Do it yourself: Employment

Showing posts with label Employment. Show all posts

Wednesday, July 31, 2024

The capex “nudge”

Capital expenditure (capex) has been one of the primary focus areas of the government in the past one decade. As per the Economic Survey 2024, “The focus of capex has been broad-based. Spending in sectors such as road transport and highways, railways, defense services, and telecommunications delivers higher and longer impetuses to growth by addressing logistical bottlenecks and expanding productive capacities. Government capex has also begun to crowd in private investment, as discussed earlier in this chapter. Additionally, the Government continues to disburse grants-in-aid for the creation of capital assets to the states, thereby incentivizing them to increase their productive spending.”

Accordingly, “capex” has emerged as an important driver of growth, as indicated in its rising share of nominal GDP. As per the provisional actual (PA) figures for the FY24, capex for FY24 stood at ₹9.5 lakh crore, an increase of 28.2 per cent on a YoY basis, and was 2.8 times the level of FY20.

However, despite the sharp rise in the government capex in building the enabling infrastructure and incentivizing enterprises, the private capex has not responded adequately. Lamenting the private entrepreneurs, the Economic Survey stated, “while it remains the government’s responsibility to facilitate the development of infrastructure and address logistical challenges, it is incumbent upon the private sector to take forward the momentum in capital formation on its own and in partnership with the Government. Between FY19 and FY23, the share of private non-financial corporations in overall GFCF increased only by 0.8 percentage points from 34.1 per cent to 34.9 per cent. This was mostly driven by their fast-increasing share in the additional stock of dwellings, other buildings and structures. Their share in addition to the capital stock in terms of machinery and equipment, started growing robustly only since FY22, a trend that needs to be sustained on the strength of their improving bottom-line and balance sheets in order to generate high-quality jobs.”

In the recently concluded general elections, lack of adequate job generation emerged as one of the key agenda points. The experts have held the prevalence of high unemployment rates amongst educated youth as one of the factors responsible for below par performance of the BJP.

Obviously, the government is concerned about the employment situation. The problem is that commitment to fiscal discipline and structural reform in the public sector may not permit the government to create many new employment opportunities in the public sector. The employment generation would thus be the responsibility of the private sector.

In the recent budget for FY25, the government announced some measures to encourage private enterprises to invest in building new manufacturing capacities and generate employment for the youth entering the job market. The budget adopts a carrot and stick approach for that. On one hand, it provides support for hiring more fresher employees and skill them, and on the other hand it makes outflow of funds from companies difficult. After dividends, now buybacks are also made tax inefficient. The idea seems to “encourage” companies to invest in growing their businesses and reward shareholders through share price appreciation only. Abolition of Angel Tax on startups is also a measure to encourage more new businesses to be set up and offer employment opportunities.

How much of these efforts will yield in terms of new employment and growth is to be seen, but the intent seems clear.

Thursday, October 29, 2020

India employment - Gender gap and skill mimatch need to be corrected

The latest quarterly bulletin on employment and unemployment indicators released by the Ministry of Statistics and Programme Implementation, Government of India makes interesting reading. The latest data presented in the bulletin in based on the Periodic Labour Force Survey (PLFS) carried out between July-September 2019, i.e., well before the lockdown forced by the outbreak of SARS-CoV-2 pandemic. The key highlights of the survey are as follows:

· For the purposes of the Survey, the “Labour Force Participation Rate” (LFPR) is defined as the ratio of population which offers itself for employment, whether currently employed or unemployed. The “Worker Population Ratio” (WPR) is the ratio of employed workers in the total population of the country.

· As per the latest data, in urban areas, LFPR was ~37%. For the young people (15-29yrs) the rate was at ~39%, while all people above 15yrs of age, the LFPR was ~47%.

· There still exists a significant gender gap in the labour force participation in the country. The female LFPR is just 16% vs male LFPR of ~57%. Even in the younger population (15-29yrs) female LFPR is ~18% vs male LFPR of ~59%.

· The WPR in India is ~34%. For younger people (15-29yr) WPR is ~31%, while for all legal workers (15yr and above) WPR is ~43%. In WPR also, a significant gender gap exists. The male WPR is ~52% while female WPR is below 15%. For population aged above 15yrs, male WPR is 68% while female WPR is ~18%.

