The very first chapter of the Economic Survey released last week by the Government Of India makes for a very disappointing read. The bureaucrats ( or consultants ? ) who authored this survey seemed to have deployed all their skills to misrepresent the facts and paint a favorable picture about the direction in which this nation’s economy is headed. But one look at the sectoral GDP growth chart spanning the last 7 years will be sufficient to impress the dire condition of Indian industries on your minds. The survey itself is very upfront about this fact and openly acknowledges it in the very opening paragraph of the survey, it reads –

 “With agriculture and services continuing to perform well, India’s slowdown can be attributed almost entirely to weakening industrial growth.”

The survey informs us that the industrial growth – measured in terms of the Index of Industrail Production (IIP) grew by a dismal 3.6% during April-December 2011. The entire mining sector contracted by 2.2 % , production of coal and natural gas also showed a downward trend. The bogey of International slowdown and Eurozone crisis as the sole reason to explain the lacklusture performance of the manufacturing sector doesn’t stand scrutiny on many fronts. Firstly, this is slowest growth in the manufacturing sector in the last 7 years. The same survey informs us that the manufactuing sector managed to grow at 4.3% during 2008-09 – the peak of global recession , as opposed to the present growth rate of 3.9%. Secondly, many other countrues have managed to revive their industries and lead the global recovery despite the same International economic climate.

Why Manufacturing ?

There are two fundamental reasons why the Indian economy cannot be put on a sustainable path of Economic growth without a robust and dynamic manufacturing sector. Firstly, India is expected to add close to 250 million individuals to it’s workforce in the next 15 years. This has been labelled as demographic dividend by many thinkers and commentators – based on the crucial assumption that we would find productive avenues for this workforce. Given the unproductive nature of Indian agriculture and the limited scope of employment absorption into the services sector, manufacturing has been long identified as the only alternative. The approach paper to the 12th plan again reaffirms this as a key requirement for the Indian economy and says,

Unless manufacturing becomes an engine of growth, providing at least 100 million additional decent jobs, it will be difficult for India’s growth to be inclusive “

And secondly manufacturing growth is absolutely essential for India to control it’s trade deficit. Clearly a growing Indain economy is consuming far more than what is domestically produces, growth of imports like – oil, energy and manufactured goods have far outpaced the growth of our exports. India can neither solely rely on service and IT exports nor can we continue to export raw maerials and import finished goods.

Jobs and Labour

One of the most curious and alarming numbers related to employment data was made available by NSSO last year itself. The crux of the NSSO findings was that a mere 2 million jobs were created in the country in during the period 2004-05 to 2009-10. However in five years preceding this period i.e 1999-2000 to 2004-2005 the economy created around 92.7 million jobs. Despite faster growth the period 2004-05 to 2009-10 added a tiny fraction of the jobs added during the preceding five years. Employment intensity – no of persons employed per a lakh of GDP declined from 1.71 in 2005 to 1.05 in 2010. This was indeed a puzzle for the policymakers and the economists to reflect on.

Reflecting on the findings, Swaminathan Aiyar had speculated that it might be either due to increased interest in education, or due to other social factors. He had also called for more research into the starting findings. Now it seems like there are indeed other forces at play which are responsible for this fall in net employment numbers. CRISIL research has used the NSSO data and population data for the last year to assess the nature and quality of employment generation in the country during the last decade. The 12 page CRISIL report indeed adds a lot of value to the raw numbers produced by NSSO. The findings are quiet startling, relevant and must be looked at with concern.

The data notes that during both the intervals (2000-2005 & 2005-2010) around 27 million jobs (regular + casual) were created , the big divergence however seems to be in the self-employed sector. Whereas the NDA regime added 65 million jobs , the UPA regime resulted in a loss of 25 million jobs in the self-employed category. Sectorally, the UPA regime has managed to add a mere 9 million jobs in the services sector and the other 18 million jobs have been added in the construction sector ( NREGA impact felt here ). This table presents an excellent snapshot of where we are headed. Please do not ignore the numbers the numbers under the impression that these are 2 year old and hence irrelevant today. Kindly remember that the political and the economic vision hasn’t changed between 2010 and now. If anything we would have only continued our fall along the same trajectory.

The agriculture sector which absorbed 24 million people during the NDA regime has started releasing labor for other sectors. That is a welcome sign indeed. But the unfortunate part is that all this released labor has been completely absorbed by even lower productive construction sector ( read NREGA). This CRISIL report and many other independent accounts have acknowledged the fact that NREGA and other social-sector programes have substantially increased construction jobs.

R.Jagannathan of FirstPost presents a back of the envelope calculation here based on numbers reported by the Govt – which suggest that the Govt did indeed create 25 million jobs under the NREGA in 2010-11. So the CRISIL estimates do pass the sanity check on this count. With this background please do stare at that table for a brief period and reflect for yourselves about where our economy and industry is headed.

The domestic manufacturing sector is presently reeling under various pressures like booming interest rates, high input costs, governmental delays when it comes to allocation of natural resources and land. Though our labour market was unrefromed , till 2004-05 atleast they did have access to a labour source. But looks like the UPA has taken care of that too !! Many established clusters like the Tirupur textile industries have been facing severe heat for quiet sometime now. Clearly with the current politico-economic framework we will nowhere be near the Planning Commission target of 100 million new manugacturing jobs in the next 15 years. Also, by then this train called the demographic dividend would have long left the platform !!

The following two tabs change content below.

Manohar Seetharam

Latest posts by Manohar Seetharam (see all)