किस प्रकार जनसंख्या वृद्धि आर्थिक विकास को प्रभावित करता है ?

हाल के वर्षो में आर्थिक साहित्य में जनसंख्या वृद्धि का अर्थतंत्र पर पड़ने वाले  प्रभावों  को  दो तरह से विवेचित किया गया है -

प्रथम - वचत प्रभाव ,
द्वितीय - निवेश संरचना  प्रभाव,के रूप में -

प्रथम के सन्दर्भ में यह तर्क दिया जाता है कि सतत जनसंख्या वृद्धि से अर्थव्यवस्था में निर्भरता अनुपात में वृद्धि होती है , क्योंकि उच्च प्रजनन दर के साथ वच्चों एवं वृद्धों के आयु समूह की घटती मृत्यु दर से गैर - कार्यकारी जनसंख्या का अनुपात कार्यकारी जनसंख्या के सापेक्ष अधिक हो जाता है जिससे कार्यकारी जनसंख्या द्वारा की गई वचत  गैर - कार्यकारी जनसंख्या के पोषण में खर्च हो जाता है . इसे जनसंख्या वृद्धि का वचत प्रभाव कहा जाता है.
दुसरे अर्थात निवेश प्रभाव के सन्दर्भ में यह तर्क दिया जाता है कि निवेशयोग्य संसाधनों का महत्वपूर्ण हिस्सा अतरिक्त लोगों के गैर-उत्पाद्कीय सुविधाओं कों उपलब्ध करनें में खर्च हो जाता है. यदि जनसंख्या तेजी से न बढ़ रही होती तो इस तरह के अनावश्यक निवेश की जरूरत नहीं पड़ती .
रावर्ट केसन  वचत एवं निवेश प्रभाव कि वैद्यता पर ही संदेह व्यक्त करतें हैं , उनका मानना है कि गरीब देशों में वचत का बड़ा हिस्सा धनाड्यों के एक छोटे से समूह से आता है जिनकी प्रजनन दर बहुत कम होती है . अतः अतरिक्त वच्चों कि उपभोग आवश्यकताएँ वचत को प्रभावित किये विना ही पुरी हो जाती हैं . इस प्रकार अतरिक्त वच्चों कि वचत लागत तर्क स्वीकार नहीं किया जा सकता है.

निवेश प्रभाव के सन्दर्भ में केसन का मानना है कि यह जनसंख्या सिद्धांत एक ऐसे महत्वपूर्ण तथ्य पर कोई विचार ही नहीं करता है कि मूलभूत उपभोग वस्तुओं अर्थात खाद्द्यान  के उत्पादन की संसाधन लागत क्या है ? दीर्घकाल तक एक समाज कृषि उत्पादन को श्रम के प्रयोग के माध्यम से ही बढ़ा सकता है अतेव बढती जनसंख्या के पोषण का मुख्य साधन तो स्वयं जनसंख्या है ऐसी स्थिति में पूंजी कि आवश्यकता होगी वेज गुड्स के उत्पादन में , किन्तु एक ऐसा बिंदु आयेगा जब कृषि उत्पादन बढ़ने के लिए अधिक उत्पादन देने वाली आगतों मे और अधिक निवेश किया जाय, जो विदेशी विनिमय और पूंजी दोनों के लिहाज से खर्चीला सिद्ध होगा . जैसा कि कोल हूबर माडल तर्क करता है कि   धीमी जनसंख्या वृद्धि से श्रम की उत्पादकता बढाने के लिए अधिक पूंजी उपलब्ध होगी क्योंकि कल्याण व्यय काम हो जायेगा. इसी प्रकार केसन तर्क देते  हैं कि कृषि उत्पादन बढ़ाने के लिए जिस विदेशी विनिमय और पूंजी कि अवसकता होती , वह बच जाती. उनका मानना है कि पहले के माडल सिर्फ कल्याण लागत तक ही सीमित हैं , जब कि वास्तविकता यह है कि अतरिक्त पोषण लागत भी बढ़ जाती है. भारत १९6०  के दशक में ही इस स्टेज में पहुँच गया था

रोजगार

EMPLOYMENT AND GROWTH
C. RANGARAJAN




Accelerating growth and expanding employment opportunities are the goals of economic policy. To provide productive employment for the continuing increase in the labour force is an integral part of our objective of inclusive growth. In a broad sense, there is no conflict between the two objectives of growth and employment. Over time, the two go together. Higher growth leads to enhanced employment. However, the question that arises is at what rate? Employment elasticity with respect to output measures the percentage increase in employment due to a percentage increase in output. The overall employment elasticity of an economy is the combined effect of the sectoral employment elasticities and the composition of output. It is also true that as an economy grows, employment elasticity may fall which is in part a reflection of the improved productivity of labour. Improved productivity of labour is necessary in order to sustain higher real wages. In this context, it is important to note that while the unemployment rate according to the CDS measure was only 7 per cent in 1999 – 2000, the percentage of population below the poverty line was 26 per cent. Thus an overall employment policy needs to address not only the quantity or the number of people employed but also the quality of employment in terms of real wages of the employed.


