Problems and Solutions of Unemployment National Employment Policy

National Employment Policy

 

Contents

PART 1. Introduction   Employment Policy, What and Why?   Why does India need an employment policy?   PART 2. Situational Analysis Review of India’s labour market Labour Market and Employment Conditions in India   Population profile and Dynamics   Demographic Dividend   Employment and Unemployment situation   General employment unemployment situation   Labour force participation rates   Sector wise employability   Nature of employment   Youth Unemployment   Education and skill   Male/Female Unemployment   Sector wise Employment and Labour Market Trends:   Critical Issues and challenges   The Agricultural Sector   The Manufacturing Sector   The Service Sector PART 3. The 10 M’s : Strategies to Solve Employment   Mini Agri Technology   Minimum Monetary Support and Access to Land   Mindset and Skill Training   Mini Market   Multinational Supply Chain  Medium and Large Industries   Minimum Economic and Job support   Minimum Wage Revision for Respectful Life   Minimum Support Price   Modern and Traditional Services

Part 1 : Introduction

 

India has been one of the successful economies which has achieved an impressive growth (In terms of GDP) since the economic reform period. However, one of the biggest and vitally important challenges which India faces is the continuous rise in unemployment. With the unemployment rate touching double digits, it is believed that the economic growth has not translated into creating sufficient job opportunities for people in India. India’s exceptionally high GDP growth was seen as a boon to the economy expected to translate into creation of better jobs.

The current situation is compounded by slow growth in the number of employment generated within the formal sector and significant rise in the number of labour force participation in the informal sector of the economy. As per the official estimates around 92% of the labour force is part of the informal sector creating a precarious job condition for the workers.

Economic policies generally consider employment generation as a subsidiary goal, with the main focus towards income generation, economic growth etc. In order to keep job creation and employing the citizens of the nation in the centre space, there is a requirement for a distinct policy directed towards the problem of unemployment. Though the fiscal and monetary policies do consider employment as a long term goal, a National employment policy is more focussed and would help the concerned authorities to work on distinct goals related to employment.

A national employment policy is a vision document which addresses both the demand and supply aspects of a country’s employment goals. The policy document works towards increasing the demand for the labour in the economy along with operating on the supply side (ILO, 2015).

Demand-side measures aim at creation of jobs through macroeconomic policies, sector specific policies, monetary and fiscal policies which work towards improving economic growth which could increase the labour demand within the economy. Supply side measures on the other hand aim at improving the labour supply through working towards skills, vocational training, education etc. Such policies are directed towards improving the quality of the labour force reducing the mismatch between demand and supply of labour. Thus, it is believed that the National employment policies (NEPs) should incorporate both the demand and supply side elements which would work towards job quality job creation (ILO, 2009; ILO, 2012; ILO, 2014).

 

PART 2 : Situational Analysis

Review of India’s labour market

Population Profile and Dynamics

India is a huge nation especially in terms of its population. Currently, the Indian population amounts to around 1.34 billion. Population growth in India is around 1.2% , with the growth at this rate, it is expected that India would be the highest populous nation by 2030, with a population of 1.53 billion. Around 50% of the total population in India is below the age of 25 and around 15% of the population is above 55 years of age ( Bloom, 2011;UNDESA, 2017; Chandramouli, 2011).

 

Demographic Dividend

One aspect of the Indian population that has been widely discussed in recent years, is its potential demographic dividend.

Demographic dividend is that stage in the demographic development of a country, where the growth in the working-age population is greater than the growth in the total population. According to United Nations Population Fund, “The demographic dividend is the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older).” As a result, in the coming years, the number of dependents in India will be fewer and the largest section of the population would be in the working age group. This is an opportunity for India to generate more incomes, more savings, more capital per worker, and more growth. India is going through this stage right now. As a consequence, the dependency ratio is and will decrease in the coming few years, with an increased portion of the working age population looking for jobs. The following figure illustrates how it will decrease till about 2040, after which it will rise again. This is India’s biggest opportunity to achieve high growth and prosperity. However, the benefits of this demographic dividend will be realised only if India is able to provide this additional labour force with gainful  jobs. It is only if everyone in the working population gets gainful jobs, that more incomes and prosperity will be created (UNDESA, 2017; Regy, 2019; Bloom, 2011; Singh, 2016) ( Figure 1).

 

Figure : 1.  India’s falling dependency ratio and The demographic dividend

 Source: The World Bank; Bhagat&Unisa 2006

 General employment unemployment situation in India

India’s unemployment rate stood at 7.11% in 2020 compared to 5.27% in 2019. The rate of unemployment is high when compared to the Global average unemployment rate of 6.47% in 2020, up from 5.37% in 2019. The unemployment rate simply conveys us the number of people who are willing to work and are actively looking for a job, expressed as a percentage of the labour force. The Labour force on the other hand is defined as everyone above the age of 15 and are either employed or are actively looking for a job (CEDA, 2020). As per the World bank (2020) the total labour force in India in the year 2020 is around 471,689,092. Thus, a substantial  part of the labour force is unemployed.

 

Labour Force Participation Rate

The labour force participation rate (ratio of the labour force to the population above 15 years of age) in India is 42.7% for the year 2019-20 against 49.80% in 2017-18 (MOSPI, 2020). Falling labour force participation rates combined with high unemployment is a cause of concern for a developing economy like India. Especially, India’s workforce has been contending with a worrying retreat of women’s participation. According to the World Bank (2020), the female labour force participation rate (FLFPR) in the country has fallen from 30.27% in 1990 to 20.8% in 2019.

The falling LFPR amongst women has been explained through the rising educational enrolment of young women; lack of employment opportunities; effect of household income on participation ( Institute for Human Development, 2014).

 

Sector wise employability

In 2020, 41.49 percent of the workforce in India were employed in agriculture, while 26.18 in Industry and 32.33 in the service sector. Despite its declining contribution to total employment, the Agriculture sector still remains the largest employer. While most of the Indian workforce is still employed in the agricultural sector, it is the services sector that generates most of the country’s GDP.

In fact, when looking at GDP distribution across economic sectors, agriculture lags behind with a mere 15 percent contribution. Some of the leading services industries are telecommunications, software, textiles, and chemicals, and production only seems to increase – currently, the GDP in India is growing, as is employment (MOSPI,2020).

 

Nature of employment

According to the Periodic Labour Force Survey (PLFS) conducted in 2017-18, workers engaged in casual work (individuals who work on someone else’s farm or non farm enterprise and receive a wage in return according to the daily or periodic work contract, MOSPI) form around 24.16% of the total workers. The self-employed people (involved in running their own farm or non-farm enterprises) constituted 52.04% of the total workers. Such a large proportion of self-employed implies that many people are being counted as employed simply because they are somehow trying to make ends meet. These self-employed people are generally uncovered under most social security programs and are the most affected in times of any crisis like the Covid-19 Pandemic. Only 23% of the total workers fall under the formal and informal regular wage or salary category, who are guaranteed a fixed salary on a monthly basis and are covered under social security measures of the state. These statistics show that around 75% of the total population are generally not covered under any social security programs of the  state and face serious problems due to low incomes and lack of job security.

 

Youth Unemployment in India

According to National Youth Policy of India youth is “ a person in the age group 15 to 35 years of age.” According to the 2011 Census, youth account for 20 per cent of the total population with44.2 percent of the total youth population living below the poverty line.

The work participation rate (WPR) among young people (15–24 years of age) is higher than the total WPR but it has been lower than the WPR of all adults and the senior . This pattern has been observed in the past two decades in both rural and urban areas and in both male and females. The WPR among young people during the past two decades has been declining from 55.5 per cent in 1983 to 46.0 per cent in 2004–2005. This decline in WPR was sharper among male youth- 11.4 percentage points in general and rural male youth – 12.4 percentage points in particular. The decline in the WPR of female youth was very minimal. The decline in WPR was higher among rural youth compared to their urban counterparts (Sinha, 201; Mahendrav& M. Venkatanarayana, 2011).

