Growth with Employment – How to Achieve It?

India has experienced a moderate to high GDP growth rate during the decade starting 2011 and
this problem has got aggravated in the last four years. While millions of workers and farmers are
getting out of agriculture, seeking non-farm work, locally as well as through migration to big
cities, employment in the non-agricultural sector has not grown anywhere in proportion to the
demand for jobs. It is necessary to examine which non-agricultural sectors can generate more
employment and then figure out ways to promote their growth. Employment growth in the
manufacturing sector has remained low, and indeed there are prospects of further slowdown as
automation takes off even more broadly. In tradable services, much of the employment is driven
by the IT and IT enabled services sector, which is gain experiencing a slowdown due to enhanced
use of AI and new generation software.
Growth in migrant workers, mainly for the construction and non-tradable services, to the Gulf
countries has slowed down as the GCC countries face a long-term economic downturn. Likewise,
migration to the US, largely by IT and other highly qualified professionals has slowed down due
to restrictions imposed by the Trump Administration. Against this backdrop, this paper explores
output and employment trends for various sectors and computes employment that can be
generated by increase in output, which in turn is enabled by increase in investment and a
favourable policy regime. Through this analysis, we suggest the sectors and activities which have
greater potential for employment in the coming years.

Skill level→ Unskilled (no of Semi-Skilled(no of Skilled (no of workers

workers in million) workers in million) in million)
Geography↓
Unskilled work in Semi-skilled work in Skilled work in
construction, small construction, small construction, small
Metros manufacturing, retail manufacturing, retail manufacturing, retail
(Smart Cities) trade, transport, trade, transport, trade, transport,
warehousing, business warehousing, business warehousing, business
& domestic services & domestic services & domestic services
(2.31 million) (14.24 million) (8.0 million)
Unskilled work in Semi-skilled work in Skilled work in
Small Towns
construction, small construction, small construction, small
(Samarth Nagaris) manufacturing and manufacturing and manufacturing and
related & supporting related & supporting related & supporting
services (5.24 million) services (33.1 million) services (18.6 million)
Unskilled work in Semi-skilled work in Skilled work in natural
natural resource natural resource resource
Villages (as per regeneration, regeneration, regeneration,
Census of India agricultural value agricultural value agricultural value
definition, below chains, crafts, and chains, crafts, and chains, crafts, and
5000 habitation) rural tourism services rural tourism services rural tourism services
(23.5 million) (20.4 million) (17.9 million)
Employment elasticity is a measure of the percentage change in employment associated with a
one percentage point change in economic growth. Though the notion of employment elasticity
is valid for a given state of technology, wage rate and policies. Notwithstanding these criticisms,
employment elasticity represents a convenient way of summarizing the relationship of
employment to output growth. For the India economy, employment elasticity data is available
for various major sectors over the period 1999-2011.
The Incremental Capital-Output Ratio (ICOR) is a summary expression for the existing technical
conditions and structural configuration of the economy which captures the relationship between
investment and additional productive capacity. Unfortunately in practice there has been
considerable instability in the capital-output ratio. Nevertheless, using period averages, we have
computed the marginal employment per unit of investment over the past few years for the Indian
economy, by various sectors.
We also computed employment in the Natural Resource Regeneration sector, a category missing
in the national industrial classification, using NREGA and other Natural Resource Regeneration
program data
Marginal Marginal
Employment GDP (Rs Employment Employment Employment
Sector ICOR
elasticity Billion) (million) per Rs 1 crore per Rs 1 crore
of Output of Investment
Natural Resource Computed using NREGA and other Natural Resource Regeneration program
56
Regeneration data

