Chapter-3

NATURE AND EXTENT OF

UNEMPLOYMENT IN INDIAN ECONOMY

3.1 Trends of Unemployment in India

The size of employment or unemployment in any country depends to a

great extent on the level of development. Therefore, when a country makes

progress and its production expands, the employment opportunities grow. In

India, during the past three decades or so production has expanded in all the

sectors of the economy. In response to these developments the absolute level

of employment has also grown. However, during the planning period,

unemployment in absolute terms has increased. This has happened because

during the first three decades of economic planning trend rate of growth was

considerably lower than the targeted rate. Therefore, jobs in adequate number

were not created.

Further, economic growth by itself does not solve the problem of

unemployment. Prabhat Patnaik has succinctly remarked, "A higher

arithmetical figure of growth rate is neither a necessary nor a sufficient

condition for alleviation of unemployment."1 In fact, there exists a real

conflict between the objectives of economic growth and employment in the

early phase of economic development. The possibility of an increase in

unemployment is not to be completely ruled out in a rapidly growing

economy. Examining this issue in the existing Indian context, Prabhat Patnaik

has very correctly argued that, "While growth per se means nothing for

1 Prabhat Patnaik, On Changing Course in India : An Agenda for 2004, New Delhi, Social Scientist - Sahmat, 2004.

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unemployment, this growth fetishism can be exploited by finance capital to

wrest concessions to the detriment of employment objective ... "

Unemployment in India is characterised by chronic (disguised)

unemployment. Government schemes that target eradication of both poverty

and unemployment (which in recent decades has sent millions of poor and

unskilled people into urban areas in search of livelihoods) attempt to solve the

problem, by providing financial assistance for setting up businesses, skill

honing, setting up public sector enterprises, reservations in governments, etc.

The decline in organised employment due to the decreased role of the public

sector after liberalisation has further underlined the need for focusing on better

education and has also put political pressure on further reforms. India's labour

regulations are heavy even by developing country standards and analysts have

urged the government to abolish or modify them in order to make the

environment more conducive for employment generation.

The 11th five-year plan has also identified the need for a congenial

environment to be created for employment generation, by reducing the number

of permissions and other bureaucratic clearances required. Further, inequalities

and inadequacies in the education system have been identified as an obstacle

preventing the benefits of increased employment opportunities from reaching

all sectors of society.

B. Hazari and J. Krishnamurthy have brought out the conflict between

growth and employment inherent in the Mahalanobis strategy which guided

India's development efforts for about two decades.2 However, until the Five

Year Plan 1978-83 was formulated, this conflict was not recognised by the

government. The assumption of the Plans was that growth would automatically

solve the unemployment problem. However, this was not to be. Since the

2 B. Hazari and J. Krishnamurthy, Employment Implications of India's Industrialisation: Analysis on Input-Output Framework, Review of Economic and Statistics, Vol. 52, 1970.

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adoption of neo-liberal economic policies in India over the past one and a half

decades, the government's obsession with the high rate of economic growth

has made it completely oblivious to possible conflict between economic

growth and employment. Hence, in recent years growth in India has been

mostly "job less" and sometimes even "job loss". This is substantiated by the

fact that during the 1990s and early years of the current decade, unemployment

has increased.

In the recent past there has been deceleration in the growth of

employment in India in spite of the accelerated economic growth. This can be

explained in terms of steady decline in employment elasticity in all the major

sectors of economic activity except in construction. Overall employment

elasticity declined in India from 0.52 during 1983 to 1993-94 to 0.16 during

1993-94 to 2005-2006.

Table:3.1 Employment Elasticities in Major Sectors

Sector 1983 to 1987-88

1983 to 1993-94

1993-94 to 2005-06

Agriculture 0.87 0.70 0.01

Mining & Quarrying 1.25 0.59 -0.41

Manufacturing 0.59 0.38 0.33

Electricity, Gas & Water Supply 0.30 0.63 -0.52

Construction 2.81 0.86 0.82

Wholesale & Retail Trade 0.87 0.68 0.62

Transport, Storage & Communication

0.47 0.55 0.63

Financing, Real Estate, Insurance and Business Services

0.49 0.45 0.64

Community, Social and Personal Service

0.52 0.68 -0.25

All Sectors 0.68 0.52 0.16 Source: Government of India, Planning Commission, Eleventh Five Year

Plan 2008-2013.

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As would be clear from Table above, the decline was quite fast in

agriculture as it declined from 0.70 during 1983 to 1993-94 to 0.01 during

1993-94 to 2005-2006. According to T.S. Papola, the decline in employment

elasticity in the agriculture is found to be due, primarily, to the sharply

declining and even negative elasticities in a few regions - Punjab, Haryana and

Uttar Pradesh - where the green revolution has resulted in significant yield and

output growth.

C.P. Chandrasekhar has also argued that economic growth in India in

recent years has not led to much employment generation. He states, "India's

trajectory of growth is not matched by employment generation. This will lead

to social unrest unless the government rethinks its economic priorities.

For three years running, the rate of growth of the Indian economy has

been extraordinary. The growth rate of the gross domestic product (GDP) is

estimated at between 7.5 and 8.5% in the years 2003-04, 2004-05 and 2005-06.