Employment elasticity varies from sector to sector. Some sectors, by their very nature, are labour intensive. Also demand for labour depends on the relative prices of capital and labour. In a labour abundant economy, the price of labour is cheaper than that of capital, favouring labour intensive technologies wherever feasible. Thus any programme aimed at expanding employment opportunities must focus on three factors – growth, productivity of labour and relative price of labour and capital. The structural changes that occur in the process of growth have also a bearing on employment trends. India has come a long way in establishing and guaranteeing the rights of labour. We need to modify our labour laws as circumstances change without diluting the basic rights guaranteed to workers. It is recognized by all that improved productivity holds the key to raising real wages and this has to become the concern of both management and labour. Confrontation should give way to cooperation without compromising the basic rights of labour or the larger national goals.
This paper is divided into four sections. Section I deals with the structural changes in the Indian economy both with respect to output and employment and compares these developments with other developed and developing countries. Section II provides a detailed picture of the trends in employment and unemployment in India and pinpoints the areas of concern. Section III offers an employment strategy, which will help to absorb the increase in labour force and clear the backlog of unemployed. Section IV makes some concluding observations.


Structural Changes in the Economy


The structural changes in the process of economic growth have been studied at length. The historical experience of the developed countries in this regard spanning nearly 200 years is now available. The pattern of economic development of today’s developed countries has followed a common pattern. Initially, the share of agriculture in total output declines, while that of industry registers an increase. Historically this process has lasted for considerably long period. However, eventually the share of services increases with the share of industry declining. Thus typically the process of economic development is marked by three distinct phases: an initial phase of the dominance of agriculture, an intermediate phase dominated by industry and a final phase dominated by services. The timing of the different phases of structural change and the duration of such changes have, however, been different across different countries. At its peak, industry had accounted for 50 per cent of the total output in many of these countries. In most of these countries, it declined in the later phase to around 25 per cent.


To cite the example of UK, in 1801 the shares of agriculture, industry and services in the national output were 32 percent, 23 percent and 45 percent respectively. In 1901, the shares were 6 percent, 40 percent and 54 percent respectively. In 2002, the shares were 1.5 percent, 23.5 percent and 75 percent respectively.


Most of the developed countries today have a remarkably similar structure of output. The general pattern is that agriculture contributes less than 5 per cent to GDP, industry 25 to 30 per cent and services around 70 per cent. In fact, another remarkable feature is that the share in employment of the different sectors is also similar to the share in output. Typically, the share of agriculture in employment is around 5 per cent, that of industry between 21 per cent and 33 per cent and that of services between 63 per cent and 74 per cent (Table 1a).


The pattern of structural changes seen in the growth process can be analytically explained in terms of income elasticity of demand and supply side factors such as technology. The experience of the newly emerging industrial countries also seems to follow the pattern seen in the case of developed countries. However, the time dimension for the structural shift has changed. The shift from agriculture to industry and from industry to services has all been telescoped in to a shorter span. For example, China’s path of development has been somewhat similar to those of the developed countries. China still seems to be in the intermediate phase. The share of agriculture in output in 2002 has come down to 15 per cent, while industry accounts for 51 per cent and services for 34 per cent of the GDP.


India’s experience in this regard is somewhat unique both with regard to the pace of structural transformation as well as with regard to the impact of that transformation on employment. In India too, the structural transformation followed the typical pattern of agriculture yielding to industry, and industry in turn yielding to the service sector. However, what distinguishes our experience is the dynamics of this shifting pattern. There was a period during which the share of agriculture in total output was declining and the share of industry was increasing. This trend had however come to an abrupt halt with the share of services going up sharply. In 2002 for example, the share of agriculture in the GDP had fallen to 24 per cent. While the share of industry remained somewhat constant at around 25 per cent, share of services had touched 51 per cent. Such a large share for services in the total output at a relatively early stage of development is untypical – a trend that has prompted some economists to wonder if India has defied the conventional paradigm of economic development by ‘leapfrogging’ over the manufacturing sector by shifting directly from agriculture to services.


The second distinguishing feature of our development experience relates to the change in the pattern of sectoral shares of employment. Typically the employment shares have shifted in tandem with sectoral shares in output (Table 1b). That is, as the share of industry in output went up and the share of agriculture came down, the employment shares too shifted with labour shifting from agriculture to industry and then on to services. Thus, for example, between 1960 and 2000, the share of agriculture in China’s GDP declined from 30 per cent to 15 per cent. Correspondingly, the share of agriculture in China’s employment fell from 70 per cent to 47 per cent. These dynamics have been much slower in India. That is the pace of employment shift has lagged behind the pace of sectoral shift in output. For instance, although the share of agriculture in total output declined substantially, the share of agriculture in total employment has not declined by as much as we would expect by extrapolating from other country experiences. Conversely, even though services accounted for nearly 51 per cent of the output in 2002, their share in employment was only 22 per cent. This is particularly striking because in our case agriculture yielded share not so much to industry but to the service sector which has an employment elasticity higher than the employment elasticity of agriculture.


What could be a plausible explanation for the employment shift lagging behind sectoral shift in output? Could it be that part of the explanation lies in the initial conditions in the sense that the initial share of labour in agriculture was disproportionately high? This is another area of further research in order to have a satisfactory answer. It might take a much longer time for the excess population in agriculture to be absorbed by the other sectors.