Construction 1.01 8,664.4 50.0 58 2.38 24.49

Trade, Transport,
Hotels, Storage & 0.25 19,936.3 79.2 10 1.9 5.23
Communication

Other services 0.47 12,767.1 50.0 18 5.33 3.45

Manufacturing 0.33 18,987.9 46.5 8 7.44 1.09

Utilities 1.17 2,242.0 2.7 14 14.6 0.95

Mining, Quarrying 0.34 3,284.5 1.8 2 10.95 0.17

Finance, Real
Estate
0.06 22,999.1 9.7 0 3.34 0.08
& professional
activities

Agriculture -0.08 16,152.2 202.2 -10 5.32 -1.88

As per the analysis, additional Rs 1 crore investment would be most fruitful in terms of
employment for natural resource regeneration (soil improvement, water conservation,
restoring degraded water bodies, grazing commons and forest lands); followed by
construction; and then trade, hotels and eating places, warehousing and transport.
Policy Recommendations
In view of the above findings & underlying dynamics of the economy, policy suggestions to
address employment woes and sector wide joblessness need collective action in multiple areas
with deep understanding of the need of the employer sector (demand side) and present human
capabilities (supply side).
Given below are some of the activities/sub sector which have better employment potential in
terms of skill development of people and & contribution to national income.
Rural Areas & Towns
The global agriculture sector, including forestry and fisheries currently provides over 1 billion
jobs) and 3% of the global GDP. In many developing countries such as India, agriculture provides
between 15 % & 20 % of national GDP but employs nearly 50% of labor force.
The majority of the world’s poor live in rural areas and their incomes are predominantly based
on agriculture. It should also be recognized that most farmers with small landholdings are
primarily focused on producing sufficient food for their families, and after subsistence has been
achieved, on marketing any surplus production for cash income. In considering the full impact of
agriculture on GDP it is necessary to recognize that the value of food directly consumed by
farmers and their families is often not taken into account when evaluating agriculture’s
contribution to national GDP and overall economic output levels.
Significant investments are needed to make the transition from both the industrial farming
practices of the developed world and from the more traditional, low productivity practices
common in the developing world to more sustainable and equitable food production systems.
Neither industrial nor traditional farming practices are projected to be sustainable over the long
term. Hence, the country faces a dire need to implement greener farming practices which would
result in more sustainable and productive agriculture sector that would create new jobs across
the sector.
Unskilled labor
Most of the people falling under this category are disguisedly employed. Hence, their labor is not
being utilized to its optimum. Though with NREGA being in picture, some of them are being
employed in some productive activity.
A careful analysis on NREGA data for the last years shows that on an average, each additional
crore of outlay to NREGA creates 200 jobs which span across various activities of different
sectors. Some of them are public works related to natural resource regeneration including
watershed management, soil improvement, water conservation, restoring degraded water
bodies, grazing commons and forest lands, etc, whose quantum could be increased.
Various studies by FAO, UNEP & ILO have advocated for practicing green agriculture and forestry,
potential employment-intensive green technologies, analyzed the role of organic agriculture as
a robust employer in comparison to the conventional alternative and analyzed the role of green
agricultural employment in improving conditions for climate change mitigation and adaptation.
The opportunities for green job creation include: natural resource management, reducing
harmful inputs, managing intensive livestock systems, climate change mitigation and adaptation,
organic or low-chemical intensive farming, high-value agriculture, sustainable retailing, solid
waste management, installation, maintenance and repair of renewable energy sources, and
reducing food waste.
Skilled labor
Living in rural areas & towns could be utilized for small scale business opportunities such as
certification & branding of organic produce. The higher level of literacy and special skills involved
in such certification jobs suggest that these market oriented tasks represent new, ‘decent‘ jobs
that extend beyond manual farm labor employment. Other implicit activities where skilled labor
in rural areas can be engaged are as follows:
Improved post-harvest storage and handling practices
There are significant opportunities for job creation in the area of reducing post-harvest losses of
food. Technologies and materials are available to greatly improve post-harvest storage and
handling practices in developing countries, but their adoption and use will require focused public
and private encouragement and financial support for local farmer associations and small
enterprise initiatives to build and operate such facilities.
The value of local labor inputs for enhanced agricultural productivity can be seen in the
experience of a farmer field school project for integrated pest management of cocoa in southern
Cameroon. Another example of effective and more labor intensive bio control of pests is a low
technology method of controlling millet head borer infestations in African countries
SMEs
Self-employed & business venture opportunities exist in handicrafts and other artistic pieces &
improved post-harvest storage & handling practices. Tourism also generates indirect jobs in
associated activities such as artistic handicrafts that are often produced by farming households.
Over the past few years, many private players have ventured in developing fuel efficient stoves,
dryers, kilns, and biogas technologies to conserve biomass and create new employment
opportunities. More such initiatives could be encouraged by the government.
Rural Tourism including Heritage-, Eco-, Adventure-tourism and Pilgrimages
For several areas of the world, agro-ecotourism, eco-forestry offer additional sources of
employment and income to the rural population. In India, rich biodiversity & rural landscape can
attract tourism. This would, in turn, possibly provide strong financial incentives for the rural
communities to conserve the natural resources and high levels of biological diversity, thus
benefitting these areas socially, economically and environmentally.
Moreover, employment elasticity with respect to value addition to tourism sector for India is 0.28
which is much lower than global estimate of 0.65. Therefore, there is significant potential for the
tourism sector in India to absorb more people.
Small Towns
The unskilled labor can be employed in construction which has the highest employment potential
in future. Over the years, massive opportunities of employment & wealth exist in building
infrastructure, transportation systems, waste management system, power supply, as cities
become bigger and land taken over by the cities grows in value.
Most significant public intervention is required in terms of guaranteed social protection dealing
with aspects of occupational safety and health especially in hazardous jobs like construction.
Unskilled people in urban areas primarily employed in informal sector remains unprotected from
various risks like sickness, old age, maternity, unemployment, and job loss.
Social security provisions in various legislations guaranteeing compensation in case of disability,
death at work, maternity etc are applicable to a small section of people employed in organized
sector. Initiatives like EPFO, ESIC are not showing any major change at ground level, as most of
the unorganized sector employers do not contribute much to this fund instead the entire monthly
premium/ contribution is made by worker. As per recommendation of NCEUS, at least for below
poverty line workers government should make significant contribution for the social insurance
Skilled Labor
This could be engaged with SMEs across different sectors especially labor intensive ones such as
various food processing industries, knitwear and other garments, handloom weaving, sugar,
leather and leather products, footwear, furniture, jewelry, bicycle and cycle rickshaws. Special
consideration & encouragement should be given to sectors with high income elasticity of demand
and linkages to large enterprises.
The sector within SMEs of significant interest is renewable energy. In addition to improving
energy security, enhancing energy access, and mitigating climate change, renewable energy may
be able to help reduce poverty, by creating good jobs that poor people can perform. Meeting
India’s ambitious target of generating 160 gigawatts (GW) of wind and solar power by 2022 may
require 330,000 jobs in construction, project commissioning and design, business development,
and operations and maintenance (O&M).(WRI,2017)
Permanent jobs can also be created with health benefits and capability building programs for the
unskilled people.
Moreover, the energy elasticity (energy required to produce one unit of GDP) of India at 0.191 is
on par with world average but higher than most European countries & China. Major culprit for
the same is the agricultural sector, which has earned the tag of being most inefficient user of
energy with mechanization of agriculture & has great potential of energy savings.