While these figures conceal sectoral differences, such as extremely poor

performance of agriculture and the disproportionately high rate of growth of

services, they are indeed remarkable. But new evidence suggests that this may

not help resolve India's principal economic problem: its large and growing

reserve of unemployment.

Jeemol Unni and G. Raveendran in their study have shown how in

recent years employment trends have moved.3 They have noted on the basis of

data from Full Employment-Unemployment Round (61st Round, 2004-05) of

the NSS that the workforce increased to nearly 457 million with a substantial

unemployed population of 11 million. This implies that the number of

unemployed persons grew substantially in this period compared to mid and

late 1990s (1993-94 to 2005). 3 Government of India, Economic Survey 2006-2007, and Jeemol Unni and G. Raveendran, Growth of Employment (1993-94 to 2004-05) : Illustration of Inclusiveness?, Economic & Political Weekly, January, 2007.

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Growth Rates of Employment (% change per annum)

Period Rural Urban Combined

1983 to 1993-94 1.72 3.10 2.01

1993-94 to 2004-05 0.47 2.70 0.98

Source: Government of India, Economic Survey 2006-2007

Their study also reveals sharp decrease in the rate of employment

generation during the mid and late 1990s in both rural and urban areas. The

overall growth in employment declined from 2.01 per cent per annum during

1983 to 1993-94 to 0.98 per cent per annum during the period 1993-94 to

2004-05. As is clear from data contained in Table above, growth rate of

employment declined steeply in the rural sector during the period 1993-94 to

2004-05.

3.2 Nature and Estimates of Unemployment

Unemployment in underdeveloped countries is both open and disguised.

Like all other underdeveloped countries, India presently suffers mainly from

structural unemployment which exists in open and disguised forms.

Most of the unemployment in India is definitely structural. During the

1961-2001 period, population in this country had grown at an alarming rate of

around 2.15 per cent per annum and with it the number of people coming to

the labour market in search of jobs had also increased rapidly, whereas

employment opportunities did not increase most of the time correspondingly

due to slow economic growth. Hence there has been an increase in the volume

of unemployment from one plan period to another. This unemployment, on

account of its very nature, can be eliminated only by introducing certain

radical reforms in the structure of the economy. Apart from structural

unemployment there is Keynesian involuntary unemployment which can be

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eliminated by increasing effective demand, as is done in developed countries.

Though presently it would be wrong to ignore the Keynesian involuntary

unemployment, yet the structural unemployment remains a greater cause of

anxiety.

Concepts of Unemployment

Keeping in view the recommendations of the Committee of Experts on

Unemployment, the National Sample Survey Organisation (NSSO) has

developed and standardised concepts and definitions of labour force,

employment and unemployment suitable to Indian conditions. These concepts

have not only been adopted by the NSSO for conducting surveys on

employment since 1972-73, but have also been accepted by the Planning

Commission for analysing the dimension of the unemployment problem. The

three concepts of unemployment developed by the NSSO are: (i) Usual Status

Unemployment, (ii) Current Weekly Status Unemployment and (iii) Current

Daily Status Unemployment.

(i) The Usual Status concept is meant to determine the Usual Activity

Status - employed, or unemployed or outside the labour force of those

covered by the survey. The activity status is determined with reference

to a longer period, say a year preceding to the time of survey. The

persons covered by the survey may be classified into those working

and/or available for work in their principal activity sector, and those

working and/or available for work in a subsidiary sector, that is, a sector

other than their principal activity sector. Hence, within the Usual Status

concept, the estimates are now derived on the Usual Principal Status as

well as Usual Principal and Subsidiary Status basis. The Usual Status

unemployment rate is a person rate and indicates chronic unemployment

because all those who are found "usually" unemployed in the reference

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year are counted as unemployed.

(ii) The Current Weekly Status concept determines the activity status of a

person with reference to a period of preceding seven days. If in this

period a person seeking employment fails to get work for even one hour

on any day, he/she is deemed to be unemployed. A person having

worked for an hour or more on any one or more days during tile

reference period gets the employed status. The Current Weekly Status

unemployment rate, like the Usual Status unemployment rate, is also a

person rate.

(iii) The Current Daily Status concept considers the activity status of a

person for each day of the preceding seven days. A person who works

for one hour but less than four hours is considered having worked for

half a day. If he works for four hours or more during a day, he/she is

considered as employed for the whole day. The Current Daily Status

unemployment rate is a time rate.

Out of these concepts of unemployment, the Current Daily Status

concept provides the most appropriate measure of unemployment. Raj Krishna

states, "The daily status flow rate is evidently the most inclusive, covering

open as well as partial unemployment. It is therefore, the rate which is most

relevant for policy-making."4 In India, the problem of chronic unemployment

is far less serious as compared with the enormous problem of the

discontinuous underemployment of a section of the labour force whose

composition keeps on changing over time. This factor has important policy

implication and has thus to be kept in mind while employment programmes are

chalked out.

4 Raj Krishna, The Growth of Aggregate Unemployment in India - Trends, Sources and Macroeconomic Policy Options, World Bank Staff Working Papers, Number 638, Washington DC.