Current Scenario of Employment and Unemployment


What is the current situation relating to employment and unemployment in India? An analysis of the recent trends in these variables and an understanding of the factors accounting for those trends is essential if we are to formulate an effective strategy to promote employment. At the outset, we need to preface that with a few words on the data that is available. The major source of information on employment and unemployment has been the National Sample Surveys conducted periodically by the Department of Statistics (National Sample Survey Organization). Besides, there are other sources such as the Employment Exchange Registers, the Decennial Population Census and Economic Census by CSO. The NSSO conducts quinquennial large sample surveys as also annual thin sample surveys. Results of thin sample annual surveys have to be examined with care as to their statistical significance. The National Sample Surveys provide three different measures of employment and unemployment: usual principle status (ups) that indicates a status in terms of major time over the 365 days before the date of interview; current weekly status (cws) where the reference period is the week i.e. the 7 days preceding the interview and current daily status (cds) that reflects labour time disposition during each day of the week in terms of two half days. For each ups status person (employed, unemployed, out of labour force) a subsidiary status (ss) is also recorded. There is no agreement among analysts on which of these measures provides a more accurate insight into the employment and unemployment situation. The Task Force on Employment Opportunities used the usual principal and subsidiary status for analyzing employment and unemployment whereas the Special Group on Targeting Ten Million Employment Opportunities per year used the current daily status data. Given the availability of different sets of data, it will be a good practice to compare the conclusions drawn from one set of data with conclusions from another set just for a reality check.


An analysis of the data for the period 1972-73 to 1999-2000 shows that changes in labour force and employment have been broadly in line with changes in population. However, the growth in employment has always lagged behind the growth in GDP.


The rate of unemployment as measured by the National Sample Surveys appears to have increased in the 1990s. The unemployment rate, as measured by the current daily status, increased from 6.03 per cent in 1993-94 to 7.32 percent in 1999-2000. On the usual principal and subsidiary status also, unemployment has increased during this period from 1.90 per cent to 2.20 per cent. It may be noted that on the UPSS basis, the increase in unemployment has been modest. Also the absolute level is much lower (Table 2).


Areas of Concern


What has attracted much attention in recent discussions is the fact that the rate of growth of employment has declined sharply in the 1990s as compared to the 1980s. It has come down from 2.04 per cent per year in the period 1983-84 to 1993-94 to 0.98 percent per year in the period 1993-94 to 1999-2000.This sharp deceleration in employment growth must be carefully interpreted. It has to be seen in the context of the fact that the rate of growth of labour force too has fallen from 2.05 per cent in the period 1983 to 1993-94 to 1.03 percent in the period 1993-94 to 1999-2000 (Table 3). Also in the computation of the absolute level of employment, the labour force participation rate as well as the percentage of employed workers to total number of workers obtained from the surveys are used. Notwithstanding these qualifications, there is no denying that the growth of employment has lagged behind the growth of the labour force (Table 3).


The decline in the labour force growth rate has a positive feature. It will mean a reduction in the new employment opportunities required to be created. In part, the decline in the growth rate of labour force is explained by the decline in population growth rate, which fell from 2.14 per cent per year in the period 1983 to 1993-94 to 1.93 percent in the period 1993-94 to 1999-2000 (Table 3). But the deceleration in the growth rate of labour force is much steeper than that in population. There must, therefore, be other factors contributing to the decline such as more people in the younger age group staying back in schools or colleges longer thereby delaying their entry into the labour force. That the annual increment to labour force in the 15-29 year age group has declined adds credence to this view.


With employment growth lagging behind output growth, sectoral employment elasticities with respect to output as well as the aggregate economy-wide elasticity have come down. Between the two periods, 1983 to 1993-94 and 1993-94 to 1999-2000, the aggregate elasticity has come down from 0.41 to 0.15 (Table 4). At a disaggregated level, the sharpest fall has been in agriculture and mining where the employment elasticity in the later period has come down to zero. The decline in elasticity need not be viewed as a disturbing feature as there are reasons to believe that part of the decline in elasticity is due to increased productivity as evidenced by an improvement in real wages for both rural agricultural and non-agricultural labour between the two periods. Employment elasticity has also come down sharply in community, social and personal services from 0.50 to 0.07 between the two periods (Table 4). This is mainly because of the deceleration in public sector employment including government employment. Employment growth in this sector declined from 2.90 per cent in the earlier period to 0.55 per cent in the later period (Table 5).


Another area of concern in recent years has been the decrease in organized employment as measured by the Employment Market Information (EMI) System maintained by the Director General of Employment and Training. These data show a decline in employment from 28.1 million in 1999 to 26.4 million in 2004 (Table 6). There are reasons, however, to believe that the DGE&T data understates the number of workers in the organized sector. Some studies have suggested that the regular wage and salary-earning workers as measured in the NSS data is a better measure of the organized segment of workers than the DGET data. Based on NSS data, it has been shown that average annual increments in the organized sector employment during the 1990s was higher than in the previous ten years for all categories of workers. Indeed, according to NSS data, the number of regular wage and salary earners increased from 39.0 million in 1983 to 48.6 million in 1993-94 and then on to 57.4 million in 1999-2000 (Table 7). Consistent with this is the finding that unemployment among educated youth has declined from 18.5 per cent in 1993-94 to 14.8 percent in 1999-2000(Table 8).


