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Saturday, June 22, 2013

Working class of India, untie from nanny state

Over the last decade the UPA government has tried to reduce poverty by legislating a regime of rights accompanied by the national rural employment guarantee (NREG) programme —spending Rs 1,70,000 crore on this strategy.

This strategy would have been fine if the transformation of India from a strong currency, high growth and low inflationeconomy to aweak currency, low growth andhigh inflation economy had been accompanied by a transformation of our labour market.

But Thursday's 68th report on employment from the National Sample Survey Office (NSSO) testifies that the "thought world" of a district collector as labour market transformer is not working. Let's look at the numbers in some detail.

Only 40% of our population belongs to the labour force. While this low number currently reflects our young population, it would be much higher if manufacturing employed more than 12% of our labour force. More dangerously, NSSO suggests our labour force grew by 6 lakh per month last year; this will rise to 10 lakh per month during the next decade.

Whether this tsunami of the young raises or lowers our labour force participation rate will decide if India puts poverty in the museum it belongs to. Many people agree the best way to increase the rights of women is to give them discretionary income. But NSSO suggests that only 23% of our women participate in the labour force —this is way behind China (67%) and is only ahead of Saudi Arabia (18%).

Economists estimate that if female labour force participation had equalled men (50%) then we could have added 4% to our annual growth rate over the last ten years. The most shameful numbers in the report are 50% agricultural employment and 50% self-employment — these percentages have barely moved since 1991.

China's genius has been to get 670 million people off farms; India's farms employ 1 in 2 of our workers but only generate 15% of GDP. The high proportion of self-employment does not reflect some overweight entrepreneurial gene amongst Indians; the poor cannot afford to be unemployed so they are selfemployed.

Economists estimate that 40% of India's labour force is working poor; people who make enough money to live but not enough money to pull out of poverty. Most of these working poor work on farms or in non-wage employment.

The most baffling NSSO number is unemployment; only 2% in rural areas and 3% in urban areas. Most of us recognise that this number does not pass the smell test; 1 out of every 50 Indians is looking for a job. I am not suggesting that NSSO is fudging numbers; I think they need to think harder about the definition of unemployment.

The 2% number suggests that the key problem for India has shifted from a job to good jobs; 100% of net job creation since 1991 happening in informal employment reflects these low productivity and low wage jobs.

Obviously, an informal or low wage job is better than no job, but we need to redefineunemployment to include people who work full time and still end up in poverty. Simply adding the working poor to the unemployed numbers gives India an unemployment rate of 22%. While some of this 22% unemployment reflects supply side problems like skills, most of the blame lies with anemic formal sector job creation.

Gokhale told Gandhiji on his return from South Africa in 1915 to "Make India proud of herself ". Gandhiji got us independence but left it to us to create freedom — the opportunity and ability to make choices.

But an unemployed, underemployed or unemployable Indian is not a free Indian. Many Indians won't be proud of themselves unless they have formal, private, nonfarm, wage employment. We need a Ministry of Employment —a horizontally structured ayatollah empowered to issue cross ministry fatwas that pray to one god: private sector job creation.

Gandhiji once said that poverty was the worst form of violence. If he was around, I am sure that he would agree that finding jobs for the poor impacts their income, educational, nutritional, health and housing outcomes in a way that no subsidy can.

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