Boom Times-But No Jobs; Gaudy Economic-Growth Numbers Can't Solve a Simmering Unemployment Crisis

By Overdorf, Jason | Newsweek International, March 15, 2004 | Go to article overview

Boom Times-But No Jobs; Gaudy Economic-Growth Numbers Can't Solve a Simmering Unemployment Crisis


Overdorf, Jason, Newsweek International


Byline: Jason Overdorf

In general elections next month, India's ruling Bharatiya Janata Party is campaigning, Reagan-like, on the theme that the country is "shining." These are, in fact, heady days for India, which has witnessed average economic growth of 5.6 percent over the BJP's current five-year reign. Buoyed by a booming stock market and reports that the country's GDP rose by an even stronger 8 percent during the third quarter, Prime Minister Atal Behari Vajpayee recently crowed at a political gathering, "Our growth rate has surprised the world." The prime minister also took issue with his critics, who, he said, claim "that [people] are not seeing the rapid economic progress made by the country. There is overall satisfaction," said Vajpayee.

That depends on whom you ask. While millions of citizens have benefited from the country's recent boom--especially those in the IT and outsourcing sectors clustered around cities like Delhi, Bangalore and Hyderabad--hundreds of millions more are in danger of being left behind. India's jobless rate last year was a seemingly manageable 8 percent. But with the country's population surging, the numbers of people out of work or underemployed have been rising steadily. According to the government's Planning Commission, more than 40 million Indians are registered with employment exchanges, and population projections suggest that 35 million new workers will join the country's labor force by 2007. That means India will need to create a staggering 75 million jobs over the next three years, according to the consultancy McKinsey & Co.--assuming full employment.

That isn't going to happen. India is creating new jobs, but not nearly enough of them to keep up with the ferocious demand for work. Between 1994 and 2000, India's rate of new-job growth was a paltry 1.07 percent. With the working-age population (15 to 60) set to balloon, the country could face social unrest unless it can find ways to funnel a mass of poorly educated people into decent jobs.

The current conundrum is a function of population growth and the country's modernization drive. In 1991 India abandoned its socialist, planned economy and began to open various industries to private competition. Some state firms were privatized; others were made more efficient. Since 1997 the public sector has eliminated 4.5 million jobs--or roughly 15 percent of its work force. The private sector was supposed to make up the difference through rapid growth, but instead has slashed a million jobs of its own over the last seven years.

One problem is the nature of India's success story. It's largely the result of investments in technology and in more modern manufacturing methods--a capital-intensive economic strategy that emphasizes productivity and efficiency, getting more output out of existing workers. "The private sector is growing very fast," says S. P. Gupta, chairman of the employment section at the Planning Commission. "But the high-tech [strategy] essentially means jobless growth." Shirish Sankhe, a principal at McKinsey & Co. in Mumbai, agrees. "There are productivity enhancements happening all over the country, especially in sectors where the government is still a big employer, like banking, steel and telecommunications. So despite a huge growth in output, you will see low growth in employment because productivity is very low."

That's certainly true in India's biggest industry. Some 60 percent of India's population--more than 600 million people--still earn their livelihood from farming. The industry is labor intensive and uses almost no machines. As machinery gradually comes into use, however, many farm workers will become redundant. "China pulls 1 percent of its people out of agriculture and [puts them] into construction or light manufacturing every year," says Sankhe. That's a feat that India is not likely to match.

To expand job-heavy industries like construction, manufacturing and retail would require pushing ahead with politically unpalatable reforms, encouraging more foreign investment--and putting an end to lingering socialist ideas. …

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