Jobs growth on the slow lane : DBS Research Report

The recent quarterly labour report, which captures changes in employment across sectors, made for grim reading. The report observed that in Jan-Mar 2015, the change in number of employed dropped to 64k from 117k the quarter before.

This marked a continuation of easing numbers since Jun14 quarter amongst the surveyed firms. Amongst the different sectors, the largest jump in Jan-Mar15 was in IT/business process outsourcing firms (57% of total), followed by textiles including apparels (37%), automobiles and metals, amongst others. On the other hand, labour cuts were most notable in labour-intensive leather and gems & jewellery, followed by transport and handloom sectors.

The picture was no different for the employment trends in export-oriented units, with the numbers falling for the past three quarters before recovering slightly in the Mar15 quarter. At the outset, the survey sample is small and hence might not fully capture the underlying conditions. Nonetheless given a dearth of official labour statistics, these provide a pulse of the situation. These sobering employment numbers are likely to worry policymakers, as a revival in growth is unable to generate sufficient employment, which by extension also worsens income disparities (DBS Group Research; India: harnessing demographic strength; 27Jul15). Faster growth needs to be inclusive and generate sufficient employment.

While recovery is yet to take hold, a pick-up in manufacturing activity in particular could help improve the economy's labour absorptive capacity. Presently, the absorption is uneven across sectors, with services making up for more than half of GDP (old series) but employs less than a quarter of the workforce. By contrast, manufacturing accounts for 15% of GDP and absorbs 11% of the employed labour force, providing a more balanced alternative. Given this sector's labour absorptive capacity, an increase in the share to the government's target of 25% of GDP would help employ an additional 100mn (one-fifth of the total) labour force.

In this regard, the Make in India initiative focuses on the central and state governments to jump job creation through dedicated manufacturing and investment zones. While India's favourable demographic dividends imply a steady supply of labour, this boon could become a bane if labour is not utilised efficiently, given India's low employment elasticity and disproportionate sectoral distribution of the workforce. Jumpstarting job creation is likely to remain at the centre of the government's reform process.

Source : Equity Bulls

Keywords