The reasons for the high youth unemployment has been linked to their lack of marketable education and skills. The unemployment rate for the youth labour force in India was as high as 8 per cent, in 2004–2005 and it shows an increasing trend. Unemployment rate was higher among the literates than that for the illiterates. In terms of the level of education, the unemployment rate was highest in young graduates at 35.5 per cent in 2004–2005. The unemployment rate seems to be declining from the lower to the higher level of education. Indian youth are unemployed, underemployed, are between jobs, or working unacceptably long hours under informal, intermittent and insecure work arrangements (Mahendrav& M. Venkatanarayana, 2011; Mitra&Verick, 2013)

The literacy rate of the youth population went up from 56.4 per cent in 1983 to 80.3 per cent in 2007– 2008; the percentage of young people attending educational institutions increased from 17.4 percent to 32.8 percent during the same period; and regarding employability, only 4.9 per cent of young workers had a postsecondary level of education in 2007–2008 (National Sample survey, 2011)

 

Education and skill

As per Population Census 2011, the literacy rate in India is 74.04%, with male literacy rate at 82.14% and female at 65.46%. Lower literacy combined with lack of employment opportunities for unskilled and semi skilled workers make things worse for both rural and urban citizens.

 

Rural and Urban unemployment in India

The rural unemployment rate in october 2020 stood at  6.9% and the urban unemployment rate stood at 7.15%. Unemployment in the Urban areas is generally higher than rural unemployment. This is because of the decrease in workforce in the agricultural sector and migration to urban areas for alternative sources of employment and incomes. This generally leads to increased supply of both skilled and unskilled labour in the Urban areas for limited jobs, causing unemployment. There are several central and state government policies to address rural unemployment, but there are no specific policies targeted to address the issue of urban unemployment. Increased labour supply, lack of government policies and insufficient creation of jobs are resulting in higher urban unemployment and decreasing real urban wage rates (CMIE, 2020).

 

Female and Male unemployment in India

Though the overall unemployment rate in India is close to 7%, the rate of unemployment among women is as high as 18%. Also, the labour force participation rate (LFPR) among women in the country, already one of the world’s lowest, continues to slide in recent times. Female literacy in India is an important factor that determines the rate of unemployment among women. Female literacy rate in India is around 65.46% against over 80% for men. There are several institutional and social factors that lead to such low literacy levels among women in India, including, lack of awareness, lack of equal educational opportunities, Early marriage, social sanctions, gender disparity at home itself etc.  Lower education levels among women restrict their exposure to unskilled or semi skilled jobs, where they are either underpaid or are left unpaid (Basole, 2019).

 

Sector wise Employment and Labour Market Trends: Critical Issues and Challenges

India shows a mismatch between the contribution of various sectors to GDP and corresponding contribution to employment. Unlike the historical experience of developed nations, where a decline in agriculture’s share of GDP was accompanied by a similar decline in the share of workforce dependent on agriculture, in India, agriculture’s share of GDP has nearly halved in the past two decades but its share of the workforce has fallen very slowly. Agriculture and allied activities contributed to 14.6% of GDP but employed 51.76% of the workforce in 2009-10. The share of the manufacturing sector in GDP has hardly increased in the last two decades; similarly its share in employment has increased only marginally. This means that the occupational shift witnessed in the development experiences of other countries did not happen here or India bypassed manufacturing in its growth experience. As far as services are concerned, although this sector is often considered the employer of last resort, employment has tended to lag behind its contribution to GDP. This shows that although almost the entire decline in share of agriculture in GDP has been made up by growth in services, jobs have however not risen correspondingly. Even today a bulk of the workforce depends on agriculture, especially in the rural areas. In the urban areas, although the services sector does employ the largest percentage of the workforce, most of the jobs are informal jobs with low wages and negligible labour protection. Employment data of the 66th round of NSS shows that only 2 million jobs were created between 2004 and 2009, even as the economy grew at 8.43% annually (Aggarwal, 2012; Mehrotra&Parida, 2019; Ghosh & Chandrasekhar 2007).

There are two categorisations into which any economy is divided. The first categorisation is Primary, Secondary and Tertiary sectors; while the other categorisation is Agriculture and Allied sectors, Industry sector and Service sector. Even though the two categorisations are used synonymously, the only major difference between these two categorisations is that, while Mining & Quarrying is considered part of the Industry sector, it is not considered part of the secondary sector. It is considered part of the Primary sector in first categorisation. Manufacturing sector is part of the Secondary sector or the Industry sector.

We will consider here in this paper, three sectors namely, The Agriculture sector, The Manufacturing sector and The Service sector (Figure 2).

Figure: 2. Sectoral contribution to GDP over the years in India.

Source: Basu & Das 2015

Source: Abraham 2017

 

The Agricultural Sector

Introduction

The Agriculture sector is one of the largest sectors that accommodates a substantial number of Indian population as agricultural workers, cultivators, Agricultural labour etc. India in recent years has tried to expand its production from agriculture to manufacturing and service sectors, and the contributions of the manufacturing and service sectors have also been rising ever since India has taken up economic reforms. This has led to a shift in the output from the agriculture sector to manufacturing and service sectors. However, the amount of people involved in agricultural activities has not fallen by the rate at which its contribution to the GDP did. This has led to a situation of disguised unemployment or structural underemployment in Indian agriculture, where more and more labour chase a lesser amount of output. This has several negative outcomes including lower incomes, marginalisation of land holdings, lack of productivity etc. The sector’s contribution to employment has reduced from 59.9% in 1999-2000 to 44.59% in 2017-18. However, It is still the largest contributor to employment in India. Furthermore, the agricultural sector’s contribution to national GDP has decreased from 34% in 1983-84 to 16% in 2018-19. The lack of public investment in this sector due to increased significance to service and industrial sectors has discouraged workers in agriculture and has forced them either to take up non-agricultural jobs in the Rural areas or in the Urban areas or to work as underpaid labour in the agriculture sector. Apart from a lack of state investment in rural development and access to institutional finance, regular droughts and floods have also contributed to the downward trend in employment in the agricultural sector. There has been a structural shift in the occupational choice of rural employees, particularly rural agricultural employees, during the previous three and a half decades, with shifts in their occupational choices extending from agriculture to non-agricultural activities. Compared to agricultural activities in the rural areas, non-agricultural employment rose from 19% to 42% from 1984 to 2018. This rise has also been accompanied by a fall in agricultural employment in rural areas. Insufficient public investment in agrarian development, insufficient access to institutional credit, improper irrigation facilities, the government’s poor agriculture-related marketing policies, half-baked land reform policy, and low return from agriculture, over dependence on cultivation of food crops, among others, are, the major internal factors that have so far been responsible for the low contribution of Agriculture sector towards Employment in India. Furthermore, external factors such as India’s excessive economic liberalization from 1991 and low agricultural import tariffs have played a significant impact in the rural agriculture sector’s declining employment share.Exogenous shocks such as frequent droughts, floods, and cyclones, in addition to external and internal variables, are to be blamed for the agriculture sector’s declining employment share. These natural disasters create extensive agricultural loss, which discourages rural workers from taking up farming and encourages them to find other non-farm activities within or outside the rural areas, increasing the pressure on these non-farm activities in rural and urban areas. Flood catastrophes continue to be a major threat to India’s agricultural sector. According to a research by the Central Water Commission, India lost roughly Rs. 2,785 crores each year on average due to agricultural loss caused by floods between 1980 and 2017. Floods have a negative impact on agricultural employment, as well as poverty, inequality, and farmer suffering ( Saha et.al, 2016; ILO 2016; Dwivedi, 2011; Arjun 2013; Mathur et. al, 2006).

According to chowdhury’s (2020) study titled ‘Natural Disasters and Rural Labor Markets: A Gender Analysis,’ which empirically indicates that flood damages reduce job prospects in the rural agricultural sector. The survey reveals that female workers face a greater decline in job opportunities than male workers

The Manufacturing Sector

Introduction

Manufacturing sector is one of the most important sectors influencing the growth rates of any economy. Economic history of the world shows that the manufacturing sector has in fact played a major role in the growth stories and development trajectories of many developed countries. Industrial manufacturing in India has grown to be one of the major growth sectors, even though India did not experience the same development trajectories of major developed countries wherein the economy moves from Agriculture to Industry and then to Service sector, but has moved directly from Agricultural economy to a Service dominated economy, owing to many reasons. Manufacturing sector includes a diverse range of industries, some of which are labour-intensive and others capital-intensive. Labour intensive manufacturing industries include those industries which use relatively more labour compared to capital such as Textiles and Apparels, Leather industry, Wood and Furniture industry, Tobacco and Food processing industries. Automobile manufacturing, metal and chemical industries, oil and petroleum industries are some examples of Capital intensive manufacturing industries, which use relatively more capital compared to labour.

