How Not to Tackle India’s Jobs Crisis

India's persistent jobs crisis, that disproportionately impacts young people, is multifaceted and deeply entrenched in the neoliberal project that has dominated the country's economic policies for many decades. The first dimension is the decline in formal employment within the organised sector, a consequence of increasing precarity through informalisation and the gig economy. This decline reflects capital's relentless drive to reduce labour costs with an aim to enhance profits.

Second, the unorganised sector, predominantly composed of small-scale enterprises, has faced severe setbacks due to policy measures, such as  demonetisation, the Goods and Services Tax (GST), and the government's inadequate response to the Covid-19 pandemic. These interventions have further marginalised petty production and exacerbated underemployment.

Third, the expanding reserve army of labour has led to stagnation and even a decline in average wages and incomes.

Fourth, women have borne a disproportionate burden of this crisis, with widening gender wage gaps and adverse trends in labour force participation rates which are undermining social reproduction. Government data about recent “increases” in female labour participation ignores the fact that 37.5% of women classified in this data as being part of the labour are actually unpaid helpers in family enterprises.

Finally, there has been a growing wage disparity between oppressed social strata and others, reflecting deep-seated inequalities perpetuated by the current economic system.

This complex jobs crisis persists regardless of economic growth trends, highlighting the non-linear relationship between economic growth and labour productivity. The persistence of this crisis is intrinsically linked to the dynamics of the neoliberal project, where capital accumulation takes precedence over other possible objectives. The magnitude of employment equals the ratio of output (that depends positively on investment in a demand constrained economy) and the level of labour of labour productivity.

A jobs crisis will persist if: one, labour productivity accelerates faster than investment in an economic upturn due to accelerated adoption of foreign technologies of metropolitan origin that are labour displacing.

Two, labour productivity decelerates less than investment in an economic downturn. In other words, as long as India is operating within the framework of the neoliberal project, any policy intervention to tinker with the rate of economic growth will not allow the jobs crisis to be dealt with effectively.

The other alternative is to try to allow policy to impinge on labour productivity. Recently, there has been discussion in the mainstream media on a proposal to implement an employment linked incentive (ELI) scheme for firms in the small-scale sector. This scheme seems to involve the provision of policy support whose direct or indirect impact can be reduced to a monetary value. This policy support seeks to enhance the magnitude of employment in the small-scale sector. Let’s examine whether it can work.

Increase in profits, after the ELI has been implemented, equals by definition increase in revenue less increase in wage bill less increase in non-wage costs plus magnitude of ELI policy support. Assuming that the wage rate is fixed, an increase in wage bill will be proportional to an increase in employment. Therefore, it will approximately be the case that the magnitude of ELI policy support will be proportional to an expected increase in employment. 

This policy will be successful i.e. increase in profits will increase employment only if the magnitude of ELI policy support is sufficiently high. The neoliberal project since 1991 has involved, among other things, a squeeze on the small sector, which translates into a lower increase in revenue and a higher increase in non-wage costs. Therefore, the lower is the increase in revenue or higher is the increase in non-wage costs, the higher must the increase in ELI policy support be to achieve a given increase in employment.

Given the neoliberal constraints on public spending and the related squeeze on the small-scale sector, it is quite unlikely that the magnitude of ELI policy support will be high enough to result in any meaningful increase in employment under the ELI scheme.

Some reports in the mainstream media often attribute unemployment to a mismatch between worker skills and firm requirements. This explanation fails to account for the structural issues within the labour market. If there were indeed a demand for skilled labour, capital in production would naturally flow into the education and training sector. However, this has not occurred to the necessary extent because the production of skilled labour power is not sufficiently profitable relative to other sectors, particularly financial activities.

The production of skilled labour power is constrained by the inability of many students to afford the high fees demanded by educational institutions, reflecting the broader issue of income inequality. Government subsidies or public sector involvement in education could address this, but such measures are unlikely to occur to a significant extent as long as neoliberal policies dominate.

A greater production of skilled labour power will increase employment only if there is adequate demand for output produced by this skilled labour power. There are only two autonomous sources of this demand, namely, the government and exports. Government demand of an adequate magnitude through fiscal policy will not be forthcoming as long as the neoliberal project is central in India.

The expectation that export-led growth could resolve the jobs crisis is also misguided. First, the current decline in US imperialist hegemony, which is exemplified by the conflict between the US on the one hand and China and Russia on the other hand, has expectedly resulted in the rise of trade barriers for exports of developing countries. Besides, the entanglement of many segments of India’s monopoly capitalists with international finance capital results in India (unlike Vietnam, for instance) being unable to exercise adequate strategic autonomy in order to increase its production of relatively high-technology commodities for exports.

Second, the expectation that India could be a possible location of some segments of global production networks dominated by multinational corporations headquartered in the metropolis and, therefore, a source of significant exports to the rest of the world, ignores the existence of other locations, such as Vietnam and Mexico. These two alternative locations have the advantage of being the recipients of greenfield foreign direct investment from both China and the US (unlike India) and, therefore, being relatively more securely ensconced within relatively high-technology segments of global production networks.

The Indian government’s restrictions on Chinese greenfield foreign direct investment has meant that India is at a disadvantage with respect to adequate participation in global production networks that is analogous to Vietnam and Mexico. This disadvantage is compounded by the attenuated level of infrastructural attainment (relative to alternative locations) that does not warrant any meaningful relocation of global production capacity into India. 

Besides, the adverse health and nutritional trends among India’s working people, due to the centrality of the neoliberal project in India, is not conducive to attaining a ratio of wages to labour productivity in domestic sectors that are part of global production networks, which are comparable to alternative locations like Vietnam.

Third, India will be able to ascend the technology ladder that pertains to global production networks and thereby become a source of relatively high technology exports only if there is adequate public research and development activities that will crowd in private research and development activities. However, the neoliberal framework effectively precludes substantial public investment in research and development, stymieing private sector innovation and reinforcing India's technological stagnation.

Our critique of the ELI scheme and the skills mismatch explanation underscores the centrality of macroeconomic demand in addressing the jobs crisis. Public policy must focus on enhancing macroeconomic demand and (predominantly) public production of skilled labour that is warranted by this demand along with other supportive policies. Two potential policies to address the jobs crisis that recognise the importance of macroeconomic demand, are Universal Basic Income and Employment Guarantee Schemes.

Shirin Akhter is Associate Professors at Zakir Husain Delhi College, University of Delhi. C Saratchand is  Professor, Department of Economics, Satyawati College, University of Delhi. The views are personal.