Prof. Bibek Debroy:
Thank you Mr Chairman. I work for CPR. I can’t really thank the organizers, because I
am a part of one of the organizing institutions. The Theme that was assigned to me was
to talk about the phenomenon of jobless growth. I live in India and I work in India.
Therefore, my familiarity is with issues that are Indian, However some of the remarks
that I will make probably have relevance also in several countries of the South Asian
Region, though not all of them, because South Asia itself is a slightly heterogeneous
group. Before talking about the phenomenon of jobless growth, I want to make a few
very quick remarks on the broader issues of poverty and inequality and then I will come
to jobless growth. As Montek Ahluwalia said, towards thefag end of the earlier session,
there are different ways of defining and measuring poverty and one of the problems in
India is that you do not have data that surfaces every year. The data that surface
originate through something called the National Sample Survey (NSS) and the NSS
brings out reliable large sample data roughly once every 5 years. The last NSS large
sample data that has been produced are for the year 20092010 and before that it was
20042005. As I have said, there are different ways of measuring poverty. One of these,
and not the only one, is income poverty. However, NSS does not collect data on
income. It collects data on expenditure. So we have poverty figures, purely measured in
terms of the percentage of population below the poverty line and there have been
debates on the nature of the poverty line. And it is undeniable that poverty has declined
in India. However, India is a large country. India is a heterogeneous country, and the
distribution of growth has not been uniform throughout the country. Consequently, the
decline in poverty has also not been uniform throughout the country and there are
certain parts of India, particularly central India extending eastwards, sometimes going
all the way to the north east, where the reduction in poverty has not been fast enough.
This is only so far as income poverty and expenditure poverty is concerned. If one talks
about other indicators of poverty, like access to health or like access to education, the
heterogeneity and the disparity are even more stark.. One needs to bear this in mind,
particularly when one is talking about things like inequality. Because inequality has two
completely different kinds of dimensions. The first kind of dimension of inequality is
when one is talking about inequity in access to various kinds of inputs. These may be
health, these may be education, it may be law and order, it may be financial products,
all of that. These are in the nature of inputs into the process. And despite several years
of attempting to address the problem, the fact of the matter is that in several parts of
India, you have significant disparity of access to these things. The other kind of
inequality is inequality in so to speak outcomes, that is, distribution of incomes. The
reason I want to flag this is, perceptionally, people seem to think that inequality in India
has increased dramatically, Why did I say perceptionaly? Because the last
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computations of inequality are still based on NSS National Sample Survey of 20042005. People have not yet begun to deduce inequality measures on NSS 2009-2010. A
few of my friends have begun to do this and they tend to show that inequality levels in
India are far higher now than what they were expected to be and far higher than
inequality levels in most countries of the world, including Latin America. Those who are
economists know that there is a measure of inequality known as the Gini- coefficient
and the Gini-coefficient in India, for expenditure mind you, used to be around 0.34 or
0.35 until the NSS of 200910. Those friends who have done this exercise with later data
show that in urban India, the Gini-coefficient now, and these are preliminary estimates,
has increased to around0.65. 0.65 is for Urban India. Nonetheless, this isone of the
highest figures in the world. Let me now quickly turn to the issue of growth and in the
context of growth, the first thing, the obvious point, to bear in mind is that we have got a
very segmented labour market. We have got an organized labour market and we have
got an unorganized labour market, although the definition of organized and unorganized
tend to be somewhat blurred and quite often one spills over to the other. However,
having said that, however you define it, about 92% of the labour force is in the
unorganized sector. Only about 8% is in the organized sector. For a very long time, in
the absence of data, we debated whether jobless growth was happening. Today, it is
impossible to dispute that job creation has indeed happened, The proposition therefore
is not whether jobs have been created or not. The proposition is not whether there has
been jobless growth. The proposition is about what kind jobs are being created. For
instance, there was a mention of manufacturing. The bulk of this job creation is not
happening in manufacturing and there are forty different reasons, if not more, why the
manufacturing story in India has been a failure. There are several reasons why the job
creation has not only not been in manufacturing, not only been in Industry, not only not
been in the organized sector. But even in the unorganized sector, it has primarily been
in services and this does not mean H1B visa kind of services. It means construction. It
means real estate. It means trade. It means hotels. It means restaurants. And in this
process of job creation, again to repeat something I said earlier, there is a tremendous
amount of heterogeneity in the country, because the so called demographic dividend in
terms of accretion into the labour force is happening in parts of India where the jobs are
not being created. Earlier, in some sense through the process of planning and even
industrial licensing, one could ensure in principle that the jobs are created and demand
for labour is where the supply is. That’s not happening now. An additional problem that
occurs is the fairly serious problem of skills. And in skills also, there is a very clear
regional dimension, the skill delivery part is also not evenly distributed to various parts
of the country. Therefore, there are certain parts of the country where skill delivery of
the vocational kind is better than the other parts and I am not even talking about things
like higher education. Why, having said all of this, is it the case that certainly in the
organized manufacturing sector, Indian production tends to be so very capital
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intensive?. The standard reason Montek Ahluwalia mentioned was labour laws, which
is true, but I think that should also be qualified. Because whenever one talks about
labour laws, most people think of the Industrial Disputes Act, particularly chapter 5B of
the Industrial Disputes Act, which imposes restriction on layoffs, retrenchment and
closure. And in some of our neighboring countries, unless I am wrong, a country like
Bangladesh I think, the Industrial Disputes Act is what most countries in the region
inherited historically. Unless I am wrong, Bangladesh has relaxed it considerably, which
explains success in the garment sector. The point however I am making is when one is
talking about labour laws, the Industrial Disputes Act is a very small component. Blood
pressures in India invariably go up when one is talking about trying to change the
Industrial Disputes Act. However, as I said, there are many other labour laws which are
less contentious, which are even more important in terms of rigidity of labour markets, in
terms of encouraging the capital intensity of production. One final comment on this.
Then I will stop, because I am running out of time. The Industrial Disputes Act
originally goes back to 1948 and it’s tightening up happened towards the end of the
70’s and the mid 80’s. However, the cost so to speak of hiring labor, transactional costs
of hiring labour and firing labour, these have been unchanged since the mid 80’s, not
that they have become particularly worse. What I want to draw your attention to, is when
one is talking about capital versus labour, this is a question of relative prices. One of
the things that has distinctly happened in the post 91 period, and particularly around
1996-1997, is a reduction in the cost of capital. This is the additional reason why one
continues to have high capital intensity. This is not just a historical fact, a labour market
being rigid in the organized sector. While that is true, it is also true that the cost of
labour has come down. As I said, there is a tremendous amount of disparity among
states in terms of relaxing labour laws. There has also been a tremendous amount of
variation across states, for reasons I do not go into, I need not go in to now. The
propositionn can be advanced that India is unduly centralized. It needs to be decentralized and one component of that, not the only one, is the seven schedule to the
Indian Constitution, which sets out what is in the so called concurrent list. Since this is
already happening de facto, I think the way forward for India to solve the labour market
problem is to change the 7th schedule and move labour completely from the concurrent
list to the state list, which will de jure make clear and reinforce what is already
happening today de facto, with the implication that states which want to reform will be
able to reform. Thank you
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