Metropolitan Urban Areas

Urban India remains key driver behind the more than threefold increase in per capita income, &
will continue lead the India’s growth story with gradual awakening of a middle class. These
economic trends will unlock new market for economic activities which may not directly related
to traditional economic activities like infrastructure, transportation & trade.
Though metropolitan cities have attracted a lot of investment generating employment, but most
of them are failing many of its citizens. Across all major amenities, cities face a demand-supply
mismatch & fall short on delivery of basic services such as transit system, sewage & waste
management systems.

Effective public intervention in these areas can create better employment opportunities in
building a more sustainable urban infrastructure. Major focus needs to be given on activities
related to waste management, sewage & transit system. These activities have shown CAGR of
almost 8% over the period 2010-18. According to Institute of Applied Manpower research,
infrastructure activities will face highest requirement of over 100 million additional skilled
personnel over the next 10 years.

Other than this, wholesale & retail trade remains one of the untapped sector in terms of
employment mainly because of its fragmented nature & major market being in unorganized
retail. Though with advent of FDI in retail, organized retail has gathered momentum but much
needs to be done in terms of public policy. Moreover, it has remained concentrated to
industrialized states of Tamil Nadu, Karnataka & Maharashtra.

Important challenges that remain is the shortage skilled labor & lack of storage & warehousing
facilities. Resolution of these challenges in itself will create large scale employment opportunities
of different skill set. According to a study by ICRA, on average organized retail will face an
incremental requirement of 2 million skilled personnel.

Organized retail both domestic & through entry of foreign players is expected to improve the
supply chain in the long run through increased investments in both forward and backward
infrastructure such as cold chain and storage infrastructure, warehousing and distribution
channels. This in turn is expected to increase employment (more formal employment) both
directly and indirectly (for other related sectors part of the value chain) and the infusion of
technical knowledge and capital may also induce skill development.