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Estimates of Unemployment (1972-73 to 1993-94)

The unemployment rates by the three alternative concepts of the Usual

Status, the Current Weekly Status and the Current Daily (National Sample

Survey Organisation) surveys for the years 1972-73, 1977-78, 1983, 1987-88

and 1993-94.

The rates of unemployment do not indicate any clear trends over the 21

year period, that is, from 1972-73 to 1993-94. However, if we compare

unemployment position in 1993-94 with that in 1983 and 1972-73, we observe

that there has been marginal decline in unemployment rates.

For the purpose of realizing the goal of "employment for all" over a

period, an assessment of the backlog of unemployment in the base year and

likely additions to the labour force during the reference period has to be made.

Till recently the latest survey based estimates of unemployment were available

for 1987-88 only. Therefore, the Planning Commission had independently

estimated labour force and employment on April 1, 1992 to yield the

magnitude of unemployment. Total employment in terms of the Current

Weekly Status was estimated to be 301.7 million as against the labour force

estimate of 319 million. Thus backlog of unemployed in terms of the Current

Weekly Status on April 1, 1992 was 17 million. According to the N.S.S.O,

about 2 per cent of those recorded as employed by the Current Weekly Status

had work for half or less than half the time. They being severely

underemployed were included in the estimates of backlog for employment

planning. Thus, according to the Planning Commission, those of the people

who looked for full time new employment opportunities were around 23

million in April 1992.

The Ninth Plan document has also provided estimates of incidence of

unemployment and underemployment in 1993-94. These are based on data

available from 50th Round of NSS on Employment and Unemployment.

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Ninth Five Year Plan 1997-2002, Volume-I is reproduced below. It shows

combined incidence of unemployment and underemployment in 1993-94

Activity Status Proportion of Labour Force

Remarks

1. Labour Force 100.00 Working or seeking work on usual status basis.

2. Employed 89.55 Usual status employed staying in work force when classified by their weekly status.

3. Unemployed 2.02 basis Incidence of open unemployment on usual status.

4. Under-employed 8.43 Usual status employed going out of work when classified by their weekly status.

5. Unemployed and under-employed (3+4)

10.45 Open unemployment on usual status and the incidence of loss of work by the usually employed when classified by their weekly status.

Source: Ninth Five Year Plan 1997-2002, Volume-I

As shown in Table above, unemployment increased in India during the

period of economic reforms because growth in this period has been mostly

jobless. Salient features of the trend of unemployment rate are as follows:

• The unemployment rate went up between 1993-94 to 2004-05. On the

basis of current daily status (unemployed on an average in the reference

week), during the reference period, unemployment rates for males

increased from 5.6 per cent to 8.0 per cent in rural areas and from 6.7

per cent to 7.5 per cent in urban areas.

• Similarly unemployment rate for females increased from 5.6 per cent in

1993-94 to 8.0 per cent in 2004-05 in rural areas and from 10.5 per cent

to 11.6 per cent in urban areas.

• Furthermore, unemployment rates on the basis of current daily status

were much higher than those on the basis of usual status (unemployed

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on an average in the reference year) implying a high degree of

intermittent unemployment. This could be mainly because of the

absence of regular employment for many reasons.

• Urban unemployment rates (current daily status) were higher than rural

unemployment rates for both males and females in 1993-94. However,

in 2004-05, rural unemployment rates for males was higher than that of

urban males.

• Unemployment rates varied sharply across States. States where wages

are higher than in neighbouring ones because of strong bargains or

social security provisions, such as high minimum wage, had high

incidence of unemployment, in general.

For the first time ever – the Labour Bureau of the Government of India

has conducted a survey on employment – unemployment, and has come up

with an unemployment rate based on that. National Sample Survey

Organization (NSSO) also calculates unemployment rates, but these surveys

are done with a gap of 5 years, so there is a dire need to have unemployment

numbers in between.

The Labour Bureau has started these employment–unemployment

surveys which will now facilitate in availability of more frequent numbers on a

measure as important as employment. The report itself is quite detailed, and

this is a great first step. The report contains quality of the data that is only

going to improve going forward.

40 Million Unemployed with an Unemployment Rate of 9.4%

The survey was conducted in 28 States/UTs spread across the country in

which about 99 per cent of the country’s population resides. It estimates that

the population of the country is 1182 million with 63.5% in the working age of

15 – 59 years, however, not everyone who is in the working age is interested in

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joining the work force, so the worker population ratio is much lower. There are

an estimated 238 million households, of which 172 million are rural and 66

million are urban. Out of the total population of the States/UTs covered, 872

million persons (73.8 per cent) live in rural areas and 310 million persons

(26.2 per cent) live in urban areas.

Population Split: Rural and Urban

The overall unemployment rate is 9.4%, and it is split out as 10.1% in

rural areas, and 7.3% in urban areas. Now, a key thing to remember about

unemployment rate is that it is calculated as a percentage of labor force, and

not the total population. So, this means that 9.4% of that part of population

which is interested in working is unemployed, and not 9.4% of the entire

population is unemployed.