There is a wide variation in unemployment rate across states. Measured on current daily status basis, unemployment ranges from a low of around 3 per cent in Himachal Pradesh and Rajasthan to a high of 21 per cent in Kerala. Tamil Nadu at 12.05 percent and West Bengal at 14.95 per cent also have high unemployment rates (Table 9). Surprisingly, the ranking of states according to unemployment rate has poor correlation with the ranking of states either according to the level of per capita SDP or the growth rates. This counter-intuitive variation among states needs a deeper probing.


The recently published Report of the Fifth Economic Census 2005 shows the employment picture in a better light. Provisional results published in the Report show that in the year 2005, there were 42.12 million enterprises in the country engaged in different economic activities other than crop production and plantation. Out of this 25.81 million enterprises (61.3%) were in the rural areas and 16.31 million enterprises (38.7%) were in the urban areas. These enterprises employed 98.96 million people. More importantly, the average annual growth rate in total employment in these enterprises since 1998 is 2.49 per cent which was higher than the growth in the labour force. According to the previous census, the annual growth rate of employees in such enterprises between 1990 and 1998 was 1.71 per cent. There is thus a distinct improvement in the period 1998-2005. While this development is reassuming, it still represents only a partial picture of the employment scene.




Towards an Employment Strategy


While there may be some divergence of opinion on the extent of underemployment and unemployment, there is convergence of views on the need to expand employment and on the broad policy to achieve that. The employment strategy must seek to achieve two things. First, create productive employment opportunities to absorb the annual addition of 8 million or more to the labour force and second to improve the ‘quality’ of employment in several sectors such that real wages rise through improved productivity. In line with the recommendations of Task Force on Employment Opportunities, the four components of an employment strategy should be:


(i) Accelerating the rate of growth of the economy;
(ii) Special emphasis on relatively more labour intensive sectors and inducing a faster growth of such sectors;
(iii) Improving the labour skills endowment in general, paying particular attention to identifying specific skill gaps and taking effective steps to fill them; and
(iv) Improving the functioning of the labour markets through such modifications as may be necessary without eroding the core labour standards.


It is pertinent to mention that the first two components are aimed at generating demand for labour, the third has to do with improving the supply and the last relates to regulating the labour market to match the supply with demand. These aspects are dealt with one by one.




(i) Accelerating Growth


Let us first turn to economic growth. Accelerating and sustaining a higher growth rate of the economy is central to improving employment opportunities. As already indicated, the employment elasticities across all sectors of the economy have declined over time. This is in some ways to be expected. However, the derived employment elasticities for the period of 1993-94 – 1990-2000 might have been depressed for a variety of reasons. The Task Force on Employment Opportunities assumed slightly higher employment elasticities than was observed in the period 1993-94 – 1999-2000 while making projections. The higher the rate of economic growth, the larger will be the resultant employment. In line with this, the projections provided in this Report indicate that with an annual growth rate of 8 per cent in GDP, in the terminal year 2012, the unemployment rate will fall to 1.03 per cent if the labour force grows at 1.5 per cent per annum. With a 9 per cent rate of growth under the same assumption of growth in labour, there will be no unemployment in the terminal year 2012. If labour force growth is not 1.5 per cent, but higher at 1.8 per cent, there will still be an unemployment of 1.99 per cent in the terminal year. In some ways, these are mechanical calculations. Nevertheless, they point to the powerful impact that growth will have on employment.


The Report of the Task Force on Employment Opportunities was released in June 2001. Its projections were made on the assumption that the economy would grow at 8 Per cent per annum from 1999-2000. However, the actual growth rate between 1999-2000 and 2004-05 was lower at six per cent. We have, therefore, reassessed the projections starting from the base 2004-05. Assuming an overall elasticity of .22 and corresponding sectoral elasticities, we find that employment grew between 1999-2000 and 2004-05 only at an annual rate of 1.3 per cent. This is lower than the growth rate of labour force. Our projections now show that with an annual growth rate of 8 per cent in GDP and a labour force growth of 1.5 percent per annum, it will take up to 2017 to reach the point when there is no unemployment (Table 10). However, with a 9 percent rate of growth and under the same assumptions of growth in labour force and sectoral elasticities, there will be no unemployment by 2012 (Table 11). Obviously, if the labour force growth is not 1.5 per cent but higher at 1.8 per cent, the unemployment rate in 2012 will be 2.48 per cent. It is now generally believed that it will be safe to assume a growth rate of 8.5 per cent for the next five-year period and beyond. An assumption of a growth rate of 8.5 per cent will mean that it will take up to 2015 to eliminate unemployment. It is interesting to note that with an overall growth rate of 9 per cent, in 2012, agriculture will still account for 50 percent of the total employment.


Achieving a growth rate of 8 per cent is very much in our grasp. Indeed, the average growth rate for the last three years including the current year comes to this figure. Sustaining this growth rate into the future over a period of 10 years will demand that we evolve an appropriate macro-economic policy framework to achieve this goal. As one surveys the period since 1991-92, it is clear that the economy has shown distinct improvement in several areas. The broad philosophy of promoting a competitive environment must be pursued. It is this which will pave the way for improving the productivity and efficiency of the system. However, in order to sustain the growth momentum of the order achieved in the last few years, we must pay special attention to three areas. These are (a) enhance the level of savings and investment, (b) substantively improve and expand the infrastructure facilities; and (c) continue with the process of fiscal consolidation. Going back to the basic issue of employment, it needs to be stressed that without a substantial growth in GDP, the problem cannot be resolved. It is this which must receive central attention in our employment strategy.




