faster than the rest of the economy, and processed foods are fast becoming an important part of an Indian household’s expenditure, currently comprising 31 per cent of the total.

Hence, India must focus on these mass entrepreneurs or micro, small and medium enterprises (MSMEs) to provide jobs to the population.

Rural Industrialization
The district industry centres were earlier set up to provide services and support facilities to entrepreneurs for setting up MSMEs, including identification of suitable schemes, preparation of feasibility reports, arrangements for credit facilities, etc. Today their activities do not go beyond registration and some regulation. The National Productivity Council (with centres in most states), the National Research and Development Corporation and the Small Industry Service Institutes too provide little real support. Moreover, there are presently no product development or R&D facilities for the kind of activities that the rural non-farm sector undertakes or could undertake. Support to rural industrialization will require the revival of these institutions on a demand-led basis. The demand would have to come from industry associations.

New business service centres, armed with technical and business information, can be junctions for the transfer of technology. This is a new concept for rural Indian conditions, and the modus operandi is devised according to the extant local conditions.

There is a lot to learn from other countries as well. Rural enterprises in Vietnam, Cambodia and Thailand employ well over a few thousand workers rather than the low-productivity small household production enterprises so common in India.

Artisanal cluster support
1. Support must be provided to create 4000 joint enterprises of nano artisanal enterprises for market promotion (and not necessarily for the creation of common facility centres) across the country. While the categorization should come through an amendment in the MSMED Act, the creation of such joint enterprises may be promoted by the Ministry of MSME, Ministry of Textiles and Ministry of Rural Development.
2. Create degree and diploma courses in design by schools/colleges/universities situated near clusters for cluster-based products. This issue needs to be addressed by Ministry of Human Resource Development.
3. Several schemes of creating common facility centres (CFCs) are in operation. The current model is one cluster, one CFC. However, cluster firms are mostly spread out across geographies which are often not close enough for easy access to artisans. Hence, the schemes should allow the creation of one special purpose vehicle (SPV—a joint enterprise) and many CFCs under the ownership of the SPV in a cluster.

Priority Groups and Sectors

1. Skills development actions are needed for young girls who have all gotten much better educated in the last decade
2. For older women who are losing work in agriculture, who are more poorly educated, an expansion of self help groups, based on the success of Kerala and Andhra Pradesh, needs to expand.

Banks have been mandated by the RBI to review Priority Sector Lending (PSL, through which agriculture and MSMEs are prioritised in bank lending) at the board level on a half-yearly basis, which captures the consolidated amount of lending to weaker sections. However, it does not capture data at the granular level for lending done to Dalits. Hence, we do not have any reliable data to know the extent of credit access for Dalits. The PSL policy doesn’t specify any measures for the means and mechanism of credit flow to weaker sections.

The essay highlights four major issues in extending PSL for weaker sections, especially in commerce and industry: annual monitoring on the last Friday of March; last-mile connectivity; biases in lending; and standard procedures for assessing project capability.

Renewable Energy sector job creation
The jobs potential in solar, wind and other renewable energy sectors are segmented across the sectoral value chains, between jobs in utility-scale projects and in the distributed renewable energy sector, as well as along gender dimensions. There are challenges in building this workforce. We spell out practical solutions: commitment to energy transition in terms of a clear pipeline of projects; promoting distributed renewables; creating more local entrepreneurs and new business models, especially in rural areas; designing skills programmes that ensure more flexibility and transferability of skills; and investing in mobile training centres and use of IT to train the workforce in remote areas.

Urban employment guarantee
We propose promoting sustainable urban employment thorough a passage of a National Urban Employment Guarantee Act, like MGNREGA. It also proposes the creation of a Ministry of Employment which will be responsible for all matters related to employment generation, including the administration of MGNREGA. We could consider using government institutions’ land to build housing for renting to migrant labour.

Prof. Santosh Mehrotra is Chairperson of the Centre for Labour, Jawaharlal Nehru University, and Editor of Reviving Jobs: An Agenda for Growth.