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In the Indian context, 359 persons per 1,000 are either working or

interested to work, and this is called the Labor Force Participation Rate. So,

out of an estimated population of 1,182 million, 424 million persons are either

employed or are interested in working. The unemployment rate of 9.4% means

that out of those 359 persons per thousand, or 424 million people – there are

9.4% or about 40 million who were unemployed. Here are the numbers in

millions.

India Unemployment Numbers

Source: Survey Report of Labour Bureau of Government of India, Ministry

of Labour and Employment, 2010.

For males, the unemployment rate is 8%, whereas for females the

unemployment rate is 14.6%. The rural unemployment rate is 10.1% and the

urban unemployment rate stands at 7.3%. One thing to be noted about this

unemployment rate is that the report states that compared to the NSSO survey

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the unemployment rate is quite high probably due to under-estimation in the

agriculture sector employment.

Comparison of Labour Bureau’s present survey results for the year

2009-10 with NSSO’s Employment-Unemployment survey results for 2007-

08, reveals that the unemployment rate derived on the basis of the Bureau’s

survey is quite high. Higher unemployment rate may be parting attributed to as

much as 10 per cent difference in the contribution of agriculture sector to total

employment estimated in the present survey vis-à-vis the NSSO 2007-08

survey estimates. While the shift of workforce from agriculture to other sectors

is a positive trend for a fast growing economy, the steep reduction in lower

share of agriculture employment based on the Bureau’s survey could be

attributed to lack of adequate probing skills of the Contract Investigators.

There could be some underestimation in the agriculture sector

employment due to lesser-probing by the contract investigators especially in

case of women workers who tend to be employed more casually in the

agriculture and allied sectors such as forestry, livestock and fisheries. Getting

unemployment numbers is really important to assess how various employment

schemes work, impact of global recessions, and when we allow companies like

Walmart to operate in India, we will need data to see if they are creating rural

jobs or rendering people in urban retail unemployed. Surveys such as these

could then become key to get the right information on policy formulation.

The number that really surprises, is the state with the highest

unemployment rate. According to this survey – Goa is the state with the

highest unemployment rate. Here is the table that shows the unemployment

rate for different states:

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Unemployment Rate by different age groups (in per 1000)

5 years to 15 years 15 years and above S. No.

Name of the State/UT Male Female Male Female

Sex ratio of unemp.

1 Andhra Pradesh 73 83 75 84 538 2 Assam 53 111 56 115 325 3 Bihar 152 306 154 301 234 4 Chhattisgarh 39 24 40 26 301 5 Delhi 6 26 6 23 476 6 Goa 206 468 209 451 922 7 Gujarat 90 126 85 125 536 8 Haryana 70 218 68 221 386 9 Himachal Pradesh 63 45 69 45 192 10 Jammu & Kashmir 45 89 50 61 175 11 Jharkhand 224 422 229 413 637 12 Karnataka 25 39 26 39 626 13 Kerala 75 205 74 219 891 14 Madhya Pradesh 66 122 68 134 558 15 Maharashtra 45 88 45 86 980 16 Meghalaya 132 94 123 97 462 17 Orissa 83 173 79 169 350 18 Punjab 101 141 106 142 177 19 Rajasthan 119 349 116 358 1049 20 Sikkim 47 91 47 97 1081 21 Tamil Nadu 45 91 46 86 930 22 Uttarakhand 52 40 49 34 220 23 Uttar Pradesh 73 179 73 190 217 24 West Bengal 83 257 81 263 662 25 Chandigarh 13 41 15 42 416 26 Dadra &

N.Haveli*

27 Daman & Diu 48 81 53 96 252 28 Puduchcherry 77 476 71 476 1812 Overall 80 146 80 149 510 Overall in '000 26464 13499 24105 12594

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3.3 Unemployment in Urban Areas

Most of the unemployment in urban areas is open and undisguised.

Unemployment of this kind is not only painful at a personal level, but is also a

source of social tensions, which often threatens the whole fabric of society.

Despite this problem of unemployment and its attendant dangers, the

government has not given adequate attention to it. Even the estimates of urban

unemployment have not been prepared on a regular basis. However, the

National Sample Survey Organisation (NSSO) has made estimates of un-em-

ployment in different years. These estimates are surely not comparable.

However, they suggest that unemployment in the urban sector has fluctuated

around 10 per cent of the labour force in recent decades. This, at least, shows

that there were no dramatic increases in perceived employment opportunities.

In urban areas, the rate of employment growth declined very sharply during

the 1990s.

Two relatively important forms of urban unemployment are (i) industrial

unemployment, and (ii) educated unemployment.

Industrial Unemployment

The exact size of the industrial unemployment in India is not known

because the necessary data for its estimation are not available. During the

planning period industrial sector has expanded and employment in it has

steadily increased. As against 34.03 million workers employed in

manufacturing sector in 1983, 42.5 million workers were employed in 1993-94

and 48.0 million workers in 1999-2000. This is surely a healthy development

and reflects the progressive growth of capitalism in India. A disquieting

phenomenon, however, is that over the past three decades unemployment in

the industrial sector has increased. This is the result of extremely low growth

rate of employment in the organised manufacturing industry. It is observed tit

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at employment elasticity had significantly declined in manufacturing during

the 1980s and 1990s. It was 0.59 in the period 1983 to 1987-88, from where it

declined to 0.33 in the period 1993-94 to 1999-2000.