· More than 50% workers in India are either self-employed or are engaged as casual workers. Only ~49.6% workers have regular wage employment.

· More women (57.4%) are in regular employment than men (47.5%). About 9% women workers are employed as unpaid helper in household enterprises. For male workers this ratio is ~4%.

· In urban areas 62% workers are engaged in tertiary (service) sector. About one third workers are engaged in secondary (industry) sector. More female workers (65%) are engaged in services sector than male 61%.

· Overall unemployment rate during Survey period (July-September 2019) was 8.4%. For youth (15-29yrs), the unemployment rate was at ~20.6%, while for all workers 15yr and above, the unemployment rate was 8.3%.

· More young (15-29yrs) female workers (24.1%) were reported unemployed than the male workers (19.6%).

To conclude, we can say—

(a) The gender gap in work force is alarming and does not augur well for the acceleration in the growth rate. If we juxtapose this data with the education statistics, we find that bridging of education gap between male and female population has not resulted in equal opportunity for female in employment.

(b) Prevalence of higher unemployment amongst youth (15-29yrs) may be an indicator of serious skill mismatch.

(c) High ratio of self-employed and casual labor, inter alia, indicates (i) lower employment elasticity in the organized sector and (ii) skill mismatch.

Wednesday, December 11, 2019

Industry and Services sector transformation agenda implemnetation still at take off stage

In the three year agenda released in 2017, NITI Aayog noted that "unemployment is the lesser of India’s problems. The more serious problem, instead, is severe underemployment. A job that one worker can perform is often performed by two or more workers. In effect, those in the workforce are employed, but they are overwhelmingly stuck in low-productivity, low-wage jobs...Therefore, what is needed is the creation of high-productivity, high-wage jobs."

The action agenda therefore emphasized on increased emergence of larger, organized-sector firms that can create high paying jobs. To meet this end, promoting exports was considered a better option rather than trying to substitute imports by producing in India.

The agenda paper accordingly highlighted that "A focus on the domestic market through an import-substitution strategy, however attractive it may seem, would give rise to a group of relatively small firms behind a high wall of protection. They will not only fail to exploit scale economies but also miss out on productivity gains that come from competing against the best in the world. The electronics industry offers a case in point. Our domestic market in electronics as of 2015 is only USD 65 billion. In contrast, the global market is USD 2 trillion. Our policy of import substitution under high protection has given rise to a group of small firms none of which is competitive in the world markets. In contrast, a focus on the global market can potentially result in output worth hundreds of billions of dollars and hence a large number of well-paid jobs."

NITI Aayog underlined the demographic advantage and wage competitiveness of India vis a vis China, while spotting an attractive opportunity in shift of businesses from China. It noted "Today, with Chinese wages rising wages due to an ageing workforce, many large-scale firms in labour-intensive sectors currently manufacturing in that country are looking for lower-wage locations. With its large workforce and competitive wages, India would be a natural home for these firms. Therefore, the time for adopting a manufactures- and exports-based strategy could not be more opportune. Keeping this context in view, the Action Agenda offers detailed proposals for the implementation of an exports-based strategy. Among other things, it recommends the creation of a handful of Coastal Employment Zones, which may attract multinational firms in labour-intensive sectors from China to India. The presence of these firms will give rise to an ecosystem in which local small and medium firms will also be induced to become highly productive thereby multiplying the number of well-paid jobs."

The Action Agenda in particular offered "specific proposals for jumpstarting some of the key manufacturing and services sectors, including apparel, electronics, gems and jewellery, financial services, tourism and cultural industries and real estate."

After two and half years, the implementation of the agenda is found lacking on almost all fronts.

(a) Industrial production growth has slipped.

(b) Work force participation rate has slipped to multi decade low. Unemployment rate is highest since 2011. Labor productivity growth is at lowest level in a decade.

(d) No significant progress is seen on coastal zones, increase in port capacities. The work on dedicated freight corridor has progressed but still running much behind the revised schedule.

(e) Some impressive projects have been announced by some major global manufacturers. However, on ground little progress is visible. In 2018 the import of telecommunication equipments was highest in five years. FDI has been lower in 2018 and 2019 as compared to 2017.