(ii) Sectoral Policies


The second demand side intervention for generation of employment lies in the pursuit of sector specific policies. Sector specific policies are intended to accelerate growth of the labour intensive sectors. This has to be done within a framework which promotes efficiency in resource use. Both the Task Force on Employment Opportunities and the S.P. Gupta Committee has identified the sectors which would require focused attention. These include among others agriculture, food processing and small-scale units in various sectors. In sectors such as agriculture, higher growth will result not in an increase in employment but in improving the incomes of the people dependent on agriculture. The focus here is on ‘quality’ rather than quantity of employment. In fact, we must recognize that as the agriculture sector grows, its employment elasticity must not only decrease but turn negative such that the excess unproductive labour in the agriculture sector shifts to productive employment in industry and services.


In the context of sectoral policies, small-scale industries have received special attention because of their higher employment intensity. In all countries, the large coexists with the small. Apart from goods and services which require specific customer orientation, small scale industries can be efficient and competitive in all areas where production is scale neutral. In fact, the advent of computer-communication technologies has made several activities scale neutral. The broad approach should be to remove the impediments that come in the way of their effective functioning such as, for example, the bottlenecks in the provision of credit. In short, the focus should be on creating an environment in which such units can produce goods and services efficiently. Market imperfections which adversely affect such units must be remedied.


Employment elasticities differ widely across sectors. In some sectors, there is no further scope for employment even as output increases. Apart from pure agriculture, this is true of the ‘Mining and quarrying’ sector. The service sectors have an elasticity ranging fro 0.3 to 0.5 . However, to have an impact on the overall level of employment, the sector should not only have a higher employment elasticity but also a large base. From our projections, it is seen that even if the service sector grows at more than 10 per cent, its share in employment by 2013 will still be only 29 percent rising from the level of 23 per cent in 1999-2000.




(iii) Skill Development


Augmenting the skill endowment of our labour force is fundamental to improving the productivity of labour. Our workers have native talents and potential. However, much of their skills have also to come from ‘learning by doing’. Focused training will go a long way in improving their capabilities. Much of our work force at the bottom rung has not had adequate schooling. Almost 44 per cent of the labour force in 1999-2000 was illiterate and 33 per cent had schooling only to secondary education level. A silver lining though is that the new entrants to the labour force will be better educated than their predecessors.


There is, however, a much broader question to address, that of the mismatch between the supply and demand for skills. As the economy grows and diversifies, we will need people with varied skills. In fact, we need more technicians than engineers, more para medical staff than doctors. Our educational system is yet to come to grips with these problems. Even at school level, vocational training has lost much of its focus. There must be a constant effort to identify gaps in the supply of labour and to provide training to make available the skills that are in short supply. Even in the burgeoning IT industry, which is the flagship of our emergence as a knowledge economy, some analysts feel that we may run into a supply constraint with respect to higher quality professionals. Industry Associations and Governments at various levels must attend to this all-important task of expanding and improving the skill endowment of our labour force. We need to improve the ‘employability’ of our labour force by matching the supply with the demand for skills.


(iv) Modifications in Labour Laws


Government regulation of labour markets has typically been on three fronts: the wage setting process, the labour working conditions and the hiring & firing process. Labour market regulation, like regulation in other areas of public policy, has been justified on the ground of market failure – that an unregulated market will not deliver efficient and equitable outcomes because of unequal bargaining power, information asymmetries and market rigidities.


Although set in the context of balancing the interests of the labour vis-à-vis the interests of firms, labour market regulations have an impact which extends far beyond the impact on the immediate stakeholders which are the firms and workers. For instance, very stringent regulations on job protection can reduce incentives for firms to hire more workers. The net effect is protecting existing jobs at the expense of creating new jobs.


The issue of labour reforms has been a matter of intense debate for the last decade and half. Firms in India no longer enjoy the comfort of protected markets. The environment in which they operate has become more competitive, both nationally and globally, challenging them to be innovative and efficient. They need flexibility in dealing with labour as well. Labour reforms are a sensitive issue. It is extremely important not to give the impression of going against the interest of labour. At the same time, firms need to be given larger flexibility, but in a manner that does not militate against the basic concerns of the labour.


In recent times, discussion of labour reforms has centered around two issues. One relates to Chapter V-B of the Industrial Disputes Act and the other relates to the Contact Labour Act. Under this Chapter V-B, all establishments employing above 100 workers have to seek prior permission for closure, retrenchment and lay offs. At the outset, it must be noted that the labour rigidity effect of this Chapter has implications for only 2.5 per cent of the work force and 10 per cent of the industrial establishments. Several commissions and committees have gone into the advisability of relaxing or modifying this provision. Employers want this provision relating to prior permission to be deleted. One approach, as recommended by the Second National Commission on Labour, is to raise the limit and apply the rule only to establishments employing over 300 persons. It is understood that the Maharashtra State, with the permission from the Centre, had raised the limit to 300 workers for mandatory sanction. The other preferred alternative is to delete the provision but to pitch the compensation payable at a much higher level to prevent trivial attempts on the part of employers to close the establishments.