The other factors which have contributed to an increase in industrial

unemployment over the years are many. First, there has been a large

increase of the economically active population in the country, while the'

economy has failed to grow at a pace commensurate with the growth of

labour force. Secondly, population in urban areas has grown faster than in

rural areas, because of the migration on a big scale from villages to cities.

The industrial growth in India since Independence has been very modest.

Moreover, since early 1990s industrial growth has been job less and has

failed to absorb all those who migrated to cities with the hope of getting

some job or the other.

There is widespread disguised unemployment in agriculture. The

decay of cottage and small-scale rural industries in the countryside has

further contributed to the already bad employment situation in the

countryside. These factors are pushing lots of people out of villages; cities

have their own attractions as well. Thus migration from the countryside to

urban centres is a regular process. In normal times some of the migrants

get jobs in industries, some fortunate ones get absorbed in the unorganised

sector and the rest wait for their chance to get employment and thus swell

the number of unemployed.

It is often contended that industrial unemployment has increased in the

country specially because of the slow industrialisation process and

inappropriate technology. Near stagnation in the industrial sector from the

mid-1960s to the early-1980s rendered various remedial measures ineffective.

Concentration of industries in big cities is another major source of the malady.

Industrial concentration attracts labour force to cities in a big way - much more

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than what the industries can absorb at any point of time. If the policy of

dispersal of industries is adopted and industries are set up in rural and semi-

urban areas, this problem can be tackled satisfactorily.

Educated Unemployment

Educated unemployment is, by and large, a part of urban

unemployment. It is a very serious and menacing problem, yet the size of

educated unemployment remains largely unmeasured. Not only are there

conceptual difficulties in estimating it, but the kind of statistical information

that is required for its estimation is also not available. Hence the quantitative

base for analysing the problem of educated unemployment is weak.

Nonetheless, on the basis of fragmentary information that is available, it is not

difficult to understand the basic issues involved in the problem.

The Planning Commission's estimates suggest that at the beginning of

1980, approximately 34.72 lakh educated persons were unemployed. Using the

same approach as in the Sixth Plan, unemployment among the educated people

works out to 47 lakh in 1985 and 68 lakh in 1992. No estimates of educated

unemployment are available for a recent year. However, there are no reasons

to believe that educated unemployment is now less than that was there on the

eve of the Eighth Plan.

National Sample Surveys show that over the period 1983 to 1993-94,

the proportion of those educated to a level of higher secondary school or

higher among the unemployed persons rose from 47 per cent to 64 per cent.

This clearly suggests not only non-utilisation of scarce resources put in for

educating the people but also shows "a mismatch between the kind of job

opportunities that are needed and that are available in the job market."

There are many causes of educated unemployment. The defective

educational system, with its theoretical bias, lack of aptitude and technical

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qualifications for various types of work among job-seekers and

maladjustments between demand and supply of educated workers are some

well-known causes of educated unemployment. But the major cause of

unemployment in this sector is the same which explains the overall

unemployment in the country. Over the years, economic growth in India has

been very slow. It was inadequate in the past to absorb all the educated

persons. In fact, supply of educated workers has consistently moved ahead of

demand so that educated unemployment has not diminished. This happened

largely because of the wide gap between the private cost of education and the

expected return from it. In India, private cost of higher education is much less

than the expected gains from it.

Thus an unnecessarily large number of people pursue higher education.

They have one dimensional approach, that is, they simply wish to improve

their employment prospects, but in doing so they create conditions which

render lesser educated persons as unemployed. According to Blaug, Layard

and Woodhall, "the educated unemployment, in itself, is no proof of over

investment in education. Since it is caused by market imperfections, the

appropriate remedy might, therefore, involve an active manpower policy

designed to improve the functioning of labour markets rather than a

contraction of upper secondary and higher education."5

3.4 Unemployment in Rural Areas

According to the NSS, Current Daily Status rural unemployment rate for

male workers was 4.58 per cent in 1987-88. Since then unemployment among

rural male workers has increased.

5 M. Blaug, P.R.G. Layard and M. Woodhall, The Causes of Graduates in India, London, 1969.

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Unemployment Rates (per 1000) for 1993-94 and 2004-05

Rural Males Rural Females NSSO Round US CWS CDS US CWS CDS

1993-94 (50th Round) 20 30 56 14 30 56 1999-2000 (55th Round) 21 39 72 72 15 37 2004-05 (61st Round) 21 38 80 31 42 87

US = Usual Status; CWS = Current Weekly Status;

CDS = Current Daily Status.

Source: NSSO's 61st Round Survey on Employment and Unemployment

conducted in 2004-05.

The Current Daily Status unemployment rate for the rural male workers

was 8.0 per cent ill 2004-05 as against 7.2 per cent in 1999-2000 and 5.6 per

cent in 1993-94. Most of this unemployment is agricultural unemployment

which may be classified into (i) seasonal unemployment, (ii) disguised

unemployment and (iii) chronic and usual status unemployment.

