Academic journal article Indian Journal of Industrial Relations

Manufacturing Growth & Employment Pattern in India since 1990s

Academic journal article Indian Journal of Industrial Relations

Manufacturing Growth & Employment Pattern in India since 1990s

Article excerpt

Introduction

The economic reforms of 1991 have enabled the Indian economy to cross the barriers of Hindu rate of growth. The gradual dismantling of industrial licensing, removal of import licensing for nearly all manufactured and capital goods; tariff reduction and relaxation of rules for foreign investment were all focused to improve the industrial efficiency, productivity and competitiveness of manufacturing industries on the one hand, and on the other, its spillover effects were expected to increase employment opportunities for the skilled, semi-skilled and poor people. The manufacturing sector offers greater prospect for capital accumulation, technical change and intersectoral linkages (Vinish Kathuria, et al. 2010). Thus the dynamic outward oriented manufacturing sector was presumed as a panacea for problems of unemployment and poverty.

There is a large body of literature on productivity growth, its components and determinants in the manufacturing sector in India. Studies are also available on the relationship between growth of manufacturing sector and employment. Few of them were found to be optimistic (Gersbach, 2000; Nickell, 1999; Papola, 2005). They opined that changing market conditions and the attraction of large investments, particularly foreign direct investment (FDI) would prompt greater flexibility in employment and utilization of labor. Majority of the scholars have found adverse relationship between growth of manufacturing output and employment (Sharma & Abraham, 2005; Kannan & Reveendran, 2009). They found that manufacturing industries performed quite well in terms of output during the post reform period, yet this performance was not reflected in employment growth. Many scholars have analyzed this issue of jobless growth and arrived at various reasons for it which include but are not limited to, job security regulations, increased wages, increased labor productivity, increased capital intensity, labor market flexibility, casualization, weakening of trade union strength among others (Goldar, 2000; 2002; Nagraj, 2000; Kannan & Raveendran, 2009; Bhalotra, 1998; Nath, 2008; Ghose, 2005; Deshpande et al., 2004; Pachanan Das, 2007). Various studies have found inconsistency between the manufacturing output growth and employment (Pushpangadan & Shanta, 2008; Bhalotra, 1998; Nath, 2008). According to Rajshri Majumdar (2008), globalization process is leading to further squeezing of the labor market. Goldar (2011) has found some mixed effects. During the early years of reforms, 1995-96 to 2003-04, employment in the organized manufacturing sector had fallen at the rate of 1.5 percent per annum while during 2003-04 to 2008-09 it increased at a very high rate of growth of 7.5 percent per annum, thus invalidating the impression of jobless industrial growth. Sharma (2006) and Papola (2008) have attributed this increase in employment to the relaxed enforcement of labor laws leading to flexible practices at the ground level.

Industrial sector plays a dominant role in the development of the Indian economy. The industrial sector comprises all types of economic activities including mining, manufacturing, construction, electricity, gas and water supply. Among them, the manufacturing sector itself contributes 86 percent to the growth of the industrial sector (Economic Survey, 2011-12). The growth rate of manufacturing sector is 9.4 percent during 2011-12 and it is attracting about 79 percent of the foreign direct investment (FDI). It also contributes a major portion to the Indian exports (53%). But its contribution to employment is highly disappointing as it gives employment to only 17 percent of the work force. This might have an adverse effect on the aggregate demand. Also the services sector has grown at still higher rate in recent years, raising its share in the GDP much faster than the industrial sector. This high growth of services may not be sustainable without significant growth of the manufacturing sectors (Pachanan Das, 2007). …

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