While the total output value of the Manufacturing sector has increased from 53.27 billion dollars in 1990 to 394.53 billion dollars in 2019, the percentage share of the Manufacturing sector in total GDP has decreased from 16.60% in 1990 to 13.72% in 2019. The gross value added from the manufacturing sector grew at 9.5% over the past fifteen years, and has fallen to 5% due to the ongoing pandemic in 2020. Percentage share of GDP is a relative value. Even though the absolute total output value of the Manufacturing sector is increasing almost every year, its share of GDP has always been between 13% and 18%. It means relatively, the Service sector is growing at a faster pace than the Manufacturing sector and is occupying most of the share of the GDP. Service sector is relatively more valued and is also registering higher rates in terms of growth, investments, employment, productivity and terms of trade. India cannot leverage its labour intensive potential in attracting more investments, employment and growth in the Manufacturing sector ( Kalirajan&Bhide 2004; IBEF, 2020)( See Figure 3)

 

figure: 3. Growth of output vs share in GDP in Indian Manufacturing sector 1990-2015.

 

Source: World Bank 2020.

Employment in the Manufacturing Sector

During 1999-00, the manufacturing sector employed 11.9% of the total workforce of India. The manufacturing sector today exclusively contributes to around 15.13% of the total GDP of India, however, the Industrial sector comprising the Manufacturing sector, Mining and quarrying, Construction and Electricity, gas and water supply contribute to 27.5% of the total GDP. Manufacturing sector in India has huge prospects of being the engine for economic growth and employment generation if it can specialise in major sectors along manufacturing value chains. Manufacturing sector has the ability to absorb the unskilled labour force, unlike the service sector where the availability of employment is dependent upon an individual’s skill. Migration of agricultural labour into non-agricultural sectors puts additional pressure on the employability of the Indian manufacturing sector (Chakraborty and Chattopadhyay, Journal of Indian statistics, 2014) (figure 4).

Source: MOSPI, 2019

The rise in the share of employment in the industry came significantly from the rise in the share of employment in the Construction sector from 4.5% in 2000 to 11.67% in 2017-18. Construction sector is known for its huge employment generation capacity, yet most of the labour that is employed in the construction sector is casual or contractual labour, who neither enjoy any social security benefits of the state nor do they have any job security. As successive governments funded infrastructure projects, housing schemes and transportation like Roads etc., the Construction sector has witnessed a rapid growth in employment. Also, the Construction sector has become the first destination for those surplus labourers from agriculture who were previously employed in the rural areas, as it does not require high educational qualifications or technical skills. Even though India is a labour abundant economy, India cannot leverage its potential of providing employment to its rapidly increasing labour force mainly in the Manufacturing sector ( See figure 5)

 

Figure : 5, percentage share of Employment by Construction and Manufacturing

 Nature of Employment in Manufacturing sector – A Dual trend

Manufacturing sector is divided into two sub-parts namely Organised Manufacturing and Unorganised Manufacturing, based on the number of workers employed and whether or not electricity is used. Organised/Registered sector firms are those which are covered under Sections 2m (i) and 2m (ii) of the 1948 Factories Act i.e. those firms which use electricity and hire more than ten workers, and those which do not use electricity but employ twenty or more workers. All those firms which don’t fall under this category are considered as the Unorganised Manufacturing Sector. The unorganised sector is further divided into three sub categories, Own account enterprises, which are run without any hired worker employed on a fairly regular basis, Non Directory Establishments, that employ less than six workers, Directory establishments which employ 6 or more workers (household and hired workers taken together). Non- Directory and Directory establishments are together called Establishments.

One sector that deserves mention in the manufacturing sector is the micro, small and medium enterprises sector, which contributes hugely to manufacturing output and employment. Manufacturing units having investment up to Rs 1 crore and turnover of less than Rs 5 crores are called micro units, those with investment between 1 crore and 10 crores and a turnover less than 50 crores are called small enterprises and those enterprises with investments up to Rs 20 crores with a turnover less than Rs. 100 crores are called medium enterprises. MSME’s not only provide employment and add to the GDP but also contribute to the process of industrialisation in rural areas. They contribute to around 8% of India’s GDP, 45% of the total manufacturing output and 40% of the total exports of the country. The estimated number of MSME’s involved in manufacturing activity is 114.14 lakhs in 2019-20, providing employment to around 186.56 lakh individuals. The MSME’s have great potential to absorb the migrating labour from the agricultural sectors, since the technical skills, and educational qualifications that are required in MSME’s in rural areas is very low if not negligible. However, the MSME’s face several problems in operation such as lack of technical assistance, lack of financial support, inadequate infrastructure, heavy competition from national and international players, inadequate institutional credit sources, inadequate information etc.  (Baral,2013; Sathish and Rajamohan, 2019)

 

The data reveals that there are two trends in the Indian Manufacturing sector:

1) Increased employment in the organized sector

Employment in the organised sector is increasing. It has increased from 17.72% in 2000-01 to 27.82% in 2015-16. This is a positive growth, as the productivity of workers in organised workers will be way higher than those of the unorganised sector.

2) Contractualisation of Labour

The share of informal workers is increasing within the Organised sector. It means even though the employment in the Organised sector has seen an increasing trend, more casual workers are being employed through contracts who don’t enjoy any social security benefits.

figure : 6  Employment in Organised and Unorganised Manufacturing

figure 7:

Though the Organised sector only employed 17.72% of the total workforce, it contributed 74.44% of total Gross Value Added in the Manufacturing sector in 2000-01. By 2015-16, the Organised Manufacturing sector has seen a 10% increase in the percentage of workers employed to 27.81%, but its contribution to total manufacturing GVA has only registered a 6% increase to 80.41%. Unorganised sector employed 82.28% and 72.19% of manufacturing workers in 2000-01 and 2015-16 respectively, but contributed only 25.56% and 19.59% of total manufacturing GVA in 2000-01 and 2015-16 respectively.

This huge variation between employment and total GVA contributed by the Organised sector and unorganised sector is because of the differences in the productivity levels of Organised and Unorganised workers. In 2000-01, the GVA added per worker in the Organised sector was 2,26,462.9 while that of an unorganised worker was only 16,233. By 2015-16, GVA added per worker in the Organised sector has increased by 3.64 times to 8,25,730.2 while that of an unorganised worker has increased by 4.58 times to 74,379. Still GVA added per worker in the Organized sector is 11.16 times higher than an unorganised worker. (Chakraborty and Chattopadhyay, Journal of Indian statistics, 2014)

 

figure : 8.

Challenges in Indian Manufacturing Sector

In spite of an acceleration of growth in gross value added (GVA) of the manufacturing sector as a whole; it has faltered in creating productive jobs for its rapidly rising workforce. The growth of employment in the manufacturing sector stood at 4.5% per annum in 2014-15, against 9.5% growth rate in the Gross value added by the manufacturing sector. Manufacturing sector having a huge potential in creating jobs for unskilled labour migrating from agricultural activities, has faltered in doing so for certain reasons:

1) Capital intensive industries

India being a labour abundant economy with 501 million workers in the labour force has a comparative advantage in producing labour intensive commodities. For Indian industries to absorb the surplus labour in the economy it is necessary to use labour intensive techniques of production that would use more labour compared to capital. However, a look at the industries that have grown over the past fifteen years, will tell you that they are necessarily using more capital compared to labour i.e. the capital labour ratio in the industries is rising. The trend growth rate of capital labour ratio in Indian industries stood at 5.2% in 2000-2014. To one’s surprise, the capital labour ratio in the labour intensive industries such as textile and wearing apparels (7.7), leather and leather products (3.4) has also been rising. (IBEF)

figure : 9.