Seasonal Unemployment:

Seasonal unemployment in agriculture is a normal condition in India. In

1998-99, gross irrigated area as a percentage of gross cropped area was only

39.0 per cent. However; two or more crops are prepared on not more than 25

per cent cultivable land. This implies that farmers cultivating approximately 75

per cent of the land remain involuntarily unemployed for 3 to 4 months, unless

they find some temporary employment in this period. Since the percentage of

the lucky ones who manage to get some work in the off-season is quite low,

the incidence of seasonal unemployment in the agricultural sector is obviously

very high.

Agricultural labourers in India rarely have work throughout the year.

According to the Second Agricultural Labour Enquiry Committee, agricultural

labour in this country had 237 days employment in 1956-57. In other words,

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on an average their unemployment was approximately for 3 to 4 months. The

Planning Commission in its Mid-Term Appraisal of the Fourth Plan had

pointed out that leaving aside the green revolution belt, in all other areas

seasonal unemployment during the early seventies was at least as much as

during the 1950s, if not more. However, considering the decline in

employment elasticity, measured as the ratio of employment growth to the

growth of value added, in the agricultural sector during the 1980s and 1990s,

there is every reason to believe that the seasonal unemployment should have

increased in recent years. The employment elasticity in agriculture was

estimated to be 0.87 during 1983 to 1987-88. It declined to 0.01 during 1993-

94 to 1999-2000.

Disguised Unemployment:

The Indian agriculture is characterised by the existence of considerable

amount of surplus labour. However, no firm estimates of its size are available.

From the fragmentary information that is presently available it appears that in

the green revolution belt there is no disguised unemployment. For the past

three decades the demand for wage labour has increased in these areas and

agricultural labourers have been brought from other parts of the country to

meet it. In all other regions pressure of growing population has been increasing

on land and when one notices too many people operating tiny agricultural

holdings, one feels inclined to believe that disguised unemployment still exists

in these areas on a considerable scale.

However, it would be wrong to jump to some hasty conclusion on the

basis of mere impressions. Let us, therefore, turn to the works of those who

have undertaken micro-level studies of surplus labourers, and see if they can

help us in arriving at some conclusion. The most well-known work in this area

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is that of Shakuntala Mehra.6 Some other prominent experts who have

attempted to measure surplus labour in agriculture are J.P. Bhattacharjee and

Ashok Rudra. Shakuntala Mehra's study attempts to provide estimates of

disguised unemployment for the country as a whole. Making some highly

questionable assumptions, such as that there is no surplus labour on the largest

farms, she concluded that 17.1 per cent of the work force in agriculture was

surplus during the 1960s. Her study further revealed that the removable surplus

labour was considerably more in certain States than in some other States. J.P.

Bhattacharjee and Ashok Rudra had carried out their studies on parallel lines.

Both of them differ in their approach from Shakuntala Mehra as they do not

purport to extend beyond the sample observations (selected villages in West

Bengal and Bihar) on which the exercises were carried out. Notwithstanding

the differences in their approach, all the studies referred to above convincingly

refute the no-surplus-labour hypothesis.

Usual Status Unemployment:

Usual Status unemployment in rural areas cannot be clearly

distinguished from seasonal and disguised unemployment. It is this reason why

people remaining unemployed for long periods are sometimes counted as

seasonally or disguisedly unemployed. This error crops up particularly if the

survey is carried out in the off-season when most people in' villages do not

have any productive work with them. However, the Usual Status

unemployment in March 1994 has been estimated on the basis of 50th Round

of the NSS. According to -this estimate, the Usual Status rural unemployment

rate in March 1994 for males and females was 1.4 per cent and 0.9 per cent

respectively. Age-wise the Usual Status rural unemployment was the highest

in the age-group 15-29.

6 Shakuntala Mehra, Surplus Labour in Indian Agriculture, Indian Economic Review, April, 1966

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3.5 Major Causes of Unemployment

The foregoing analysis of unemployment in India has made it evidently

clear that most of the unemployment in this country is structural. Its main

causes are discussed below:

1. Jobless Growth: Economic growth is usually expected to generate

employment. However, in India most of the time growth has been jobless. For

30 years from 195051 to 1980-81 GDP growth rate was as low as 3.6 per cent

per annum. At this rate of economic growth many jobs could not be created.

GDP growth accelerated to 5.6 per cent per annum in the 1980s and stayed at

this level in the 1990s. At this higher rate of GDP growth one would normally

expect that many new employment opportunities would be forthcoming. But

this was not to be. As stated earlier, during the last two decades there was a

steep decline in employment elasticity in almost all the major sectors. In the

manufacturing sector, over the past two decades employment elasticity

declined from 0.59 to 0.33. Considering all sectors together, employment

elasticity came down from 0.68 in 1983 to 1987-88 to 0.16 over the period

1993-94 to 1999-2000. Obviously under these circumstances unemployment

will not decrease. Since 2000-01 under the influence of neo-liberal approach,

the emphasis has continued to increase on efficiency. Thus more and more

labour displacing production techniques have been favoured and as a result

growth has been jobless.