The Contract Labour Act seeks to abolish contractual employment in activities and processes which are identified as core or perennial activities of the concerns. Too rigid an application of this provision can prevent outsourcing which is becoming an increasingly common practice. An option would be to define the concept of core activities more narrowly and simultaneously to improve the working conditions of contract employees.


One significant factor in the employment situation in our country is that the bulk of the employment is in the unorganized sector. It should be the endeavour of our policy to shift as much of the labour force as possible from the unorganized to the organized sector. This would give the workers a better deal in terms of wages. This is possible only if the rigidities in the labour market are relaxed and wage determination begins to reflect the resource endowment in our country. This would discourage firms to prefer capital-intensive technologies over labour intensive technologies.


There are many regulations outside of wage determination and hiring process such as, for example, regulations relating to working condition, which are cumbersome, but less contentious. These regulations do not have a direct impact on the workers. Streamlining these regulations should be less of a problem.


No discussion of the employment situation or an employment strategy will be complete without a reference to the social safety nets for workers. Social security in a broad sense is available to workers in the organized sector. We must also recognize that social safety nets are needed in the context of the structural transformation in the economy when some segments decline and some others expand. The process of transition of workers from one industry to another must be managed both by the provision of financial compensation and through retraining of skills. Closely related is the issue of providing social security to workers in the unorganized sector. This has to be done without imposing too much of a burden on the employers in this sector who may themselves be weak.


The launching of the National Rural Employment Guarantee Scheme (NREGS) in 200 districts of the country last month is by far one of the largest social safety-net programmes instituted anywhere in the developing world. The NREGS is also historic for we now have for the first time a demand driven employment scheme unlike the several supply driven schemes of the past. By assuring 100 days of manual work, it provides a fall back position to at least one member of every household in the rural areas. In fact, if the rural economy improves and there is a substantial growth in agriculture as well as in other allied activities, the demand for work under this programme will decrease.




Conclusion


In conclusion, let us summarize the employment scenario and the thrust of the appropriate employment strategy. The growth process has brought about significant changes in the structure of the Indian economy. Defying somewhat the conventional paradigm of development, the share of services has touched 51 per cent of GDP at a relatively early stage of development. However, the employment shift has lagged behind shift in output. The share of services in employment is only 22 per cent. The last decade has seen a decline in the aggregate sectoral employment elasticities. This is in part a reflection of increased productivity. The rate of growth of employment has declined in the 1990s. But this must be seen in the context of the deceleration in the rate of growth of labour force. All the same, the growth rate of employment has lagged behind the growth rate of labour force.


Accelerating growth is central to expanding employment opportunities. We need actions both from the demand and supply sides in order to achieve higher levels of employment. On the demand side the most potent force is growth. Estimates show that with a sustained growth of 8.5 per cent per annum, by 2015, unemployment will be totally eliminated. The macro economic policy framework must be such as to facilitate accelerated growth. The second demand side strategy lies in the pursuit of sector specific policies aimed at the growth of labour intensive sectors. This must be managed in such a way that there is no compromise with efficiency. The supply side interventions should be in capacity building and enhancing the skill endowment of the labour force. There must be constant efforts to identify gaps in skills and to provide training to make available the skills that are in short supply. The labour market should be made more flexible to enable a shift of labour force from the unorganized to the organized sector. Providing additional employment opportunities to 8 million people every year is going to be a formidable challenge. With growth rate picking up and with a harmonious relationship between management and labour, we are confident we can meet this challenge.
[The author gratefully acknowledges the help provided by Dr. D. Subba Rao and Shri Sailendra Sharma in the preparation of the article. Prof. Suresh Tendulkar offered extensive comments on the original lecture for which the author is grateful. The author also wishes to thank Shri Gopal Prasad and Ms. Seema for research assistance. The responsibility for errors, if any, in the article is that of the author]

भारतीय अर्थव्यवस्था में संकट

Session 6
Bimal Jalan, India’s Economic Crisis, pp. 1-60
pp. 1- 35

Introduction

1. 1990-1991 (the year this book was written) was a year of economic crisis in which India faced a very high fiscal deficit and dangerously low foreign exchange reserves.
a) The fragility of India’s economy was revealed when the Iraqi invasion of Kuwait shot up oil prices for a period of six months and domestic political upheavals (conflict over Ayodha mosque, student protests), both led to crisis in the economy.
b) Direct political consequence was fall of the government, making it even more difficult to borrow internationally and decreasing the flow of money from Indians living abroad.

2. In contrast to the dismal state of the Indian economy in 1990-1991, the 1980s seemed to show that India’s economy was poised for a breakthrough.
a) Growth rate for decade was higher, capital markets were buoyant, and industrial growth averaged more than 8%. Gov’t was moving away from direct quantitative control of certain parts of the economy to fiscal methods of control.
b) But, these gains were temporary. Bigger problems were lurking, bringing about the crisis of 1990-1991:
i) Huge balance of payments problems
ii) Large accumulation of external debt and widening of current account deficit, rendering economy highly vulnerable to external shocks
iii) Foreign exchange reserves precipitously fell in 1980s. On Jan 18, 1991, foreign exchange reserves consisted of a mere RS 1666 crores, barely enough to meet daily cash requirements for India’s economy.
iv) Curtailments of imports to address foreign reserve problem and increases in oil prices exacerbated the problems.
v) Result: inflation in the double-digits

3. These problems lead one to re-examine the basic and interrelated premises of India’s development planning.

4. At the heart of India’s development model lies a visions of the nature of the Indian state:
a) Inherited a overdeveloped bureaucratic and military apparatus from colonial state.
b) State supposed to unify the nation by “transcending” narrow class and sectional interests.
c) Early development literature in 1940s and 1950s and India’s post-independence leadership shared the notion that the Indian state was a benevolent state equipped with sufficient information and knowledge to act in society’s interest. To this end, the state was to take on the role of promoting economic development through growth and redistribution.