FIXED CAPITAL TO LABOUR RATIO IN TEXTILE AND WEARING APPAREL.
Time Period	Fixed Capital to worker ratio
2001-05	3.4
2006-10	5
2011-15	7.5
2016-18	7.7

 

 

FIXED CAPITAL TO LABOUR RATIO IN ORGANISED MANUFACTURING.
Time Period	Fixed Capital to worker ratio
2001-05	7.3
2006-10	10.9
2011-15	20.5
2016-18	26.5

 

 

FIXED CAPITAL TO LABOUR RATIO IN LEATHER AND LEATHER PRODUCTS RISES
Time Period	Fixed Capital to worker ratio
2001-05	1.7
2006-10	2.3
2011-15	2.9
2016-18	3.4

 

Source: Annual Survey of Industries

 

This rising usage of capital against labour is facilitated by several factors:

The first possible reason for such a phenomenon is productivity improvements that capital guarantees. Firms generally tend to have higher capital labour ratios over time in order to ensure improved productivity of the firm. Stringent laws regarding minimum wages to the labour, higher profits in capital intensive methods of production etc. have added to this factor (IBEF, 2020)

Secondly, the economic reforms in 1991 have enabled Indian manufacturers to import capital and intermediary goods at cheaper prices. A constant wage rate guaranteed by the Minimum wage scheme and other social security programs for labour in the organised manufacturing sector and falling rental price of capital has led to industries adopting capital intensive techniques of production(Goldar, 2009).

Thirdly, Initiatives of the Government of India such as the National manufacturing policy, Make in India etc. aim to make India a global leader in industries such as automobile, aviation, bio-technology, defence manufacturing, electronics, Information Technology, wellness etc. which use technically skilled labour that require educational qualifications above higher secondary. This raises the necessity of reskilling and upskilling of the existing labour force, and the migrated labour from agricultural sectors respectively, which is one of the significant challenges in India. (Green, 2014; Srivastava, 2019)

Fourth, Engineering exports, petroleum products, Gems and jewellery, pharmaceuticals, chemical products form most of the exports from the manufacturing sector (Figure 10). Most of these industries absorb less labour and are relatively more capital intensive compared to Food and food production industry, leather and leather products industry, textiles and garments etc. Generally firms tend to invest in those industries where there is a comparative advantage and hence several firms have shown interest in capital intensive industries which guarantee higher returns (Goldar, 2009).

Figure: 10  Export performance of select industries (US$million)

Source: www.ibef.org

2) Changing Employment structure

The Indian manufacturing sector has seen over the past 15 years a change in the employment structure. There is a sharp increase in the number of contract workers in the industries. The share of contractual workers in Indian industries has increased from 15.58% in 2000-01 to 27.51% in 2014-15 while the share of directly employed workers fell from 61.26% to 50.41% in the same period. The ratio of contractual workers to total workers stood at 0.36 in 2017-18. Contractual labour is “All persons who are not employed directly by an employer but through the third agency, i.e. contractor. These workers may be employed with or without the knowledge of the principal employer.” Improved returns to permanent workers facilitated by labour unions, minimum wage schemes, rise in the bargaining power etc. have forced manufacturing firms to go for contract labour who neither form unions nor demand minimum wage since they do not come under the purview of any such security measures of the government. Low paid informal workers also reduce the costs of the manufacturing firms, which may be invested in capital which is more productive. Contract workers also help in reducing the bargaining power of the regular workers and exert a downward pressure on their wages in the long run (IBEF, 2020)

3)    Access to Power

Manufacturing is an energy-intensive industry where electricity plays an important role in the process of its working. According to the World Bank, Electricity access is one of the most important obstacles to manufacturing industries. In terms of quality of power supply, India is ranked at 80th place out of the total 137 countries as per the 2017-18 World Economic Forum reports.

 

4)    Financial constraints

Access to finance in the forms of loans or credit is another big obstacle for firms in the manufacturing sector. Particularly, micro and small enterprises face severe problems as banks are more reluctant to offer loans to them. This is impacting the growth prospects of the manufacturing sector in India.

5)    Low level of Skills and Education

In India, the percentage of workers who are formally skilled is very low at only 4.69% of the total workforce, while 24% in China, 52% in US, 68% in UK, 75% in Germany, 80% in Japan and 96% in South Korea are skilled labour of the total labor force. Nearly 93% of the population in India did not receive any vocational or technical training, according to the Periodic Labour Force Survey (PLFS) 2017-18.

6)    Logistic costs

According to a joint report by Arthur D.Little India and CII, Supply chain and Logistics costs in India nearly accounts for 14 % of the country’s GDP, valued at 400$ billion, as compared to a global average of 8 percent. As per 2018 World Bank Logistics Index, India ranks 44 as compared to the USA at 14, China at 26. One of the main reasons for high logistic costs is due to over dependence on roadways and less on railways and seaways. Also poor infrastructure adds to the logistic costs.

7)    Low spending on R&D

Currently, India spends only around 0.7% of its GDP on Research and Development. This is very low when compared to China – 2.1%, US – 2.8%, South Korea – 4.2% , Israel – 4.3%. Spending on R&D is necessary for cutting-edge innovations in technology and production processes which will help in higher growth rates.

8)    Biased trade patterns

Even though India is a labour abundant country, Indian manufacturing is biased towards capital-intensive industry. This is in contrast to what Heckscher-Ohlin theory of trade suggests, which states that a labour-abundant economy will export labour-intensive goods. This is also resulting in more capital to be used in place of labour and so decreasing employment opportunities for labour

The Service Sector

Introduction

The service sector has been an important contributor to GDP growth both in the global and Indian economies over the last three decades. The economic reforms that started in the early 90’s in India, unleashed the potential of the services sector by utilising available skilled manpower due to state-supported higher education. India is one among only a few big economies that didn’t follow a linear growth model. India has jumped from a predominantly agricultural economy to a services-led growth economy without a strong manufacturing base. The share of the services sector in the contribution to GDP has overshadowed the manufacturing sector and has led to stagnation of growth in the Industrial sector. As a result, India’s growth story has been driven by services, which has a 55 per cent share in the GDP. This growth in the service sector in India has occurred due to several reasons such as : On the supply side, the share of services has been boosted by a transition to a more service input intensive method of organizing production called “splintering”. Splintering is the outsourcing of specialized work to specialist subcontractors that were previously done by the firms themselves. It is pointed out that splintering will lead to growth in the share of GDP by the service sector, even when GDP itself is not growing. The growth of several outsourcing companies has promoted splintering in India, leading to faster movement of affairs in the Service sector. On the Demand Side, an increase in the output share of services can arise from rapid growth in the final demand for services. This could be from domestic consumers with high income elasticity of demand or from foreign consumers with a growing demand for the country’s service exports. Service activity may have also been stimulated by technological advances. Such advances are likely to be particularly relevant in the case of the IT sector. Liberalization  is an important factor that has stimulated growth in the service sector. The policy reforms which were conducive to the growth of the services sector, such as deregulation, privatization and especially opening the economy to Foreign Direct Investment has attracted several multinational organisations to set up their units in India, to make use of the English speaking labour which are relatively cheap compared to those in foreign countries. This has indirectly boosted growth in the service sector ( Mukherjee 2013; Latha&Shanmugam 2014).

 

 

Employment trends and challenges

However, There are various problems in looking at services as the gateway to development in India. The service sector employs around 23% of the labor force. The sectoral shift of gdp in favour of services has not been matched by concomitant changes in employment patterns in India. Also the services sector in India is characterized by faster growth in high productive services and low employment generating services (Aggarwal 2012).

Growth in the service sector in recent times has been concentrated in communications, business services, financial services, etc. Growth in communications services, which  has a small contribution in the overall gross value added, has been a significant contributor to GDP growth in recent years. After liberalisation, business services including IT services and communication services have seen rapid growth with growth of the banking sector, hotels and restaurants, and community services falling behind them. The most visible and well-known dimension of the take-off in services in India has been in software and information technology enabled services including call centres, software design, and business process outsourcing (Gordon and Gupta 2004).  However, these sectors are seen as high valued and low employment generating sectors. Generally the rise in the share of employment generation in services rise faster than the rise in the share of output in services. In contrast, the rise in employment in the service sector in India over the years has remained flat in spite of improvements in the share of GDP. It is evident from this fact that productivity in the Indian service sector has been rising. Software services, telecommunication and banking are few of the most productive services, and they are also the key drivers of GDP growth of India’s service sector. These sectors however are also characterized with low employment and skill intensivity. Inorder to increase the employability of the service sector, policies must focus on promoting growth in sectors that use more personalised efforts of human labour and focus on educating and skilling the urban population in accordance with the requirements of the skill intensive services ( Pattanaik&Nayak 2011; Wu 2007).

