India Post Liberalisation: Jobless Growth and New Economic Policy

Ishita Srivastava

1833450

Christ (Deemed To Be University)

Abstract

This report summarizes the events that happened in India after implementing the New Economic Policy and the policies adopted by the government to curb the situation of jobless growth in the economy. Its main focus is on employment growth rate in various sectors of the economy and their employment elasticites. The report concludes by suggesting the promotion of entrepreneurship and small scale industries in India to bring more investment into the economy and to improve the labor force since such industries are labor and not capital intensive. Another policy suggested was the development of new industrial and service economy. The problems and policies are substantiated with adequate data and information from verified sources.

Keywords: New Economic Policy, Jobless Growth, Employment Elasticity

Introduction

Liberalization, Privatization and Globalization played a major role in putting an end to the license raj, bureaucratic control over the functioning of industries and provided more freedom to the private sector after being introduced in 1991. The economy experienced high GDP growth due to the boom in the service sector but lower unemployment growth characterized the period as the era of jobless growth. The boom in the service sector limited the employment generation capacity because it requires certain skill sets like technical knowledge and proficiency in English language. The manufacturing sector was undergoing stagnation along with the primary agriculture sector which could have contributed to substantial employment generation. The main reason behind low employment growth rate was the fall of government expenditure on employment generation programs and weakening of labor intensive manufacturing sector.

Problem of Jobless growth and New Economic Policy

In 1985, the policies of privatization were initiated in India which got a further push in 1991 under the new industrial policy of privatization, liberalization and globalization. This created a new atmosphere in which the policies pursued in India in the last four decades under the planning commission were considered dogmatic for the country’s economy. The process of liberalization started by deconstructing the rules and regulations which prevented investment from the private sector. It was also realized that the share of foreign investment in India was lower than other developing countries and to bring about technological advancement of the economy, free flow of foreign investment should be encouraged. The multinational companies were now allowed to invest in India by acquiring up to 51 percent equity stake without the government’s permission, but in hi tech areas even 100 percent foreign owned concerns were also allowed. This process was described as globalization.

The World Bank and the IMF combined had promised loans for the Indian economy to escape it from the foreign exchange crisis. These policies created hopes that they will result in boosting investment in the country by removing all the barriers that regulated investment. It was also hoped that as a consequence of growth of GDP which had resulted from increase in the level of investments, labor market growth will also improve and the economy could move towards better levels of competitiveness.

Dr. L.C .Jain, former member, Planning Commission, observes:” The gravest crisis Indian political, economic and social order faces today is the mounting unemployment. Nothing expresses the barrenness of pure growth rate development strategies more than the empirical results of the past decade in India. GDP growth rate has shot up from 3.5 to 5.3 in the period, but the employment growth rate has fallen from 2.82 during 1973-78 to 1.55 during 1983 to 1987-88. In agriculture, the employment growth rate declined from 1.8 to an insignificant 0.07 in the fifteen year period ending 1988.”(Table 1)

Table 1: Growth rate of Employment in India

	Rural	Urban	Total
1972-73 to 1977-78	2.52	4.30	2.82
1977-78 to 1983	1.74	4.10	2.22
1983 to 1987-88	0.95	3.79	1.55

Source: Planning Commission, Employment: Past trends and prospects for 1990s,    May 1990

The new economic policy through technological up gradation has promoted capital intensive technologies and as a result, employment elasticities have further declined. B.B Bhattacharya and Arup Mitra (1993), on the basis of the data obtained from 1981 to 1991 censuses have worked out the employment elasticities for various sectors of the economy for 1991. For the economy as a whole, employment elasticity was 0.45. For the primary sector, it was 0.74, but for the manufacturing sector it was 0.19. However, the employment elasticity  for the service sector was 0.65. (Table 2)

Table 2: Sectorial  Employment Elasticities in India, 1981-91

Sector	Employment Elasticity
Primary	0.74
Manufacturing	0.19
Construction	1.12
Trade and Commerce	0.37
Transport, Storage and communication	0.34
Other Services	0.65
All Sectors	0.45

Source: Bhattacharya, B.B & Mitra, Arup (1993)

By using the studies of Bhattacharya and Mitra and the actual observed growth rates, it was observed that the number of people unemployed rose from 11 million in 1990-91 to 17 million in 1991-92 and further  to 21 million in 1993-94. The rate of unemployment which was 3.1 percent in 1990-91 rose up to 5.5 percent in 1993-94. This is a very serious concern for the economy.

Apart from this, the major share of employment had been generated in the unorganized sector rather than the organized one. The structural adjustment programme which resulted in the reduction of employment in the organized sector has unfavorable implications for labor.

Estimates of Unemployment in India

Most of the unemployment existing in India are structural in nature, that means the country is unable to provide job to all job seekers since the resources in the country are limited. This happens when the skills of the workers do not match with the job vacancies or when not enough jobs are created to keep in pace with the increasing workforce. It requires huge investment in industries, on the job training to people and migration of people from depressed areas to curb such kind of unemployment.

