These are some stylistic facts about India’s labor market. First, of the nearly 900 million adults of working age, only 45% are either employed or looking for a job; That is, they comprise the entire labor force. This makes India’s labor force participation rate (LFPR) one of the lowest among peers. For the female LFPR, the ratio is barely 18% and is falling. Second, the proportion of workers in the informal sector is up to 90%. These workers have no health or retirement benefits and usually do not have enforceable employment contracts. For them, delays in wages and payments are not uncommon, and tend to get worse during a recession. Recourse for non-payment is negligible. Third, the unemployment rate is high, especially among educated youth. This was pointed out in a recent survey for all states; Rajasthan’s unemployment rate for graduates was 51%. Another clear indicator of this jobs drought came to the fore in a reply in Parliament that said 220 million Indians had applied for nearly 700,000 government jobs in the past seven years. It has a success rate of 0.33%. Despite these minor constraints, the scramble for a “permanent” government job should be counted as a major stylistic fact of India’s labor market. Inexplicably, the growth in jobs is not in line with India’s rapid economic growth. Is it failing from an inherent bias for capital intensification of industrial production due to low cost of capital? Or is it also because of the notorious burden of so-called harsh labor laws? The latter may not be a strong factor, as 90% of India’s employed workers are anyway not subject to most labor laws. Nevertheless, if we look at the distribution of enterprises by size, the graph drops sharply after 10 employees when the labor law is implemented. Fourth, the lack of formal sector jobs is also reflected in workers’ earnings figures. An estimated 45% of salaried employees . earn less than 10,000 per month, barely above the minimum wage. However, we also see a severe shortage of some skills, which places a very high premium on them. Sixth is the changing pattern of employment in all sectors. According to the CEDA-CMIE survey, the number of manufacturing jobs has declined from 51 million in 2016-17 to 27.3 million in 2020-21. Real estate and construction sector jobs also declined from 69 million to 53.7 million. The agriculture sector, which would be expected to see an exodus of workers, saw a marginal increase in jobs from 146 million to 152 million. Thus, agriculture still hosts more than a third of the workforce, although characterized by low worker productivity and disguised unemployment.
How much can the policy directly affect job growth, especially when 90% of the workforce is in the informal sector? Against this background, proxy unemployment programs like the National Rural Employment Guarantee Scheme (NREGS) have become a necessity and have proved to be effective as a safety net as well. Post-Covid, there has been a demand for an urban equivalent of the scheme. Employment is primarily a state subject and local solutions may vary across the country. But there is also the danger of states imposing coercive and populist policies, which may prove counterproductive and may even be unconstitutional.
Labor intensive sectors such as construction, textiles, retail, tourism and agro-processing have potential for large scale employment generation. The construction sector proved to be a major job creator during the recent infrastructure boom. This can prove to be a boon for unskilled and semi-skilled workers. If there is another boom in this sector, we will see massive job creation, even if it is informal.
A policy move affecting construction workers needs immediate attention. It relates to the non-performance of a landmark 1996 legislative move. Called the Building and Other Construction Workers Regulation Act, it was a national law to regulate their employment and working conditions. Welfare boards were set up by all states to provide health and pension benefits, maternity leave, education for children and schemes covering accident and death compensation. Actual benefits may vary from state to state. For example, Delhi used the money to provide unemployment benefits during the Covid lockdown. Some states have enlightened schemes for scholarships for children of workers. The plans are financed by a mandatory 1% cess on the value of construction projects which has to be paid by the contractor or employer before the activity starts. The cess cannot be used for any purpose other than labor welfare. Its usage data is disappointing. In the last 25 years, the states have 80,000 crore, but more than half is lying unspent. The Comptroller and Auditor General of India reported that only 1.7% of Delhi’s 1 million construction workers were registered with the welfare board as of March 2019. Between 2002 and 2019, the Delhi government spent only 5.6% of the cess collected. The story is the same in all states. Since construction workers migrate seasonally, their names are dropped. Contractors and employers only pay cess but are not liable to register workers. The eyes of many states struggling with money crunch are on this pile of unspent money. The central government has registered 280 million informal sector workers on its e-shram portal. It is heartening, but the plight of unregistered construction workers has gone unnoticed. The states and the Center should not only tighten the registration process of welfare boards, but also take the help of civil society watchdogs to ensure that construction workers are registered and get their due benefits.
Ajit Ranade is a Pune-based economist
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