 

 

 

Part 3:The 10 M’s : Strategies to Solve Employment

 

This report adopts a holistic approach towards employment generation. The focus has been on

understanding the issues within specific sectors in India and proposing strategies and

policy suggestions from around the world aimed at matching the demand for and supply of labour in India. The policy also aims at transformation of the structure of the economy towards less polluting and more resource-efficient economic activities.  A successful transition towards green growth can create new opportunities for workers, if the associated challenges are managed well. Jobs will be created in green sectors.The policy also aims at achieving environmental objectives in a cost-effective manner through well designed policy instruments which can avoid any unnecessary burdens on the economy, and potentially boost economic growth and generate employment.

 

The 10 M’s

The document has identified 10 crucial areas for employment generation in India. The 10 M’s include:

 

1. Mini Agritechnology

1.India is a major producer of several agricultural/food items in the world. However, only a small percentage of the total production is processed. “Agri and Food Processing” requires technologies, investment, infrastructure and skill which is one of the reasons why the majority of the food processing units are dominated by entrepreneurs and Agribusiness companies. With abundance of raw material and labour available in the rural areas, the government should tap the potential for these industries in the rural areas as well.

2. Mini technologies for “Agri and food Processing units” play an important role in the enhancement of farmers income along with creating jobs in rural areas. Awareness about Agri and food processing industries is absent in the rural areas and the farmers generally sell their raw produce at lower prices. Therefore, the government has to intervene to provide incentives for firms and rural entrepreneurs who are keen in developing alternative technologies that are labour intensive for Agri and food processing that suit the rural conditions.
3. In recent years India has seen a rise in the number of young entrepreneurs/ agripreneurs who are using innovative technologies and business models to make agriculture and allied activities efficient and lucrative. These startup ideas can be directed towards processing industries as per the local produce/raw material that is available in the rural areas to achieve better prices for the agricultural products.
4. Establishing Agro/Food processing industries in the rural areas would encourage farmers to take up cultivation of several commercial crops and activities such as dairy farming, Fruit and Vegetable cultivation, production of coarse cereals, etc. This would help in diversifying the opportunities of the farmers to earn higher profits. The entrepreneurs on the other hand are also benefited from lower transport and storage costs, higher economies of scale, availability of fresh produce for further processing etc.

5. The government needs to invest in Research and development in the rural mini technologies which will help in building the foundational blocks of Agriculture sector development in India. The government needs to provide financial and technical assistance for its further development.
6. There is a requirement to set up a separate body for the development of mini technology in the Agri and food processing industry which would include three important stakeholders, government agencies, research institutes and farmers associations. This body renders assistance to farmers and entrepreneurs regarding the production of raw materials, improving processing techniques and equipment and marketing of products based on the market conditions. Thus, the promotion and modernization of the rural-based food processing industry will help diversify Indian agriculture thus increasing the rural income, quality of product and employability.

 

 

2. Minimum Monetary support and Access to Land

 

Monetary support

1. Access to financial services such as loans and advances is of utmost importance to start any agricultural activity. In order to meet these needs, financial service providers (FSPs) have a crucial role to play and they need to be promoted. FSP’s include formal banking systems (commercial and development banks), semi formal banking systems (savings and credit cooperative organizations and informal banking systems not officially registered at national level (e.g. self-help groups).Thus, all the three kinds of FSP’s should be given more financial autonomy to provide loans and advances to the rural population to start agricultural activities.
2. Young people generally form a smaller proportion of overall formal FSP clientele compared with their overall population demographics.  Besides the lack of availability of loans to the young population, most FSPs ask for loan guarantees or collaterals, which the youth generally do not possess, which restricts their capabilities in several sectors. Prioritising youth with business ideas in the rural areas would provide sufficient credit facilities to start their own businesses in several sectors.
3. The government along with other stakeholders such as financial institutions can set up “Public-Private Investment Funds” to promote investment in agriculture and food processing Industries. Such collaborations can support people interested in starting Agri business. Funds could be availed by not just the individuals, but also various categories of cooperatives. Services offered could range from 1. offering loans with repayment flexibility, 2. purchasing land for lease requirements. etc.
4. Governments at centre and state levels must strengthen Regional Rural Banks” to provide loans and advances to women and youth in rural areas on a priority basis. Since, they often do not obtain credit from formal sources of credit and as a result fall in the clutches of landlords and middle men who levy huge rates of interest.
5. Though Public sector banks provide loans at low interest rates under several government schemes such as Pradhan Mantri MUDRA Yojana, Startup India scheme etc. There are concerns regarding the growing level of bad loans under schemes such as MUDRA (Micro Units Development and Refinance Agency) which was announced by the government in the year 2015. Under the scheme refinance support is provided to last mile financiers such as banks, MFIs and NBFCs which can offer loans upto 10 lakhs to small entrepreneurs. These programs have several shortcomings such growing bad loans, increasing level of frauds in public sector banks, high rate of growth of NPA’s etc. Hence the government needs to introduce a more focussed and targeted lending scheme such as separate “Entrepreneur LoanProjects” which can consider several factors before lending such as the purpose of the loan, the plan of the entrepreneur. The government also needs to introduce a monitoring authority to closely observe all the transactions of these banks to avoid any frauds by banks.
6. The central government should propose the states to create a “statewide database” of poor people in the rural areas which will help in the identification of the poor which could ease the process of extending loans at lower rates of interest on the condition that they take up some livelihood activity. Absence of database of the agriculture sector in India is one of the reasons for lack of effectiveness and monitoring in planning/ policy formulation.

 

Access to land

7. Access to land is another important factor that restricts the productive capacity of farmers, especially youth in agriculture. India being a country where most of the land is acquired through inheritance, programs that aim at encouraging older farmers to lease their land to young farmers and farmers’ organizations for a long term and short term basis which will ensure access to land for the young could be introduced. The government needs to provide such platforms which can maintain a farmland database that provides information on sale and purchase of farm lands and eases the sale and lease of these lands especially between the older farmers and the Youngsters. The database will be managed at local level by farmers organizations. Such programs can also be used to train the young farmers in marketing and management and help them in improving their farm equipment and facilities through loans with low interest rates. This enables the Youth to increase the farm size and reduce production costs.
8. Government could encourage short term land leases between private firms and landowners who either do not wish or do not have the capacity to cultivate on their land for a period of 12 months. These private firms  then work with the local authorities to educate landowners with regard to youth and their need for access to land. The contract between the firm and the landowners is only a lease contract and no transfer of land title is involved. Young Children from landowner’s families will be encouraged to form or join groups to make good use of their parents’ or relatives’ land. Once all the terms of the agreement regarding leasing, payment, mode of payment etc. are met, the firm communicates the availability of the land to the youth groups through notice boards in the community. Firm should lease agricultural machines to the youth groups for several agricultural activities. They can appoint designated extension officers who could work with the youth groups right from  sowing stage to harvest and finally sales stage.  Firms will  connect these youth groups to markets and recover payment from the sale of the product. Working with groups rather than with individuals could be a key to the success of this initiative. This arrangement works for the benefit of all the parties involved. The youth obtain a good income , the landowners receive cash/produce from their land that would otherwise be unused and the firms obtain reliable supplies for their partners. Initiatives such as “short term land leases for youth in Uganda” have achieved great success through this model.