2. Increase in labour force: Since Independence, death rate has rapidly

declined and the country has entered the second stage of demographic

transition. The rate of population growth rose to 2.2 per cent per annum during

the 1960s, and, as a consequence, rate of increase in labour force also rose to

1.9 per cent per annum. During the period 1983 to 1993-94 both demographic

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and social factors have further raised the rate of growth of labour force.

Thereafter there has been a decline in the rate of growth of labour force. In

India, demographic factor has operated in a direct manner. Over the years

mortality rate has declined rapidly without a corresponding fall in birth rate

and the country has thus registered an unprecedented population growth. This

was naturally followed by an equally large expansion in labour force. In Indian

context, social factors affecting the labour supply are as much important as

demographic factors. Since Independence, education among women has

changed their attitude towards employment. Many of them now compete with

men for jobs in the labour market. The economy has, however, failed to

respond to these challenges and the net result is continuous increase in unem-

ployment backlog. In rural areas, whereas on account of growing labour force

unemployment has increased mainly in disguised form, in urban areas it is

open and visible.

3. Inappropriate technology: In India, while capital is a scarce factor,

labour is available in abundant quantity. Under these circumstances, if market

forces operate freely and efficiently, the country would have labour-intensive

techniques of production. However, not only in industries, but also in

agriculture, producers are increasingly substituting capital for labour. In the

western countries, where capital is in abundant supply, use of automatic

machines and other sophisticated equipment is both rational and justified while

in India, on account of abundance of labour, this policy results in large

unemployment.

According to W.A. Lewis, in all those countries where unskilled labour

is available in excess supply, great care is needed in exercising choice in

respect of techniques because monetary wage fails to reflect the real cost of

labour. When labour is in excess supply at prevailing monetary rates of return,

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capital would not be considered productive, if it does the same work which

labour also does with an equal amount of efficiency. Lewis asserts that

investment in such a situation in capital equipment may be profitable to

individual capitalists, but it is certainly not beneficial to the society, because it

increases unemployment and not production.7

4. Inappropriate Educational System: The educational system in India is

defective. It is, in fact, the same educational system which Macaulay had

introduced in this country during the colonial period. According to Gunnar

Myrdal, India's educational policy does not aim at development of human

resources. It merely produces clerks and lower cadre executives for the

government and private concerns. With the expansion in the number of

institutions which impart this kind of education, increase in unemployment is

inevitable. It is so because education in arts, commerce and science will not

ensure employment on account of its limited utility for productive purposes.

Myrdal considers all those who receive merely this kind of education not only

as inadequately educated but also wrongly educated.8 Myrdal's criticism

ofIndia's educational system is valid. If the problem of unemployment is to be

solved in this country, radical changes will have to be made in the educational

system. Any educational system which fails to develop human resources

properly will not be able to provide employment to all those who have

received it and, accordingly, would need drastic changes.

5. Neo-liberal economic policy causing demand constraint: With the

introduction of neo-liberal structural reforms in India since the early 1990s,

income inequalities have increased. The estimates of consumption expenditure 7 W.A. Lewis, The Theory of Economic Growth, London 1955. 8 Gunnar Myrdyal, Asian Drama, Vol. II, New York

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provided in World Development Report 1998/99 and 2006 show that Gini

index of distribution of consumption rose from 29.7 in 1994 to 33.0 in 1999-

2000. This implies that income inequalities increased during the decade of eco-

nomic reforms. Growing income inequalities generally lead to demand

constraint, recession and unemployment. In India, such a situation was,

however, averted during 1992-97 because GDP growth rate was fairly high at

6.68 per cent per annum. In this period, due to Iiberalisation policy measures,

all the consumer goods of elitist consumption were available and the rich eager

to buy these things raised their consumption expenditure and created

substantial effective demand. But once the rich satisfied their pent up demand

for elitist consumer goods and the government began pursuing the policy of

reducing its expenditure in order to cut down its fiscal deficit, the demand

constraint developed which in turn arrested growth of output cutting down

demand for labour. Hence, neo-liberal economic policy of the government

aggravated the unemployment situation.

Since the labour force grew at a faster rate of 2.84 per cent than the

workforce, unemployment also rose. The incidence of unemployment on CDS

basis increased from 7.31 per cent in 1999-2000 to 8.28 per cent in 2004-05.

The 66th NSS round of survey for estimating unemployment rates is

under way with fieldwork undertaken during 2009-10. The updated

information based on this round is awaited. However, an estimate of

unemployment rates based on the 64th round is shown in Table below. A

comparative study of different estimates of unemployment during 2007-08

indicates that the CDS estimate of unemployment rate being the broadest is the

highest. The higher unemployment rates according to the CDS approach vis-a-

vis weekly and usual status approaches indicate a high degree of intermittent

unemployment.

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All-India Rural and Urban Unemployment Rates from the NSS

64th Round 2007-08: Different Estimates

S. No. Estimate Rural Urban 1 Usual Principal Status 2.2 4.5 2 Usually employed 1.6 4.1 3 Current weekly status 3.9 5.0 4 Current Daily Status 8.4 7.4

Source: NSS Report No. 531 (64/10.2/1)

The CDS captures the unemployed days of the chronically unemployed,

the unemployed days of the usually employed who become intermittently

unemployed during the reference week, and unemployed days of those

classified as employed according to the current weekly status criterion.

