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Home > India > News > Columnists > L C Jain

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The government's employment policy disappoints

September 25, 2008

The demerits of the draft National Employment Policy 2008 are glaring. It does not recall any tryst with employment policy in the past 60 years nor identify the lessons learnt. Further, it provides no clue as to the instruments which are to land the proposed 2008 policy in real life. The draft fails to comprehend let alone provide a reliable guide to combat the underlying causes for the persistence of mass unemployment over six decades and despite impressive rise in growth of GDP.

The most we can say about its merit is that it sketches varied contours and colours of unemployment specially by major sectors. Principally its suggestions are sector or segment specific. In the absence of identification of past lessons, it is not easy to appraise the worthwhileness of even its limited suggestions.

This handicap is doubled by its omission to spell out the instrumentality essential for implementation of the draft policy. It thus reduces itself to an academic exercise. One is constrained to say it is erudite but empty when it comes to its core concern, ie, to enrich India with widespread and rewarding productive employment.

To better understand our challenges on the employment front it is necessary to peep into the past record of employment policy, implementation and lessons. The first serious and sizeable assault on unemployment was initiated in the mid-'50s in the second plan.

Remember Mahalanobis who was summoned to duty by Nehru? He pinpointed that the overriding objective of our planned development must be to solve the unemployment problem at the earliest.

Mahalanobis assigned different but complementary duties to two vital factors of production -- capital and labour in a purposeful mix, and a third: 'choice of technology', an aspect highlighted at the time by economists KN Raj and Amartya Sen among others.

Operational details were spelt out. The key was to ensure widest possible dispersal of workstations across the country for easy access to the unemployed workers. This was also intended to contain exodus of the rural unemployed to urban areas as also to avert premature urbanisation.

Capital was to produce mother machines and labour was to produce wage goods. Labour-intensive industries were to be supported, protected and activated. Besides, where machine capacity to produce similar goods existed, its further expansion was to be kept on hold. A common production programme for such selected sectors was formulated by the Planning Commission. The Mahalanobis mantra was: keep capital idle if necessary, but not labour.

'In what period would it be possible to deal with the unemployment problem?' asked Prime Minister Nehru, presiding over the second meeting of the National Development Council in May 1955. Mahalanobis answered: 'If hand industries could be activated the fear of unemployment could disappear during a period of five years.'

More significantly and what is crucial and relevant still, he emphasised that the number of jobs which could be created were dependent also upon the pattern of investment. The employment component of heavy industries was low while it was high in the case of small scale and cottage industries.

This was a cogent package of policy and operational guidelines. Alas, little thought was invested on the best and effective way of implementation which was largely entrusted to various Union ministries which scarcely acted in concert -- an ailment which still persists.

Results were disastrous. After a review of progress in combating unemployment in the first two decades of planned development (end of '60s), economist Rajkrishna observed: 'The grave national problem of unemployment has defied solution in spite of two decades of planned development, reason is the tragic phenomenon of positive unemployment growth associated with a positive output growth.' Has this phenomenon changed since?

By 1987-88, the disjunction between output growth and employment growth had in fact worsened. At the beginning of the year 1990-91, the backlog of unemployment was around 28 million. The 2002-2007 Eleventh Plan approach paper innocently asks: Why higher investment and accelerated GDP growth have not led to satisfactory employment outcomes (even) in the recent past?'

In the same breath it admits that capital intensity in the economy has increased rapidly: the real capital stock per worker is now three times what it was in 1993; the capital stock per worker in the corporate sector is 13 times that in the unorganised sector, and is projected to increase at about 13-14 percent per annum.

The key factor underlying mounting unemployment in spite of rising volume of investment is the unwarranted capital-intensity in the pattern of production motivated mainly by a mindset which can cope with money, market, ministers, bureaucrats but not labour. It wants to employ fewer hands while enlarging production.

In this scenario the Eleventh Plan approach paper says that the target of creating 65 million non-agricultural opportunities will have to be shouldered by the unorganised sector, where it admits that employment is of poor quality and is as vulnerable to shocks as farmers. The workforce in unorganised non-agricultural sector at the end of 11th Plan would roughly equal the combined workforce in agriculture and organised sectors having already increased from 44 per cent in 1993 to 66 per cent in 2004.

According to the policy poets: employment in the unorganised sector is rising impressively. Of course, everyone who is unemployed qualifies to swell the ranks of the unorganised sector of which there are no reliable estimates.

The Eleventh Plan approach papers' response to cope with this grim scenario is pathetic. Its main suggestions: one, changes in existing labour laws to spur investments and growth in labour intensive sectors (!); two, policies to encourage corporate entities to enter more labour intensive areas (!!).

The suggestion to induce capital-intensive corporate sector to enter the labour-intensive segment is laughable. Capital consciously shuns labour and that explains the phenomenal deepening of capital-intensity.

However, at one place the paper faces the stark truth: if the corporate sector expands mainly by capturing existing markets from the unorganised sector, the total employment outcome would almost certainly be adverse since each new corporate sector job would displace several people in the unorganised sector.

Three, it offers no explanation why agriculture which engages two-thirds of our workforce, has been starved of even minimum capital, short term or long term. Besides, it sees additional employment prospects only in manufacturing and services and little in agriculture. It is oblivious to the real challenge in agriculture, that is to combat to raise production field by field and in all the millions of fields, to absorb more labour, eliminate underemployment and raise incomes for the millions of workers.

Alas, the draft policy paper has opted for 'ignorance is bliss', skipped all this knowledge and reality and served platitudes which do not add up to a serviceable employment policy.

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