Skyrocketing Unemployment: A Failure Of Modi Sarkar

Posted by Saurav Kumar in Business and Economy, Society
May 30, 2018

Narendra Modi assumed power in 2014 as India’s Prime Minister on the back of many promises. At least two of them were highly aspirational, and he also seemed vocal about them:

1. To bring back black money.

2. To create more jobs for people.

At a rally in Agra in 2013, when he was campaigning for the position of PM, he had said thet the BJP would create 10 million jobs: “If BJP comes to power, it will provide one crore jobs which the UPA Government could not do despite announcing it before the last Lok Sabha polls.” Since it also got an overwhelming majority, one would expect such promises are meant to be kept.

But did it happen? The answer seems to be no! Why didn’t it happen? Even it did not happen, there’s a lots of farce underway these days. According to the Bureau of Labour and Statistics, 48 million people registered for employment in 2014, but less than 1% was given job placements by the exchanges. On the other hand, the officials of Indian government, the PM, the ministers and government agencies are boasting about generating jobs in the lakhs every year.

Claim On New Jobs: A Myth

A month ago, the government’s think tank, NITI Aayog claimed that 35 lakh new jobs were generated between September 2017 and February 2018. As per the data released by the retirement fund body, Employees’ Provident Fund Organisation (EPFO) and the Pension Fund Regulatory Development Authority (PFRDA), 35.3 lakh new payrolls were generated during this 6-month period. Even Prime Minister Narendra Modi said in a televised interview that the data on 7 million jobs was the result of a study.

This notion of the generation of new jobs can be easily understood when one compares the Labour Participation Rate (LPR) and the EPFO enrollments which is the government’s prime source of this claim.

First of all, let us be clear that the EPFO data does not pertain to employment. The rise in EPFO enrolment largely indicates the conversion of the informally-employed workforce into formal employment. It can only be used to measure the extent of the formalisation of workforce. Here, the workers who were unaware of the facility of a provident fund (PF) and were enrolled in the EPFO scheme were considered as a newly-registered workforce. But this cannot be termed as the generation of new jobs.

This does not mean that the EPFO data is not significant at all. But it should not be confused with employment data. Consequently, this calculation of 35 lakh news jobs is just misleading. On the other hand, the labour participation rate (LPR) is at its lowest, when compared with the rates in the previous years. During demonetization, a large portion of the workforce, consisting of millions, stopped working as daily-wage workers. A large number of labourers quit the labour market post demonetisation, and have not returned back.

Was there any effort to bring back this workforce into the fold of the mainstream? A fresh CMIE report clearly states“Labour participation rate (LPR) declined in April 2018. At 43.1%, the LPR in April was among the lowest. In the past 28 months, (since the CMIE started measuring LPR), this was the second-lowest LPR level.”

The Threat Of Rising Unemployability

According to a Firstpost report, “As many as 18.3 million Indians were unemployed in 2017, and this unemployment is projected to increase to 18.9 million by 2019, according to The World Employment and Social Outlook–Trends 2018 report by the International Labour Organisation, released on 22 January, 2018.” And according to yet another report, “In February 2018, around 41 million people were competing for 1.6 million jobs posted at employment exchanges across India. The number of unemployed seeking jobs has doubled from around 3% in 2015 to 7% in early 2018.”

The Economic Survey too considers job generation as the biggest challenge. The organised sector does not seem to be hiring people directly. It prefers contract labour. Furthermore according to a Hindustan Times article, “The number of beneficiaries of one government assistance programme, the Prime Minister’s Employment Generation Programme (PMEGP)–which aims to generate employment in rural and urban areas by starting new micro enterprises and small projects–has fallen 24.4% from 428,000 in 2012-13 to 323,362 in 2015-16, according to government data. Until October 2016, the programme had created an additional 187,252 jobs, according to the latest data available.”

Image source: India Spend

Ineffective Foreign Investments

The common perception which rules the minds of millions of people is that the die-hard efforts of Modi in visiting different nations has benefited us in acquiring foreign direct investment (FDI). But this perception has a fatal outcome, which has led the situation to become a farce.