 

3. Mindset and skill Training

1. Mindset and Skill training form an integral part of a nation’s development. Rural India is characterized by several restrictions and sanctions both social and economic. Even if there are employment opportunities available, the social restrictions do not allow certain groups to participate in economic activities. Women, Scheduled castes, Scheduled tribes etc. still face discrimination both before and after entering a work place especially in the rural areas. The government must therefore focus on imparting mindset training to address the issue of such discriminatory practices prevalent in contemporary India.
2. Apart from skill training, India also faces several challenges in terms of mindset towards access to education and urban/ rural employment for specific groups especially women who are often restricted to household or menial works, and are rarely paid for the same. Therefore, Mindset training or counselling sessions should focus on creating awareness amongst the masses regarding the significance of education and employment for women.
3. In today’s time the agricultural curricula have disappeared or are considered outdated and inadequate to be a part of mainstream curriculum with agriculture seen as a less worthwhile subject which negatively influences the aspirations of rural youth. In many rural areas, agricultural knowledge and farming know-how are passed on from parents to children, however such advice should be provided in a more formal, coordinated and effective way, rather than on an informal basis.
4. Higher education is essential for the development of the agricultural sector. The creation of more such universities that focus on agricultural research and establish linkages with the farming community can prove beneficial for the development of the agricultural sector. Also, connecting universities with farming communities is essential in order to broaden knowledge, increase research and development and enhance local problem-solving.
5. It is equally important to connect educational institutions with labour market opportunities and to build strong partnerships with employers to ensure that the skills of agricultural professionals respond to labour market needs so that young graduates are employable. This can be done through setting up separate “Labour dispatch organisations”, which act as an intermediary between the recruiters and the unemployed and help in negotiating better wages, better treatment at work place and better training.
6. The vocational training and skill development training programmes shall be decentralized to the extent possible by linking them with the needs of local and foreign labour markets. Also, Subject-matter-specific short-term training shall be conducted within and outside the workplace for the development of skills and personality of workers.
7. The uneducated masses and school dropouts can be guided towards unskilled or semi-skilled self-employment opportunities by providing them with necessary vocational and entrepreneurial training and loans at concessional rates, in order to boost employment as well as entrepreneurial abilities. Those sections of the society who do not have formal education must be trained as a part of short-term courses to work at specific places in the village such as Food processing industries, Medium scale industries in the village, etc.
8. The vocational and skill development training programmes must be made more effective in accordance with the changing technology and nature of demand of the labour market, for which different ministries at the central and state levels need to work towards connecting the recruiters to the training centres, for providing valuable information regarding the marketable skills.
9. In order to improve the efficacy of the skill development and vocational training programmes, active participation of the representatives of sectoral establishments and workers in the training need assessments, curriculum development and conducting of training should be promoted.
10. The skill development and vocational training programmes shall be expanded through the private-public partnership.
11. Introduction of green courses in school curriculum to inculcate in the students the importance of green jobs. Skill and training programs, vocational training institutions and Universities must also focus on developing skills for the greening of jobs in all industries.
12. Most of the Indian farmers lack knowledge regarding the prevailing market conditions due to lack of formal education or absence of institutions that would provide them information regarding the prevailing market conditions. In order to enhance farmer’s market knowledge, Governments, community groups or other NGOs can set up “Farm Business Schools” which aim at building farmer capacity in entrepreneurial and management skills through a practical approach. The farm business schools are designed to help small and marginal farm holders to  produce according to the requirements of the market and to make their produce profitable. Facilitators/ trainers are appointed to organize the seasonal training programmes where farmers are made to work in smaller groups.
13. Education is the key to overcoming development challenges in rural areas. Education and relevant information help rural youth in terms of access to markets and finance as well as green jobs and land. While Formal Education can provide young people with strong numeracy, managerial and business skills, Non-formal education in the form of vocational training and extension services can offer youth more specific knowledge related to agriculture. Special Training programmes need to be introduced by the government to provide rural youth with the skills to engage in agricultural practices, help them adopt environment friendly production methods, and educate them on the ways to connect to markets to sell their produce along with  providing  knowledge about access to credit.
14. Vocational Training programmes and extension services (government, private and non governmentorganisations) which provide necessary skills to the rural youth, often lack access to stable funding and support from the government. Low education levels for the school dropouts further limit training possibilities. Hence, the Indian government must focus on specialized skill training in agriculture suitable to the rural context. These skill trainers must be funded well and can be linked to the agricultural universities in order to broaden knowledge, increase research and development and enhance local problem-solving.
15. It is equally important to connect educational institutions and vocational education service providers with labour market opportunities and build strong partnerships with employers to ensure that the skills of agricultural professionals respond to labour market needs so that young graduates are employable.

16. In order to support sustainable agriculture and rural development, initiatives such as the Center for Study and Development in Agriculture (CEDAC) should be set up in India. The centre should encourage “out-of-school youth” in rural areas to pursue professional careers in agriculture. The training programme should focus on eco-friendly agricultural techniques, self-development and social education, farm management and business plan development, financial management and report writing skills.
17. The government should work towards promoting ICT solutions for agriculture and provide platforms to bring together those young people who have business ideas along with the experts who are committed to help the young innovators. Young people can develop ICT-based agricultural solutions and turn them into commercial ventures. The link-up between the students and experts offers support to young entrepreneurs throughout the process, providing them with Internet access and training to improve their ICT skills and advice on how to market their ideas and access venture capital.

Social dialogue

1. Training on gender issues for trade union representatives (such as training courses on negotiating for equal pay and promoting equality of opportunities within their own structures) is crucial to help combat gender discrimination and promote equality at work. The same applies to other forms of discrimination (on grounds of caste, disability, age, etc.).
2. Programmes shall be conducted to progressively remove gender, sectoral and other forms of discrimination prevalent in the employment sector.
3. Encouragement shall be given to the institutionalisation of the tripartite and bipartite social dialogues down to the level of development of industrial relations, conflict resolution and policymaking processes.
4. The workers and employers of the informal sector shall be progressively encompassed in the process of social dialogue by building institutional infrastructures.
5. Mini Market
6. Indian rural areas have market yards, where agri products such as vegetables, fruits, pulses, Rice etc. are sold. However, Rural areas in India lack a market for processed foods and other finished products. Therefore the Government needs to set up mini markets at district level for processed commodities. Expansion of such “Mini markets” in the rural areas will provide several benefits such as reduction in the costs of transportation and storage, reduction of intermediaries between the farmer and the consumer etc. ss
7. Crop diversification in India is very limited. Most of the farmers generally produce rice or wheat. Crop diversification in the rural areas is a key to the introduction of mini-markets. Technological advancements in rural agriculture facilitated by the introduction of mini-technology must divert cultivation towards commercial crops which can be further processed to find their place in these mini markets.
8. Mini markets are also a great source of employment generation in the rural areas. Mini markets boost employment in two ways, (i) By generating employment in the super markets or food marts in the form of supervisors, helpers, cashiers, store keepers etc. (ii) By boosting employment in the food processing sector in the rural areas. Farmers who are unable to find work on the field can be benefited through this employment generation by the inclusion of Mini-Markets.
9. Along with crop diversification, there is also a requirement for Rural diversification to attract markets into rural India. Hence, India must try to invest in developing the infrastructural facilities such as transport, roads, power supply etc. in rural areas in order to attract such investments in Mini-markets. Development of infrastructural facilities along with abundant labour and easily available raw material incentivises the establishment of Mini markets in rural India.
10. Multinational Supply Chain 
11. Multinational Supply chains are concerned with the flow of products and information between states and other nations. It concerns the procurement, transformation, and distribution of products to end customers. Apart from adding product value, Supporting better jobs and higher wages are also primary policy objectives of these chains. Though India is more or less involved in several multinational supply chains, India has ignored the potential of the rural areas in contributing to such supply chains. There is a need to strengthen rural supply chains through better coordination, communication and collaboration through linking farmers to markets. At national level, governments, donors and NGOs should establish “market linkage coordinating mechanisms” to facilitate the exchange of market information and better collaboration.
12. The real measure of supply chain success is how well activities coordinate across the supply chain to create value for consumers, while increasing the profitability of every link in the supply chain. The supply chains of different agricultural commodities in India, however, are fraught with challenges stemming from the inherent problems of the agriculture sector. The agri supply chain system of the country is determined by different sartorial issues like 1. dominance of small/ marginal farmers 2. fragmented supply chains 3. absence of scale economies 4. low level of processing/value addition 4. inadequacy of marketing infrastructure etc. which needs to be addressed.
13. Logistic measures such as improving the quality and number of cold storages , Coolers, Warehouses, Refrigerated Trucks, Carriers, Shopping malls,easing transportation of agricultural produce between regions, Promoting the establishment of food parks, which will have integrated food processing and handling facilities, will boost production as well as employment in each step in the multinational supply chain. Logistics providers with air conditioned trucks, automatic handling equipment and trained manpower will provide end to end support. The Food Parks must have additional storage capacity both for cold and ambient temperature and will have processing units for high value addition.
14. A “chain approach” is required; efforts to organize farmers into marketing groups will have little impact if the rest of the supply chain is not functioning well. NGOs and others seeking to help farmers need to be able to identify chain constraints faced both by farmers and the marketing system and to advise governments on ways of resolving them. Such constraints could include inadequate policy, poor infrastructure, insufficient capital, and bureaucratic problems.
15. Developing appropriate institutions, with the government addressing the need of institutions that can support agribusiness development. Coordination of support services through an “agribusiness promotion organization” may be desirable. Areas that should be addressed include market information, agricultural extension, export quality certification and other quality control measures, agricultural research support and farm management and agribusiness training.

