Monday, 30th October 2017

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GDP and jobs not good at tango

Higher GDP growth rate has often been accompanied by slowing job growth, an Azim Premji University report says

By Basant Kumar Mohanty in New Delhi
  • Published 5.11.18, 2:08 AM
  • Updated 5.11.18, 9:18 AM
  • 2 mins read
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The State of Working India 2018 would come as a damper on the euphoria generated by India’s improved position in the World Bank’s latest ease-of-doing-business rankings. (Shutterstock)

Job creation has not only failed to keep pace with the country’s GDP growth over the decades, a higher GDP growth rate has often been accompanied by a slowing job growth, a recent report says.

The State of Working India 2018, a report by the Azim Premji University, would come as a damper on the euphoria generated by India’s improved position in the World Bank’s latest ease-of-doing-business rankings.

Finance minister Arun Jaitley said on Wednesday that India’s 23-place jump to 77 among 190 countries “underscores the need to persist with challenging reforms that can provide more opportunities for people to lift themselves out of poverty and spread prosperity more widely”.

Kamal Karanth, co-fonder of human resource company Xpheno, said the development would encourage foreign companies to invest in India, which will create more jobs.

But Santosh Mehrotra, chairperson of the Centre for Informal Sector and Labour Studies at Jawaharlal Nehru University and one of the authors of the State of Working India 2018 report, said that ease of doing business might not create enough jobs to justify the optimism.

He cited the report to suggest that GDP growth has hardly any correlation with job creation and that, if anything, several periods witnessed an inverse relation between the rates of GDP growth and employment growth.

“The expectation that ease of doing business would create more jobs and bring optimism may prove wrong. The ease of doing business survey has been based on employers’ perspectives in Mumbai and Delhi, not the whole of India,” Mehrotra cautioned.

“Most jobs are created in the micro, small and medium enterprises sector. There is less evidence of (improved) ease of doing business from this sector. The demonetisation dealt a heavy blow to this sector, from which it has not yet recovered.”

The State of Working India 2018 report says: “It is also worth noting that a rise in the productivity of labour, or the amount of value generated per worker, also implies a faster increase in GDP than in employment. Higher growth has raised aspirations but has failed to generate the kind of jobs that will allow people to fulfil those aspirations.”

In the early 1980s, a sum of Rs 1 crore of real fixed capital (in 2015 prices) supported around 90 jobs in the organised manufacturing sector. By 2010, this had fallen to 10 jobs, the report said.

“This is because of the increase in the use of imported technology in production or service provision,” Mehrotra said. “This is a global trend; in India there has been a growth of capital intensity in output.”

Karanth, however, said that the micro, small and medium enterprises sector was recovering and would generate more jobs.

“The latest rankings will enhance the prospects of new foreign companies exploring India as a destination for investment. Those having small shops will expand. It will create more jobs,” he said.