Invest in jobs too
FM’s right on investment in sunrise sectors. But that has a fallout on job market
Trends in Indian economy’s investment pattern have sparked debate. FM, in a post-budget interview to TOI, said public focus has been on traditional sectors while investment has flowed into sunrise areas such as AI and materials research.
IP, an investment magnet | Her observation is supported by a decade-long trend in National Statistical Office’s data on investments. Between 2011-12 and 2021-22, the pattern of investments by private non-financial corporations underwent two important changes. In nominal terms, investment in plant and machinery declined from 18.4% to 13.8% of the overall national investment. Investments classified as intellectual property products grew from 5.9% to 9.7% of the total during the decade. Absolute level of incremental investment in nominal terms in intellectual property (IP) was greater than the same in plant and machinery.
Impact on jobs market | Technological evolution has brought IP to forefront. This is a good development. However, it’s had some adverse impacts on the job market. Technologydriven growth in manufacturing in a country where many workers have limited skills has led to distortions. According to GOI’s jobs data, between 2017-18 and 2022-23, the percentage of the workforce in manufacturing declined from 12.1% to 11.4%. Some of them seem to have gone back to agriculture where the proportion of the workforce during the same period increased by 1.7 percentage points.
Long-term phenomenon | Employment intensity of investment in India has been falling for decades. It’s following a global pattern. A study by Azim Premji University showed that after adjusting for inflation, the number of jobs generated for every ₹1 crore investment fell between 1994 and 2015. In factories, ₹1 crore of investment led to 33 jobs in 1994. By 2015, it fell to eight jobs.
Small’s not the answer | Decline in employment intensity was sharper in informal sector. Among family enterprise units there, ₹1 crore of investment led to 4,615 jobs in 1994. In 2015, just 702 jobs were created for the same investment.
Two-pronged effort | Two solutions need to play out simultaneously. Immediate solutions need to be found in removing constraints that prevent highly labour-intensive companies in sectors such as garments from expanding their scale. It will provide an easier entry point for people stuck in low-wage farm employment. Long-term, there’s no substitute for improving human capital. That requires sustained effort at all levels.
This piece appeared as an editorial opinion in the print edition of The Times of India.
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