 

6. Medium and Large Industries

1. Apart from generating employment in the Agricultural sector, it is important for any economy to improve its manufacturing sector that generally is an absorber of the semi and unskilled labour from the agricultural sector. However, The Indian manufacturing sector is characterized the Big manufacturing establishments which are highly capital intensive on the one hand and numerous small  manufacturing units which employ 5-9 workers on the other. While the former industries require sophisticated skills and educational qualifications, and also use capital intensive techniques of Production the latter are restricted by several shortcomings such as lack of sophisticated technology, lack of high employability etc. The Indian manufacturing sector therefore, lacks a strong medium sized industry that has a potential of creating employment as well as use labour intensive techniques. A strong medium sized industry will help India in growing its employment in the manufacturing sector without letting surplus labour from the agriculture sector move directly to the low paid service sector or the construction industry.

 

Clustering and Cooperatives

 

2. The potential role of MSMEs in India is often not fulfilled due to disadvantages associated with their size and related difficulties in acquiring resources, improving productivity, achieving economies of scale, and gaining a competitive edge to access new market opportunities.  “Clustering” and “Cooperatives’ ‘ among MSME’s reduce this size disadvantage among the MSME’s and also provide higher income opportunities to the labour involved. Clustering refers to connection of small firms in physical proximity to one another in related industries. This cooperation among firms can be instrumental in increasing the efficiency of the individual firm and increasing the “collective efficiency” of the cluster. Clustering is a means of tackling the competitive disadvantages that hinder growth of small firms, acting independently, against the  larger firms. Clustering also acts as an important instrument in improving the competitive ability of the MSME’s and helps these enterprises in finding markets amidst cheap imports. “Cooperatives” on the other hand are firms or a collective of firms, owned by their members, and involved in the production, distribution, or consumption of products. Unlike clusters, cooperatives are ownership structures. A common feature that cooperatives share with clusters is the concept of overcoming the disadvantages of atomistic competition through a model of cooperation. Cooperatives facilitate people in pooling their labour along with small amounts of cash to create a larger enterprise from which they will receive a benefit and return. Under such conditions the profits and wages of the members tend to rise along with the employability of the enterprise.
3. India is a labour surplus economy and has a comparative advantage in labour intensive modes of production. Therefore, India must try to exploit its low-tech industries which are more labour intensive compared to high tech industries which require sophisticated technology, huge capital, machinery etc. Global leaders in high tech industries such as automobile, aviation, bio-technology, defence manufacturing, electronics, IT, wellness etc. are catering the world demand for such commodities. India must therefore focus on its comparative advantage in labour intensive low tech industries before trying to be a global leader in high tech industries going against its comparative advantage. Low tech industries require a minimal amount of technology, capital and machinery, and also require labour with minimal skills. These low tech industries therefore have huge potential of absorbing unskilled and semi-skilled labour that were previously involved in agricultural activities. High tech industries on the other hand do not absorb unskilled or semi-skilled labour, due to usage of sophisticated machinery and technology. The inclusion of such low tech industries in Central Government’s Make in India initiative, will improve investments, job creating abilities and turnovers of such industries.

 

Rural Diversification

4. Indian low tech industries require a huge amount of labour and raw material. These requirements could be met by surplus labour and cheap raw material in India’s rural areas which can be potentially exploited to reap the benefits. The capacity of Farm employment in the rural areas to absorb additional labour has almost reached its plateau, with ever increasing pressure on arable land. At this juncture it is important for the Government to look at creating alternative employment opportunities in the non-farm sector. It is important hence for manufacturing industries that are capable of absorbing surplus labour from agriculture to be set up in rural areas.
5. However, Industries do not easily invest in such rural areas where the infrastructural facilities are not well developed. Hence, India must try to invest in developing the infrastructural facilities such as transport, roads, power supply etc. in rural areas in order to attract investors. Development of infrastructural facilities along with cheap labour and easily available raw material incentivises setting up of low tech industries in rural areas. This phenomenon is called rural diversification, which is simply the shift of rural population from traditional agricultural activities to non-farm activities, reducing the burden on arable land.
6. Rural diversification and rural industrialisation solves two major issues India is facing in terms of employment: (i) Reducing disguised unemployment in Indian agriculture and (ii) Providing industries, the access to cheap labour and raw material at a decent cost. China, while being the world leader in high tech industries has followed a similar strategy to shift its low tech industries to the poor rural western parts of china to contribute to the employment and growth of the economy.

 

