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Thirty years of liberalisation: Reforms lifted GDP growth but didn’t create enough jobs

Overall growth in jobs has been coming down in every decade since liberalisation. The KLEMS database shows that total employment in 2017-18 was lower than in 2011-12

July 06, 2021 / 10:33 AM IST

While GDP growth has improved post-liberalisation, it has failed to create enough jobs for the masses. Between 1991-92 and 2017-18, the compound annual growth rate (CAGR) of employment has been a piffling 1.04 percent.

The data have been taken from the KLEMS database, published by the Reserve Bank of India, which has data from 1980-81 to 2017-18. Incidentally, if we consider the pre-liberalisation period of 1980-81 to 1990-91, the CAGR of jobs created was 2.02 percent, which was better than in the post-liberalisation period.

What’s more, the employment situation seems to be going from bad to worse. For instance, between 1991-92 and 1999-00, jobs were added at a CAGR of 1.54 percent. Note that this was lower than in the pre-liberalisation 1980-81 to 1990-91 period.

Also Read: 30 years of economic reforms | Bottom 10% of population still do not live a dignified life: Senior economist Madan Sabnavis

During 1999-00 to 2009-10, employment increased at an even lower CAGR of 1.47 percent despite this period coinciding with a global boom, although, to be fair, it also included the Global Financial Crisis of 2008 and its aftermath.

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But jobs never recovered after 2010. During the period 2009-10 to 2017-18, jobs growth was almost non-existent—the CAGR was a minuscule 0.03 percent. In every subsequent period, growth in jobs has been at a lower rate. Indeed, total employment in 2017-18 was lower than in 2011-12, shows the KLEMS data.

One of the main reasons for the lack of overall job growth was the exodus of people from agriculture. The data show that jobs in agriculture and allied occupations peaked in 2004-05, and have been declining every year since then.

Also Read: 30 Years Of Economic Reforms | Taking stock of Indian banking

If we consider non-farm jobs, the picture is better. Between 1991-92 and 2017-18, the CAGR of non-farm jobs growth was 2.94 percent. The problem is that not enough jobs are being created in industry and services to absorb the workers fleeing unproductive agriculture.

But even job growth in the non-agriculture sector was higher in the pre-liberalisation 1980-81 to 1990-91 period, when its CAGR was 3.67 percent. Between 1991-92 and 1999-00, this CAGR fell to 3.05 percent, improved to 3.6 percent in the period 1999-00 to 2009-10 and then slumped to 2 percent in the 2009-10 to 2017-18 period.

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It’s not just the growth in employment that has gone down. India’s labour force participation rate (LFPR), defined as the number of people seeking work divided by the working age population, has been coming down over the years. In 1990, World Bank data show that India’s LFPR was 58.4 percent. By 2018 it had gone down to 49.4 percent. This decline was propelled by women withdrawing from the workforce—in 1990 female LFPR in India was 30.3 percent, which fell to 20.8 percent by 2019. Note that India’s female LFPR is even worse than deeply conservative countries such as Saudi Arabia. Why India’s women are leaving the workforce in droves and what can be done to get them back has been studied by policy-makers for years, to no effect.

What could be the reason for the lack of jobs despite higher growth in the post-liberalisation period? The data points to a crisis in agriculture, as farms get sub-divided into unviable handkerchief-sized plots as a result of population growth and people give up farming to look for alternative occupations. Industry, however, has become more and more capital-intensive, due to which jobs in industry are scarce.

Most of the refugees from unviable farms end up in the low-productivity, low-wage informal sector, where they eke out a precarious living and swell the population in slums.

In fact, there has been widespread casualization of work even in the formal industrial sector. The Annual Survey of Industries, which captures data from the formal industrial sector, shows that between 1995-96 and 2017-18, the CAGR of the number of direct workers went up by a mere 0.76 percent. However, workers employed by contractors increased at a CAGR of 6.83 percent over the period.

Simply put, the benefits of liberalisation have not translated into decent jobs for the masses.
Manas Chakravarty
first published: Jul 6, 2021 09:56 am

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