EMPLOYMENT INTENSITY OF ORGANISED MANUFACTURING SECTOR IN INDIA: TRENDS AND DETERMINANTS

Abstract

The central problem of Indian economic growth during the neoliberal period is that the growth of the manufacturing sector has not been employment intensive for a long period of time. However, specific characteristics of the manufacturing sector make it imperative as an ‘engine of growth’ for the economy and hence make industrialization essential for economic growth. The manufacturing sector, which constitutes just about 12.6 per cent of India’s workforce, undoubtedly has the capacity to create more employment than any other sector of the economy. Therefore, this study attempts to understand the dynamics of the sluggish growth of Indian organized manufacturing sector and employment intensity at aggregate as well as industry levels using Annual Survey of Industry data at 3-digit level. Time period considered is from 1980/81 to 2015/16 with the trend breaks in major economic events/shocks in Indian economy. The study shows a small improvement in the employment elasticity of organized manufacturing sector over the period of time. Organized manufacturing sector could not be able to create enough employment in the 1980s and 1990s, however, the situation has improved during 2008-2015 at the aggregate level. Within the broad industrial groups, the gap between employment and gross value added of medium low-tech industrial group has come down rapidly over the period. Similarly, low-tech group has also shown a slight improvement in the employment elasticity over the period. Growth of the high-tech industry is mainly driven by productivity rather than employment. Growth achieved in the medium low-tech industry during the pre reform period and the post-reform period is attributed to gains in employment. Further, the findings of the study suggest that a weak relationship exists between employment and output of the industrial sector for most of the states during the study period. Further, results show that there exists a large degree of regional disparity in industrial growth across the states, which is mostly driven by labor productivity and not by an increase in the supply of labor. Therefore, in order to boost the industrial sector, the states lagging in industrial development should give more emphasis on state-specific industrial policy to attract more investment and create more infrastructure. The study finds macroeconomic factors like inflation, economic structure, trade, education, and economic growth as significant determinants of employment intensity of organized manufacturing sector in India. Factors that determine employment intensity are found to vary according to states and broad i industrial groups, which may warrant state-specific and industry-specific interventions for achieving desired goals. Hence from the policy point of view, it is pertinent to increase the productivity and employment in those industries which have experienced continuously increasing employment intensity of growth, particularly in medium and low-tech industrial group. This is possible only by lowering the labor law regime, increasing economic freedom and ease of doing business, and enhancing infrastructure facilities especially for low-tech industry and medium low-tech industry groups in India. Since labor-intensive industries belong to the low-tech industry and medium low-tech industry groups which contribute significantly in terms of employment in the organized manufacturing sector, a greater focus on these industries will enable productive absorption of surplus unskilled labor in India.