The growth rate of labour force rose to the level of 3.06 per cent during

2004-05. Hence, there is an urgent need to provide employment for these

increasing additions to the labour force. The growth of labour force was

expected to accelerate in the Tenth Plan period in comparison to the 1990s

which required a commensurate increase in the pace of creation of additional

work opportunities in this period. However, the Tenth Plan had no strategy for

employment creation. It wrongly hoped that the targeted 8.0 per cent per

annum increase in GDP during the Plan period would do the trick.

Jayashree Sengupta very aptly discussed the failure of the Government

Policy in India, in her thought providing article "Aam Aadmi Ko Kya Mila".9

The relevant portion of the article is reproduced below.

In India, the rise in unemployment has been a silent phenomenon.

Instead of shouting and screaming, the unemployed voted against the BJP-led

NDA government and quietly dismissed the 'India Shining' campaign. One

hundred plus days after being at the helm, the UPA government shoundn't

9 Source: Jayshree Sengupta, "Aam Aadmi Ko Kya Mila?" Tehalka, September 25, 2004.

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forget this unique characteristic of the Indian landscape.

We have had disguised unemployment in the past, but unemployment

never reached more than 5 per cent of the population. According to the

National Sample Survey's 55th round, unemployment as a percentage of labour

force rose from 5.99 per cent in 1993-94 to 7.32 per cent in 1999-2000.

Perhaps we have been witnessing jobless growth in recent years because while

the GDP grew at an average rate of 6.4 per cent between 1992-93 to 2000-01,

employment growth declined from 2 per cent to 1 per cent.

In the recent past, thousands of workers in agriculture and the organised

sector have been laid off. The organised sector (establishments employing 10

or more workers) has faced declining growth because the public sector which

constitutes two-third of the organised sector, has been shrinking. The private

manufacturing units within the organised sector have been shedding labour in

response to higher wages and global competition.

Retrenchment of labour has been common in other countries, but in

India it is a new phenomenon and the voluntary retirement scheme (VRS) has

not been painless for most. Some workers have been laid off without any

severance pay from loss making enterprises. All this has led to widespread

human trauma especially because there are no social safety nets, nor facilities

for re-training and skills development.

The restructuring exercise may have led to more productivity, but the

retrenchment process has thrown several families off balance.

Employees lost their jobs and houses, children's schools, healthcare and

an 'address', so important in India. In the last decade, those accepting VRS

have witnessed a new phenomenon-even their children can't find a job. Most

among the younger generation who voted in the last election were jobless-60

per cent were the educated jobless. Acquiring higher education has not

guaranteed jobs. The rate at which white collar jobs have been growing is

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lower than the turn-out of college graduates. Many are accepting low-paying,

manual jobs.

In the organised sector, labour laws have been blamed for keeping

millions of workers out of jobs while 'protecting' the jobs of 'permanent'

staffers. The fact is that most employers are successfully circumventing labour

laws through contractual labour whom they routinely hire and fire. Also, the

lack of skills and training among workers encourages industrialists to go for

higher technology rather than labour. The Indian labour force is among the

least skilled and literate as compared to the skill levels of workers in China or

South Korea, especially in the manufacturing sector.

The decline in productivity of the small-scale sector has led to sharp

increase in unemployment. If this sector had grown rapidly, more jobs could

have been created. But employment potential has not grown. Even labour

intensive, low technology exports have grown slowly - they rose from $2.5

billion in 1985 to $13 billion in 1995, while Chinese low technology exports

grew from $3 billion to $72 billion in 1995. The decline in employment has

been most striking in agriculture. Total employment in agriculture dropped.

Agricultural employment engaged 56 per cent of the population in 1999-2000.

Low agricultural productivity, frequent crop failures due to drought and lack of

adequate irrigation facilities have made agriculture less profitable; the number

of farm workers has been declining. In some areas, high agricultural growth

due to mechanisation has led to a permanent fall in demand for agricultural

labour. Indeed, low productivity and falling income has created a boom in

casual labour.

The government's response to stagnant agriculture has been poverty

alleviation programmes aimed at raising rural incomes. But the delivery of

these programmes has not been satisfactory as there have been numerous

'leakages' due to corruption. The jobless from rural areas have been entering

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the 'informal' sector. It absorbs 92 per cent of the workforce and is

characterised by unprotected jobs without regular salaries and engulfs a vast

population of self-employed people and daily-wage workers. These workers

also migrate to big cities and end up in slums in sub-human conditions. In a

cyber city like Bangalore, 20 per cent of the population lives in slums. The

service sector has been growing at 5 per cent. It has limited job potential

though there has been a big increase in outsourcing centres and IT jobs.

Around 2.5 million people can be absorbed in the IT sector by 2008, but the

requirements of entry are tough. Only those with specialised, technical

education and knowledge of English can get in. It's strange paradox. Unless the

UPA government acts fast to give jobs to the 42 million unemployed, its own

pre-poll query might boomerang: aam aadmi ko kya mila?

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