Table 3: GDP, Population Growth Rate and Unemployment in India (1991-99)

	1991	1992	1993	1994	1995	1996	1997	1998	1999
GDP	2.701	2.882	2.793	3.27	3.602	3.928	4.16	4.21	4.59
Population Growth	2.03	2	1.97	1.94	1.91	1.89	1.86	1.83	1.8
Unemployment	2.36	2.4	2.57	2.59	2.61	2.66	2.63	2.67	2.74

Source: World Bank, ILO

As from the above table it can be seen that GDP in India has been constantly increasing after the New Economic Policy, but so is unemployment. Despite less population growth, unemployment was still increasing because of the reason stated above, structural unemployment. Also , there exists disguised unemployment in Indian villages where a piece o work is shared between more number of people than required. So, a person may seem employed but in reality he is just an extra set of hands since the work could be done with a few people.

Promotion of Entrepreneurship and Small Enterprises

Promotion of small enterprises is one of the most reliable way to increase employment. The employment elasticity of small manufacturing enterprises was estimated as 0.50 while that of large enterprises was a mere 0.20 for 1990 as estimated by the planning commission. Lack of credit facilities has been of  one of the most fundamental halt on the on the development of small enterprises. However, the Human Development Report (1993) states that “ The capital market is generally very unfriendly to the small entrepreneurs- particularly the poorest ones. Banks are generally unwilling to lend to poorer people, partly because they cannot offer acceptable collateral and partly because the sums they require are often too small to be profitable. So banks often ignore the needs of small scale operators in agriculture, in industry or in services- or between 30 to 70 percent of the labor force in developing countries.”

In order to actively encourage and support small enterprises, capital markets like banks should become more people friendly. For this, the banks should provide easy credit to small entrepreneurs and management skills training. Such an approach would not only be beneficial for the small entrepreneurs but also for the society as a whole since it promotes higher growth rate in GDP and employment. For the period 1972 to 1988, K.V Ramaswamy (1994) estimated that the employment growth rate in small scale industries works out to be 4.5 percent per annum and gross value added works out to be 8 percent. As compared to the large scale industries, small scale industries have shown better performance in terms of employment and gross value added. Hence, there is a need to promote less capital intensive and more labor intensive sectors of the economy.

Developing New Industrial and Service Economy

The technological revolution in informatics, computers and electronics has transformed operational activities in modern banking, finance, advertisements, communications etc. the difference between the manufacturing and the service sector has now become irrelevant. Nearly 2/3^rd of labor force in involved in services in the industrial economy. The service sector has a very great employment potential. The service sector should not only grow in India but should also expand its share in the global trade. This is an opportunity as well as a challenge to the economy’s development process. Allocation of social services has remained a neglected area in the Indian context. The need of the economy is to enlarge social services. There are many societal problems that need to be addressed in a welfare state. This sector can absorb a large number of unemployed if developed properly.

As a result of structural adjustment programme, there is bound to be an increase in the unemployment rate in the short term, but private sector participation along with high foreign direct investments will level up the employment rate in the medium term. Many economists disapprove that capital intensive strategy of development would help to increase employment generation even in the medium term.

Reallocation of investment in a decentralized pattern so that investment flows into the rural areas and doesn’t get restricted to the urban areas is a way to counter the phenomenon of jobless growth. Redistribution of assets in rural areas is an effective way to undertake land reforms. Recovery of agriculture in areas such as Bihar, Uttar Pradesh can enhance agriculture and employ more people in this sector. The New Economic Policy neglected agriculture but since it has high employment elasticity, it is important to allocate more resources in this sector to develop infrastructure in terms of rural credit and irrigation to meet the needs of the small and marginal farmers.

Conclusion

The report concludes that under the new economic policy, the process of liberalization, privatization and globalization were carried out due to which huge investments were made into the Indian economy. The rules and regulations which previously existed were swiped out and multinational companies were allowed to invest in our country. However, it was hoped that with an increase in investment and GDP growth the conditions of the labor market will improve which did not happen. With low employment elasticity in all the sectors of the economy, unemployment rose and the economy entered into the phase of jobless growth. Some policies such as promotion of entrepreneurship and small scale industries are suggested because they are mostly labor intensive and bring in  investments. Another policy of developing new industrial and service economy can also be put into action.

References

Datt, R. (1994). Jobless Growth: Implication of New Economic Policies. Indian Journal of Industrial Relations,29, 4th ser., 407-427. Retrieved February 21, 2019, from https://www.jstor.org/stable/27767324.

Jain, H. (2015). Manufacturing Growth and Employment Pattern in India since the 1990s. Indian Journal of Industrial Relations,50 (3), 412-424. Retrieved February 21, 2019, from https://www.jstor.org/stable/24549104.

Bhattacharya, B., & Mitra, A. (1993). Employment and Structural Adjustment- A Look at 1991 Census Data. Economic and Political Weekly.

Government of India (1994). Economic Survey (1993-94), Ministry of Finance, New Delhi

Jain, L.C. (1992), “New Economic Policy- Its Practice and Diabolic Character”, Janata.

Ramaswamy, K.V. (1994), “Small Scale Manufacturing Industries- Some Aspects of Size, Growth and Structure”, Economic and Political Weekly.

DataBank. (n.d.). Retrieved July 2, 2019, from http://databank.worldbank.org/

Human Development Reports. (n.d.). Retrieved July 3, 2019, from http://hdr.undp.org/en/reports/global/hdr1993

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