Revisit economic policy to boost growth
THE Indian economy has experienced fast changes in the post-reforms period. The size of the economy has increased manifold. This has been accompanied by changes in the sectoral share in the gross domestic product (GDP) or income and the share of various sectors in employment of the workforce. There has been an increase in the share of the secondary and services sectors, while the agriculture sector has suffered a loss both in terms of the share in income and employment. This has resulted in economic stress on the workforce and households engaged in agriculture and allied activities.
The gross national product/GDP of India has grown 13 times in terms of the purchasing power parity of the rupee to the dollar between 1991 and 2023. In terms of the prevailing exchange rate, it rose nearly 14-fold during this period. The per capita income surged from $304 in 1991, when policy changes were introduced, to $2,484.8 in 2023.
According to the National Sample Survey Office, agriculture and allied activities employed 63.84 per cent of the total workforce in 1993-94 compared to the 25.01 per cent engaged in manufacturing, including construction. The share of services in employment was 21.16 per cent. This has changed over time. According to the Periodic Labour Force Survey 2021-22, the share of agriculture and allied activities in employment has dipped to 45.4 per cent, a decline of 18.44 percentage points. The share of the manufacturing sector has increased to 29.6 per cent. This gain is mainly contributed by construction activities, which now account for 15 per cent of the total employment in the country.
The share of the industry, both in employment and income, is not picking up as fast as required. The share of services in employment has increased to 31 per cent. This is further reflected in changes in the share of the GDP. The share of agriculture and allied activities in the income declined from 30.01 to 18.4 per cent between 1993-94 and 2021-22. This shows that now, more than 45 per cent of the population has just 18.4 per cent of the income, while 29.6 per cent of the workforce in manufacturing gets 28.3 per cent of the income and 31 per cent of the workforce in the services sector corners 53.3 per cent of the GDP.
It is obvious that the people engaged in agriculture are earning a very low income. This is reflected in the form of indebtedness and poverty leading to a high rate of suicide by farmers and agricultural labourers. There is an urge among the youth — largely children of farmers and agricultural labourers — to look for employment in manufacturing and services. When the rural youth turn to non-agricultural activities or employment, they get low wages and poor-quality jobs in the unorganised sector. Employment in the organised sector is skill-intensive, but it is expanding at a very slow pace. The India Employment Report 2024 by the International Labour Organisation and New Delhi-based Institute for Human Development brings out that unemployment among educated youths is nearly 21.84 per cent in the country. The figure is much higher among educated young women.
The increasing use of automation and precision technology in industry and construction work and artificial intelligence in services is not allowing the creation of jobs in proportion to the investment in these dynamic sectors. The economic transition in India is happening under conditions different from those in advanced countries. When these countries made the transition from agrarian to industrial and then to service economies, there was a massive rise in employment in non-agricultural sectors.
India had entered jobless growth in 2003-04, and now we are facing job-loss growth. This means that while income and investment are growing, jobs are shrinking. It is very difficult to provide gainful and better-quality jobs to the workforce released from agriculture because of the fast process of mechanisation and modernisation. This is the reason that the country is unable to reap the demographic dividend of its young population.
This is accompanied by the fast-growing concentration of income and wealth in a few hands. There are many reports by independent agencies supported by official data that bring out that less than 1 per cent of the population annually receives more than 40 per cent of the GDP. This small section of the population has come to acquire more than 40.9 per cent of the wealth of this country, while the bottom 50 per cent of the population has only 5.9 per cent. Along with inequality in the distribution of income, regional inequality in the development process is getting sharpened. All this has created structural difficulties, which demand the immediate attention of policymakers. These difficulties are not recognised; hence, the policy response is missing.
The policy regime in India continues to draw heavily from the Western experience of economic transition. This line of thinking has powerful support from Bretton Woods institutions like the World Bank and the International Monetary Fund. It intends to achieve this transition through liberalisation, privatisation and globalisation. This resulted in the abandonment of the employment policy when the country launched economic reforms in 1991. The youth are being left to suffer unemployment on a massive scale and face humiliation. The policy regime has moved swiftly to make the employment quality poor. This is reflected in the labour codes that not only allow employers to hire and fire but also allow working hours beyond eight hours without pay for overtime.
Most of the jobs are on a contractual or temporary basis, without retirement benefits. This has led to the flourishing of the gig economy, devoid of any social protection. The whole policy response is to promote corporates without enforcing the norms of a decent livelihood for the workforce. The policy regime is not rooted in the ground reality — this can be called a policy distortion. Our policy regime must have a strong component of inclusiveness. Policy distortion has created unrest among the youth. This is a situation of a ‘million mutinies’, to use a term coined by Nobel laureate VS Naipaul. The presence of latent and open discontent has the potential to derail the development process and tear our social fabric apart. This doesn’t fit into the rising aspirations of the country to come out of the middle-income trap and join the ranks of developed countries. It is the right time for the government to have a relook at its economic policy and do course correction.