Work Sharing instruments

7. Government can introduce work sharing instruments aimed at reducing work hours so as to share the reduced volume of work amongst the same or similar number of workers. This strategy is helpful both in “avoiding layoffs” and generating “new employment opportunities”. It is particularly relevant during the time of economic crisis which allows the businesses 1. to retain its workers and help in saving the additional cost required to rehire and fire the workers 2.  keeping the staff morale high.
8. Work sharing instruments can have long term benefits for both the parties involved if it is accompanied with training programs for the workers affected due to the crisis situation. Some of the best systems in place are those where the decisions are backed up by the government in the form of subsidies and training provisions. Such short-time work arrangements maintain employment, with the help of financial support to workers facing income loss and training provisions.
9. Key elements of work sharing policies include Reduction of working hours for the employees against layoffs, A corresponding reduction in total wages, Additional wage supplements to the workers facing temporary reductions in , Deciding on the duration of work sharing measures since it is a temporary response to economic crisis and linking the work-sharing program and training/retraining activities and Involving both the workers and employers in the design and implementation of government-sponsored work-sharing programmes to make it a success.
10. Minimum Economic and Job Support 
11. Apart from providing employment, the government must also introduce a sophisticated social security policy where the unemployed also receive a minimum economic guarantee to support them and their families. Such schemes must however, not encourage the unemployed to stay idle, rather they must encourage the unemployed to find quality jobs that will give them better consumption and saving capacity.
12. The Government of India has introduced the Rajiv Gandhi ShramikKalyanYojana (RGSKY) as an unemployment insurance scheme where it provides unemployment benefits to those who are already insured. However, the scheme is narrowly restricted in terms of applicability. The workers under this scheme must be insured, must have paid a certain proportion of their income for at least a specified period of time, and also Losing a job due to a strike, voluntary retirement, dismissal due to indiscipline, among others, disentitles a worker to this benefit. These restrictions on availing the Unemployment insurance have been the reasons for a very low coverage of this program providing only 10,728 claims between 2007 and 2017. Hence India must try and focus on a uniform unemployment insurance scheme where every worker irrespective of his work must be insured of a minimum economic support from the state.
13. The government must encourage workers and employers to form cooperative organisations where a fund is created for utilisation when there is a recession. Both the employers and the workers contribute to the fund in their fixed capacity and when there is a lay off due to recession, this fund can be used to cater the needs of those who are unemployed. This group funding reduces the pressure on the government to create a separate fund through taxation.
14. The government can also create a nationwide unemployment fund into which different states contribute based on their capacity. These funds may then be utilised to solve unemployment issues in states that face severe unemployment concerns as a result of recession. This would be a system of financial redistribution based on grants subject to different types of constraints: specific conditions aimed at increasing economic capacity; economic criteria connected to the relative cyclical and the structural economic situations of the regions.
15. The government must also introduce policies that cater the needs of workers employed in the informal sector of the manufacturing and service industries universally. A very few informal workers possess a written job contract, also in terms of social security provisions, only one-fourth of the total informal workforce are eligible for one or a combination of social security benefits among Provident Fund (PF), pension, gratuity, healthcare benefits and maternity benefits. Even if the workers are provided with a set of social security benefits, they are widely restricted to the state they belong to, their income levels, their consumption capacity etc. These restrictions tend to leave out informal workers who move from place to place for jobs as migrants from any support from the State. Therefore, ensuring a minimum social security net for all workers irrespective of wage, enterprise size, and place of origin is the need of the hour in India.
16. Developing a robust monitoring and enforcement mechanism and a common database of informal workers irrespective of the sector they belong to acts as a subsidiary policy intervention to ensure minimum economic support to the informal labour.
17. The government can also introduce a Negative personal income tax policy, where the government pays back to the individuals who fall below a certain income level. For this , the government must set an income cut-off, which it believes to be minimum income, and any one who is receiving an income below this cutoff, will receive an amount equal to a percentage of the difference between the minimum income and the individual’s income. For example if the Government fixes the cut off at Rs. 10,000 per month, and the negative income tax rate at 50%. An individual who is receiving an income of Rs. 5,000 will receive 50% of the difference between 10,000 and 5,000 i.e. Rs. 5,000. This structure is designed so that people who work will always make more than people who don’t, which would ideally incentivize people to work.
18. The government should introduce Active labour market (ALMPs) policy interventions ranging from:“matching jobseekers with current vacancies through direct job-search assistance or information provision”, “ upgrading and adapting the skills of current job seekers in order to improve their employability”,  “providing incentives to individuals or firms to take up certain jobs or hire certain categories of workers”, and “creating jobs either in the form of public sector employment or the provision of subsidies for private sector work.”
19. India must focus on implementing both the active and passive labour market interventions in a complementary manner, ensuring both creation of jobs as well as providing minimum financial support to the unemployed. Simply relying on the activation component at times does not provide for viable solutions for individuals with little or no income and the unemployed. Similarly, providing income support in isolation may also not lead to improved employment or social conditions.
20. TrainingProgrammes should be instituted to provide recipients of unemployment benefits with access to counselling and training courses with respect to their occupational profiles, their know-how and labour market requirements. The programme could also include employed individuals willing to upskill to find better employment opportunities.
21. 11. Public work programmeshave huge potential of absorbing unskilled and semiskilled labour. India must introduce public works programs in both rural and urban areasto mitigate the growing unemployment in both rural and urban areas. The programmes can aim at creating temporary jobs for low-skilled individuals in the “”construction and “main-tenance of public infrastructures sectors” in low-income areas of the country. The Eligibility requirements for such programs should be strictly identified: individuals who are in dire need of employment can only be eligible, above the age of 18, and should not be enrolled in any educational programme.
22. Livelihoods Programmesaiming at social protection and poverty reduction could be introduced by the government in rural areas prone to calamities such as flooding; seasonal food insecurity; drought.  The target group of the  program could be extremely poor households. These programs could use a combination of public works, asset transfers (cash/in-kind), livelihoods-related training, market development, and social development activities to achieve its aims.
23. Conditional income-transferprogrammes could be instituted with the aim to reduce poverty and reach social development goals linked to school attendance, health, and nutrition. Financial assistance should be provided on the condition that the beneficiaries meet certain requirements related to the health and education of their children. These transfers, besides protecting the income of the poorest families, play a dual role: on the one hand, by encouraging consumption they play a reactivating role in the economy; on the other, by making transfers contingent upon the children attending school, a rising school dropout rate resulting from economic difficulties is prevented. In addition to mitigating poverty, it also aims towards improving the skills of future generations. Training could be given to the people for work in the construction sector, linked to the government investment programme in public infrastructure with a target to include women beneficiaries, in an effort to raise the number of women employed in the sector. Similarly,  people could be trained for job opportunities in the tourism sector. A unified record could be created to allow families to be located, and supply of public services matched to their profile.
24. 14. Labour market services such as a decentralised system aims to improve labour market efficiency by promoting better job matching (e.g. screening of vacancies, CV preparation). In addition to this service, the programme should provide enterprises and jobseekers with information related to the skills and occupations in demand in a particular labour market. Finally, the programme will focus on job-search assistance to job seekers through counselling activities. The programme is targeted towards employers and unemployed individuals – with a specific priority given to individ- uals with low-educational attainment. The programme needs to be centrally administered by the Ministry of Labour, but can also rely on local authorities and non-governmental organizations for its implementation.

 

Labour migration policies

 

15. A distinct policy on labour migration should be formulated and enforced for the promotion of safe and decent employment in urban areas for those who migrate in search of jobs.
16. A nationwide labour database (information system) should be developed for the migrant and informal workers to aid employment through providing them with skill training and making them eligible for various social security benefits.

 

1. Minimum Wage Revision for Respectful Life

1. With the high rate of unemployment in recent years, the government of India and the social partners should put in place proper wage setting institutions in order to boost demand and increase workers’ motivation and productivity to address the problem of unemployment.
2. The new Code on Wages Bill, 2019 mandates a universal minimum payment of ₹178 a day which  is far less than the ₹700 fair wage that the 7th Central pay commission had arrived at. The minimum wage is currently too low to cover even the most basic needs and should therefore be raised in line as per the recommendation of the 7th central pay commission.
3. Minimum wages throughout the country should be fixed by the states on the basis of formula as laid down by 15^th Indian Labour Conference, held in the year 1957 and upheld by Hon’ble S.C. in Reptakos judgement in the year -1991. The six important components to be considered are as follows:
   `(i) In calculating the minimum wage, the standard working class family is taken to consist of 3 consumption units for one earner.

(ii) Minimum food requirement is calculated on the basis of a net intake of calories of 2731 kcal.

(iii) Clothing requirements are taken as 18 yards per annum  per person,   which would  be a total of 72 yards for the average worker’s family of four.

(iv) In respect of housing, the rent is taken as 10% of the Minimum Wages.

(v) Fuel, lighting and other `miscellaneous’ items of expenditure should be 20% of the total minimum wage.”

(vi) children’s education, medical requirement, minimum recreation including festivals/ceremonies and provision for old age, marriages etc. should be 25% of the total minimum wage.”

 

9. MSP

 

1. The MSP is a minimum price guarantee that acts as a safety net for the farmers when they sell particular crops. The government agencies procure these products at a promised price to farmers and the MSP is fixed for the periods and cannot be altered at any given circumstances. Currently, MSP is put in place only for 23 commodities including 7 cereals, 5 pulses, 7 oilseeds, 4 commercial crops. However, there are several other crops that are sown at different parts of India, which also need to be included under the purview of the MSP. Crops such as  millets and other nutritious cereals should also be permanently included in the PDS.
2. The Infrastructural facilities at the State Agriculture Produce Marketing Committee Mandis need to be improved so that the farmers feel comfortable to sell their output in these market yards. The APMC’s must be spread across villages to increase market access to the farmers and protect them from the Middle men and landlords who levy huge commissions to transport the produce from the farm to the market yards. The APMC Acts should also focus on promoting grading, branding, packaging and development of domestic and international markets for local produce, and move towards a Single Indian Market.
3. The minimum support price in India is formulated based upon the average expenditure of the crop. However, there are several types of soils in India and the expenditure on each of them is different. The areas where the expenditure is higher than the average expenditure, gain nothing from the MSP. Hence, the government must consider these differences and formulate the MSP accordingly. Though the state governments can pay more to the farmers in the form of bonus, they have to incur huge losses to do so. The quota of each state in procurement by the central government and the MSP are fixed and this refrains the state governments to announce bonuses every now and then.

 

10. Modern and Traditional services

 

1. There needs to be a focus on the service sector in Policy making. The government needs to draft a policy on how the service sector can lead to growth. There is a serious requirement for a nodal agency for each service which would be held responsible to identify strategies and see that the strategies are successfully implemented. State-specific requirements need to be focussed upon, to ensure that all the states are performing to their potential irrespective of their disparities in performance in the service sector due to disparities in service infrastructure. For employment generation, policies have to focus on low productive, high employment generating services.

2. Employment generation in the service sector is subject to availability of skills and educational qualifications. In India, the gross educational enrollment ratio is very low especially in the rural areas and there are wide variations in the quality of education among the institutions. Indian policy makers can collaborate with academic institutions and the service sector giants to develop public–private partnerships to identify skill requirements and design appropriate courses and training programs to facilitate their development. This would reduce the on the job training costs for the employers, and provide the jobless with better employment opportunities.
3. The growth of Service sector around the world is subjective to good infrastructural facilities. Better infrastructural facilities in services such as Health care, education, tourism and hospitality are key factors that determine the growth of such sectors. These sectors which are more personable compared to services that are highly capital intensive, have huge potential in generating employment subject to the provision of good infrastructural facilities. Policies to improve infrastructure in Hospitals, schools, Tourist sites will have a multiplier effect on the growth and employment generation in these services.