It is an established fact that without investments, creating employment is just a half-hearted commitment. When it comes to FDI, all of our PM’s foreign trips can be considered useless, because the basic requirements of our unemployed youth are not being fulfilled.

More importantly, India has seen a heavy FDI inflow under the NDA government, but not of the type that’s currently needed. Currently, India is acquiring FDI mainly in the form of Brownfield investments which work primarily on four conditions:

1. Mergers and/or acquisition of foreign MNCs in India.

2. The purchase of existing operational facilities and technology.

3. No expansion of production facilities and employment generation.

4. No transfer of technology.

For example, the India-Japan deal on the bullet train has no chance of ‘technological transfer’ from Japan to India.

On the contrary, attracting Greenfield investments also needs the fulfillment of four conditions, none of which have been achieved by the Indian government:

1. Investment by an MNC starting a new venture from scratch, without taking over an existing entity (as is the case in Brownfield investments).

2. Completely new operational facilities like plants, machinery and other related equipment.

3. New production strategies which augment growth by creating new jobs (recruitment of management, labour).

4. Bringing new, superior technology leading to technological transfer.

However, the Modi government is aggressively banking on bringing in Brownfield investments. Nearly 50% of the $44 billion that came in as FDI inflows in 2016 went towards Brownfield projects. Bringing in FDI for helping distressed corporate assets are adding no value to Indian economy, when it comes to curbing unemployment.

But more than the FDI debacle, the government has miserably failed in taking up state investments in infrastructure. Very minimal investment in the public sector raises eyebrows on the government’s sincerity in tackling unemployment. A combination of Greenfield investment with massive public investment, however, will galvanise the domestic market by achieving the two purposes of ensuring employment and increasing people’s purchasing power. In this light, even the vision of Make in India has utterly failed to get technological transfer through various deals from foreign countries. Consequently, fresh investments by the corporate sector in the financial year 2016-17 grew at the slowest pace since 1992.

At the end of the day, the sensibility of the government and its economists to deal with FDI is a flawed one. As Sitaram Yechury astutely puts it: “[…] What does China do? It allows 100 per cent FDI in telecom, but only in hardware production. Every single mobile producer has a factory in China. The mobile phones most of us have are all made in China. So 100% FDI in hardware means, you come, set up factories in China, and produce. You export from China. Chinese people get jobs. What are we doing? We are opening up our mobile services 100%. The moment you open up your services, why will anybody produce here? We had just one hardware factory. I think it was Nokia in Chennai. A week after Prime Minister Modi said ‘Make in India’, they closed shop there.”

Solution To The Unemployment Crisis

In my opinion, the worst decision of the Modi government came in 2016 when NITI Aayog identified 22 PSUs for strategic sale. The government aimed to raise ₹20,500 crore from the strategic sale of the PSUs.

However, instead of selling these so called ‘Sick PSUs’, they could have been reworked and reformed to generate employment in public sector. Undoubtedly, India is transforming, but to overcome a jobless growth, it needs massive doses of public investment. For example, the Left Democratic Front (LDF) in Kerala has set an example in creating employment by employing two steps.

1. Out of 40 PSUs in the state, 13 had turned profitable within 10 months of government formation. The state increased public investment which reaped profits and increased employability.

2. The Kerala Infrastructure Investment Board (KIIFB) had already received investments worth ₹50, 000 crores in 2015 and 2016 for various projects. In 2017, it received ₹40,000 crores for the same.

A focus on bringing Greenfield investments will lead to the generation of new jobs, along with the upgradation of technology. The best example to be followed here is by drawing historical parallels – even die-hard capitalists like Franklin Roosevelt and Adolf Hitler had to invest in infrastructure. Roosevelt’s public investment led to a post-war boom in the US economy. Hitler had to increase state investment in the military and in building expressways.

In simple words, the world’s capital is using India’s resources for maximising its profits. In the wake of the global crisis, the problem cannot be solved just by shifting the workforce from the informal to the formal sector. Instead of downplaying the crisis in terms of statistics, the Indian government must seriously introspect and act to tackle one of the monstrous challenges before the Indian youth.

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Featured image used for representative purposes only.