5. This assumption of a welfare maximizing state was unrealistic in practice.
a) The framework presented by Mancur Olsen and Bardhan explains the evolution of state policy in Indian. They theorized that industrialists, rich farmers, and educated professionals negotiate policy packages to help themselves. These groups see gov’t budget as a giant mechanism for dispensing subsidies, overt and cover to various groups in society.
b) Thus, coalitions of interests among political decision makers, bureaucrats, trade unions and industry all stood to gain from excess expenditure by the Indian gov’t and the public sector.
c) The bigger point: the state is not a disinterested reconciler of different interests in society.

6. India’s five-year plans for development also relied on the premise that the nation would be able to develop capacities for administration from the center, at the village level and everywhere in between. This was problematic because:
a) The plans totally underestimated the administrative constraints that were present to developing this capacity.
b) The system had far too many levels of decision making, was overcentralized, and delivered poor administrative quality.
c) The expansion of the administration was inefficient.
d) There was also a real cost incurred through administrative delays: rise in capital-output rations, slowdown in capital formation, and diversion of scarce administrative manpower and entrepreneurial energies to unproductive tasks.(Little, Scitovsky, and Scott, 1970)

7. A third problem with India’s development strategy was the absence of a link between priorities and policies. Closer harmony between would have been better.
a) Adopted command-type planning from Soviet Union. This proved to be incompatible and inefficient with the nature of the Indian economy as one that is largely privately owned and supported by a judicial and legal framework providing individuals with choice.

8. Jalan cautions the reader from putting too much weight on the past failures of Indian’s strategy. He claims that it is too simple to generalize based on the example of India that the interventionist state is incapable of formulating effective macro-economic policies.

The rest of the introduction consists of an outline of the rest of the book.

Chapter 1 traces the historical and intellectual case for the choice of India’s development strategy post-independence.
a) Jalan maintains that initial choices were made in response to the prevailing intellectual perception of the nation’s initial conditions and prevailing ideas about the role of the state in development.
b) India’s political/social history also supported an inward looking strategy.

Chapter 2 identifies three crucial factors for India’s development. India did poorly on all three.
a) High rates of savings
b) Sustained balance of payments viability
c) High literacy ratio

Chapter 3 examines the reasons for the recent swing in development literature and political opinion favoring less gov’t intervention in the economy.
a) Jalan maintains that need to redefine the role of government cannot be converted into an argument to eliminate the government’s role in the economy.
b) He does resolve that the nature of government intervention should be improved to
i) pay greater attention to economic forces
ii) work in society’s interest
iii) take equity into consideration
iv) make greater use of “capitalist tools” to reach its goals
c) But, he also calls for effective public management and the judicious and productive use of resources that the government controls directly.

Chapter 4 deals with policies for restoring balance of payments viability.
a) Must take into account the different political climate of the international community – the aid environment is much less welcoming in 1991 than in the 1950s and 1960s.
b) India’s long-run export performance has been very poor.
c) Inward orientation bias against imports
d) India should aim for what Fishlow calls “export adequate growth” as distinct from “export led growth.”
e) Need to simplify, administrative reform, shift to non-discretionary import controls.

Chapter 5 deals with policies for increasing domestic savings.
a) Not a great deal the government can do to increase rates of private savings beyond policies to maintain monetary and financial stability.
b) Most direct means by which government can increase savings is to increase public savings.
c) To combat growing fiscal deficits, Jalan suggests that government should adopt a “policy-based” approach, i.e. a constitutional amendment to put a limit on government revenue deficits. Under this “hard” budget constraint, the government will be prohibited by law from bailing out public sector units that are losing money.
d) Jalan mentions that while early on, the growth of public investment provided important gains to the economy, it was never able to generate profits for reinvestment.

Epilogue details a program of sustainable growth for 1990s

Conculsion

Jalan acknowledges that there seems to be a consensus among intellectuals and policymakers that neo-classical theories of growth have won out.

BUT, he maintains that academic opinion is actually inconclusive on the major issues of development policy and strategy. This lack of certainty is the result of the tendency in the neo-classical literature to “over-kill” in its search for a universal paradigm of development. He faults proponents of this literature for not taking the diversity and complexity of developing nations into consideration.

The neoclassical position is right, however, to highlight the limits of state action and in its analysis of the different forces that pressure and influence state action.

BUT, the neoclassic people are “wrong to overemphasize the distortionary effects of all forms of intervention and in preaching the virtues of untempered markets to the exclusion of all else in societies where a large section of the people do not even participate in markets.”

