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Explained: India’s unique jobs crisis

India has “too many people” in agriculture and the inability to move surplus labor from farms constitutes a major policy failure of successive governments. Is that correct?

Not really. According to Amit Basole, who heads the Center for Sustainable Employment at Azim Premji University in Bengaluru, the share of India’s working population engaged in farming has fallen quite significantly during the last three decades.

In 1993-94, agriculture accounted for close to 62% of the country’s employed labor force. That proportion – based on data from the National Statistical Office’s Periodic Labor Force (previously known as ’employment and unemployment’) Surveys – dropped almost six percentage points by 2004-05 and even more (9 percentage points) over the next seven years. The declining trend continued, albeit at a slower pace, in the subsequent seven as well.

Overall, between 1993-94 and 2018-19, agriculture’s share in India’s workforce came down from 61.9% to 41.4% (see chart). In other words, roughly a third in 25 years. That isn’t insignificant. Basole estimates that given its level of per capita GDP in 2018 – and comparing with the average for other countries in the same income bracket – India’s farm sector should be employing 33-34% of the total workforce. 41.4% may not be a substantial deviation from the average.

Weak structural transformation

Yet, it doesn’t make for a reassuring story.

To start with, there’s been a reversal of the trend in the last two years, which has seen the share of those employed in farms rise to 44-45%. This has primarily to do with the Covid-induced economic disruptions. The Periodic Labor Force Survey years are from July to June. The 2019-20 survey results will, hence, also cover the first lockdown period from late-March to end-June 2000. The reverse migration of people back to the farms should be a temporary blip, though, with the surveys from 2021-22 hopefully revealing a restoration of the long-term trend.

Secondly, even the movement of workforce from agriculture that India has witnessed over the past three decades or more does not qualify as what economists call “structural transformation”. Such a transformation would involve the transfer of labor from farming to sectors – particularly manufacturing and modern services – where productivity, value-addition and average incomes are higher.

However, the share of manufacturing (and mining) in total employment has actually fallen along with that of agriculture (see table). The surplus labor pulled out from the farms is being largely absorbed in construction and services. While the services sector does include relatively well-paying industries — such as information technology, business process outsourcing, telecommunications, finance, healthcare, education and public administration — the bulk of the jobs in this case are in petty retailing, small eateries, domestic help , sanitation, security staffing, transport and similar other informal economic activities. This is also evident from the low, if not declining, share of employment in organized enterprises, defined as those engaging 10 or more workers.

Simply put, the structural transformation process in India has been weak and deficient. Yes, there is movement of labor taking place away from farms – even if stalled, possibly temporarily. But that surplus labor isn’t moving to higher value-added non-farm activities, specifically manufacturing and modern services (the familiar ‘Kuznets Process’ named after the American economist and 1971 Nobel Memorial Prize winner, Simon Kuznets). Instead, as Basole’s work demonstrates, the labor transfer is happening within the low-productivity informal economy. The jobs that are getting generated outside agriculture are mostly in low-paid services and construction; the latter’s share in employment has even overtaken that of construction.

Weak structural transformation and persistence of informality also explains the tendency, especially by rural families, for pursuing multiple livelihoods. Many of them cling on to their small plots of land, even while earning incomes wholly or predominantly from non-farm sources. It is these very tiny holdings, along with free government food rations, that saved the day during the post-Covid economic collapse.

A picture in contrast

Between March 31, 2020 and June 30, 2022, the combined employee headcount at India’s top five IT companies (Tata Consultancy Services, Infosys, Wipro, HCL Technologies and Tech Mahindra) has gone up from 11.55 lakh to 15.69 lakh. That’s a jump of 4.14 lakh or nearly 36% – entirely in the period post the pandemic, when most other sectors, barring agriculture, were shedding jobs and slashing salaries.

The IT industry is clearly an isolated island of the Indian economy that added jobs during the pandemic and is continuing to do so. The five companies above, put together, have more employees than the 12.5 lakh and 14.1 lakh currently on the rolls of the Indian Railways and the three defense services, respectively. And with revenue per employee at Rs 34.5 lakh — the average for the big five during the year ended March 31, 2022 — this is also a high-productivity industry that is able to pay reasonably good salaries.

Much of the IT sector’s recent success is courtesy of exports. These have, in fact, boomed due to Covid’s triggering increased demand for digitization even among businesses that were hitherto slow in adoption: India’s net exports of software services have surged from $84.64 billion in 2019-20 to $109.54 billion in 2021-22.

But not everyone can be an IT professional. Given the lack of jobs in manufacturing — the sector potentially best placed to absorb the children of farmers and agricultural laborers — the bulk of the rural workforce is engaged in construction and the informal services economy. The somewhat better educated aren’t qualified enough to be programmers or write software code. They, then, aspire to join the armed forces or write the Railway Recruitment Board’s exams for NTPC (non-technical popular categories) posts.

It’s another thing that not much recruitment is happening nowadays in these sectors. This, even as more jobs are getting created in industries requiring different skill sets — and in no position to absorb surplus labor from the countryside.

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