Madan Sabnavis writes: The jobs puzzle

Context: While the government’s intent to add over a million jobs in the next 18 months is laudable, the task is audacious and challenging from both an administrative and financial point of view.

Important reports regarding employment

Three reports have appeared recently on the issue of jobs.

The first pertains to start-ups that have begun issuing pink slips to their employees. The number given for this year so far is above 10,000 and more could be in the offing.

The second pertains to the NSO survey, which says that the unemployment rate in 2020-21 (July to June) was at 4.2%, down from 4.8% in 2019-20. This sounds good because it seems that even though start-ups are retrenching staff, somewhere in the country, opportunities are being created.

And the third is the determination shown by the government in creating opportunities — it has assured the creation of one million jobs over the next one-and-a-half years.

Problems with the Unemployment data

The NSO data talks of the unemployment rate coming down to 4.2% in 2020-21. But this does not seem in sync with those times when several people had lost their jobs and when migrants were forced to go back home with their workplaces closing down.

In fact, the PLFS data does throw up some anomalies.

– From 2018-19 onwards, the unemployment rate has been coming down — from 6.1% in 2017-18 to 4.2% in 2020-21. But, during this phase, the GDP growth rate declined from 6.8% in 2017-18 to 6.5 per cent and 3.7 per cent in 2018-19 and 2019-20 respectively, contracting thereafter by 6.6 per cent in 2020-21.

– Therefore, there does seem to be something amiss here as lower GDP growth is being associated with a decline in the unemployment rate, which should be the other way.

What is the situation wrt unemployment in India?

Consumer durable goods have been registering negative or slightly positive growth for the last five years or so — this is a reflection of the purchasing power of the people that ultimately can be linked to job creation.

Why Start-ups cannot be relied upon for large scale job creation?

Globally, 80-85% of start-ups fold up in the first couple of years mainly due to non-viable models that fail the scaling-up challenge — when an enterprise that works at the micro-level does not survive as it expands.

For this deep pockets are required and if funds are not forthcoming, it adds to the pressures on the firm.

A fallout of this is retrenchment.

Therefore, while start-ups sound exciting, job creation at scale cannot be part of these experiments, unless there is an assured flow of funds.

What are the issues with the promise of 1 million govt jobs?

First, can this number be accomplished in this short period of time, considering that there are fairly lengthy processes involved in hiring people to government departments?

Second, hiring such a number is good for the country, but finding meaningful roles for them in various departments needs to be seriously examined.

Third issue is the increase in cost for the govt.

– As per the budget for 2022-23, the average outgo per employee was around Rs 12.20 lakh. Assuming the new set earns half of the existing average, the additional cost would be at least Rs 60,000 crore. The other associated cost that has to be kept in mind relates to pension funds.

Way forward

The overall unemployment picture looks complex today. While officially, the rate is coming down, experience during the pandemic doesn’t support such optimism.

The high hopes placed on startups to propel India have proved to be a dampener from the point of view of the stock market performance as well as employment. It has led to job destruction rather than creation.

India may have to wait for the traditional route of economic growth to gradually create spaces for more jobs.

Source: This post is based on the article “Madan Sabnavis writes: The jobs puzzle” published in Indian Express on 21st June 22.