What we need now is a synthesis between the neo-classical insights into the working of markets and the ability of the state to work with these markets to develop the best mix of policies for development.

Chapter 1: Development Strategy and Performance

1) 1980s, India recognized limitations of its post-independence economic strategy and adopted a “new economic policy” consisting of a gradual process of easing out government controls, industrial regulation, and some import liberalization.
a) Response to greater vulnerability of its balance of payments, greater reliance on debt, and the consequent greater susceptibility to outside pressures of India’s economic policy directions.
b) This change in the 1980s marks a movement away from the 35-year consensus in Indian development strategy.

2) India’s development strategy in the 35 years after independence was based on the model of the Soviet planned economy and emphasized
a) Central role of the state.
b) The state’s investment in heavy industry and capital accumulation. Believed savings rate in the economy and the growth rate could be increased if India invested heavily in capital goods and heavy-industry sectors. Since the investment requirement was high, it was believed that the state would have to undertake this role.

3) This development strategy did not focus on exports.
a) First Five Year Plan and the Second Five Year Plan reveal this emphasis on industrial growth, not on consumption.
b) Belief that international trade was biased against developing countries and primary producers.
c) Thought that prospects for exporting were severely limited.
d) Intellectual pessimism

4) Relative neglect of agriculture.

5) Main contemporary criticism of this strategy:
a) neglect of exports and trade opportunities
b) excessive protectionism
c) import substitution
Jalan claims that much of this criticism is exaggerated.

7) India’s actual performance
a) 871-1946 rate of growth barely able to keep up with increase in population. Post-independence growth rate is better. 1951-1984, 3.8%; 1985-1989- 4%. Jalan does note that these rates of growth are lower than that of developing nations as a whole – 5.2%/year
b) per capita income growth less than 2% in 1947-1987 -- bad.
c) Industrial growth – 5.3% /year 1950s-early 1980s (not so great). Industrial growth actually decelerated from 1960s – 1980s.
d) Export performance was very poor. India country failed to take advantage of expansion of world trade in post-war period. In 1947 India had 2.4% share of world trade. By the 1980s, their share dropped to .4%.
e) Continuing balance of payments problems. Capital-output ratio increased from 3.89 in 1950s to 6.04 in 1970s.
f) Poor record in health, education, and other social indicators. The Human Development Report placed India low on the human development index at .44 compared to China’s .72.
a) If there was any improvement in income, it was quite small.

8) However, Jalan notes that these statistics describe India’s performance, but don’t settle any debates about the role of the state in development strategy.
a) Korea and China did better then India but used very different development programs.
b) The initial political and social conditions were also very different in Korea and China.
c) There was a remarkable unanimity among pioneers of development economics in the 40s and 50s that industrialization was synonymous with development and that industrialization in developing nations was unfeasible without the state: Kuznets (1955), Nurkse (1953), Rosenstein-Rodan(1943). The belief was that the market could take care of production, but investment allocation required state intervention.
d) In this vein others, like Prebisch (1950), Singer (1950) and Lewis (1954), provided very strong arguments for the case of import substitution and protection.

9) Indian political leaders and intellectuals shared this perception. Factors:
a) neglect of economic development by the colonial state
b) the colonial period enforced belief that free-trade regime was biased against Indian exports.
c) conviction that development was not possible without state
d) at independence, India had no industry or diversification of trade
e) call for Swadeshi was an important element in struggle vs. colonial rule.
f) after independence, it was felt that building an indigenous manufacturing base was very important.
g) apparent success of Soviet Union seemed to validate central planning model.

10) Jalan also highlights the ability of the Indian state to maintain its nature as a parliamentary democracy and a mixed economy in light of severe external (increase in oil prices, war) and internal (drought, political upheaval) shocks in the post-independence period. It was also remarkable that India was able to achieve self-sufficiency in food.

11) India’s choices of development strategy depended on the opportunities and knowledge available. It cannot be argued that a different strategy would have improved aggregate and long-term results throughout the post-independence period.

12) But, the results of India’s strategy do point towards weaknesses. India must learn from these lessons and move ahead. New challenges also necessitate this policy change.
a) The international environment is much less supportive of aid and development in 1991 than in 1958 when the Indian economy had to be rescued through massive international aid effort.
b) War with China and with Pakistan has cost tons of money and increased the fiscal deficit and slowdown in the rate of growth of public investment.
c) Droughts 1965-1967 revealed the weakness of India’s agricultural strategy

13) Lessons:
a) It is clear that a command economy is not the best model for India since it is an economy that is substantially privately run and one in which producers and consumers have freedom of choice when making economic decisions.
b) There are limits to the capacity of the instruments of planning – heavy administrative and physical control.
c) Inability of fiscal system to generate sufficient real resources for investment and capital formation. While revenues have generally increased in line with plan targets, public savings have tended to decline, leading to an insufficiency of resources for public investment.
d) Failed to develop viable strategy for balance of payments. This problem has persisted since independence, to varying degrees because India’s strategy has
i. overemphasized ISI.
ii. failed to pay enough attention to interlink ages among various sectors and the impact of the tariff regime in encouraging an import-intensive input structure
iii. underestimated the economy’s import requirements of raw materials
iv. made unrealistic assumptions about the impact of ISI on the economy’s import requirement, assumptions that led to relative neglect of exports.
v. allowed account deficits to grow