Sectors growing fast are not the ones generating large-scale employment

The last three years have seen a slow-but-steady uptick in economic growth, but it is likely that this hasn’t been accompanied by commensurate job increase in employment. The sectors that grew fast have low labour intensity and share in overall output.

That’s the predicament at a time when ~1.5 million people are entering the labour force every month, with most of them seeking jobs. Trouble is also brewing on another flank: the rapid adoption of technology, especially automation, which is reducing the labour-intensity of many an industry. Policies will, therefore, have to support sectors with large job growth potential such that, despite slipping labour intensity, absolute employment continues to increase. Additionally, the policy focus should also in preparing the youth for new job opportunities.

Sectors with high potential to absorb labour have grown at a slower pace

In the past three years, three sectors have grown way faster than GDP: 1) financial services, real estate and professional services; 2) public administration, defence, and community services, and, 3) trade, hotels and restaurants. Of these, only the trade, hotels and restaurants sector is labour intensive, requiring about 6 workers to produce Rs 1 million worth of output. But its share in total output is low at ~12%. In contrast, other fast-growing sectors, despite having a larger share in output, have low labour intensity of 2-3. And sectors that have higher labour intensity – such as agriculture with 30, construction 13 and manufacturing 7 – have been undershooting overall GDP growth. Growing at 3-3.5% per year, agriculture is unlikely to become India’s growth engine. In fact, people need to be moved out of overcrowded agriculture to high growth and high productivity sectors.

Reasons why despite a pick-up in GDP growth, fewer employment opportunities are likely to have been created in the past three years. The gorilla in the room can be quelled only through policies that support sectors with large employment potential -- despite falling labour intensity. Policy support can also can be in the form of easier labour laws, providing physical infrastructure, mitigating power shortages, and facilitating reasonable terms of credit and taxation laws.