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Growth in Organised Manufacturing Employment in Recent Years

Employment in India's organised manufacturing sector has increased in recent years at the very rapid rate of 7.5% per annum between 2003-04 and 2008- 09. The impression of jobless industrial growth prevailing for some time is therefore not valid any more. What could possibly account for this high rate of job creation in organised manufacturing since 2003?

COMMENTARY

Growth in Organised Manufacturing Employment in Recent Years

Bishwanath Goldar

period was about 13% per annum, while the growth rate of employment was only about 2.8% per annum, less than onefourth of the growth rate in real value added. One may also make a comparison with the growth experience of the 1980s. The growth rate in real value added in

o rganised manufacturing between 1980-81 and 1989-90 was about 8.6% per annum, while the growth in employment was only about 0.3% per annum. Clearly, the period 2003-04 to 2008-09 was special and different from the two previous phases of high industrial growth in India in that high rates of growth in organised sector industrial output were accompanied by large increases in industrial employment.

Structural Changes

Was the high rate of growth in industrial employment during the period 2003-04 to 2008-09 due to certain structural changes in India’s organised manufacturing in f avour of labour-intensive industries or l abour-intensive enterprises? The answer is in the negative. Structural changes can provide only a small part of the explanation for the fast pace of employment generation in industries in recent years. A comparison of employment growth during 2003-04 to 2008-09 across different categories of factories classified according to the type of organisation reveals that the growth in employment has been relatively faster among private limited companies. The growth rate in employment in factories belonging to private limited companies was 14% per annum, whereas the employment growth rates in factories classified under individual proprietorships, partnerships and public limited companies were 7.7%, 5.3% and 6.1% per annum, respectively (Table 1, p 21). Since labour intensity (measured by the ratio of employment to gross value added) of private limited companies is higher than that at the aggregate level, the relatively faster growth of private limited companies appears to have contributed to some extent to employment growth in organised manufacturing. The share of private limited companies in total ASI employment has i ncreased from 25% in 2003-04 to about 33% in 2008-09.

Employment in India’s organised manufacturing sector has increased in recent years at the very rapid rate of 7.5% per annum between 2003-04 and 2008

09. The impression of jobless industrial growth prevailing for some time is therefore not valid any more. What could possibly account for this high rate of job creation in organised manufacturing since 2003?

E
mployment in India’s organised manufacturing has been growing rapidly in recent years. The results of the Annual Survey of Industries (ASI) of the Central Statistical Organisation, Government of India reveal that between 2003-04 and 2008-09, employment in the organised manufacturing sector increased at a very high rate of growth of 7.5% per annum. The growth rate of employment for total ASI (coverage slightly greater than manufacturing) was marginally higher at about 7.6% per annum. It is i nteresting to note that in the preceding eight years, 1995-96 to 2003-04, employment in the organised manufacturing had fallen at the rate of about 1.5% per annum. Evidently, the recent trends in the organised manufacturing employment are quite different from those in the period 19952003, and the impression of jobless industrial growth that has been prevailing for some time among scholars and other commentators on the Indian economy is not valid any more.

In the years from 2004-05 to 2007-08, the growth rate of industrial output was relatively high. Between 2003-04 and 2007-08, real value added in organised (or registered) manufacturing grew at the rate of nearly 12% per annum. Taking a longer period, 2003-04 to 2008-09, the rate of growth in real value added in

o rganised manufacturing was about 10% per annum. The growth rate of employment attained by organised manufacturing in this period was about 7.5% per a nnum, i e, about three-fourths of the growth rate of real value added. This may be contrasted to the growth experience of organised manufacturing between 199293 and 1996-97. This is the previous phase of high growth in Indian manufacturing. The growth rate in real value added in this

Bishwanath Goldar (bng@iegindia.org) is with the Institute of Economic Growth, New Delhi.

february 12, 2011 vol xlvi no 7

EPW
Economic & Political Weekly

COMMENTARY

Table 1: Employment in Organised Manufacturing, 2003-04 and 2008-09 by Type of Organisation the changes in industrial structure have
Type of Organisation Growth Rate in Employment, 2003-04 to 2008-09 Share in Employment,2003-04 (%) Share in Employment, 2008-09 (%) Employment/Gross Value Added (Number/ Rs crore), Employment Per Factory, 2003-04 (No) not favoured labour-intensive industries, and therefore, have not contributed to
(% pa) 2003-04 acceleration in employment growth.
1 Individual proprietorship 7.74 9.80 9.88 153.8 22.8
2 Joint family (HUF) -11.18 1.05 0.40 116.7 27.3 Performance of States
3 4 Partnership Public limited company 5.25 6.12 18.98 37.58 17.03 35.14 102.1 18.8 33.8 216.5 Two states have achieved exceptionally
5 Private limited company 14.03 24.52 32.84 47.9 62.8 high rates of growth in organised manu
6 Govt dept enterprises -5.97 0.56 0.29 20.9 102.6 facturing employment. These are Himachal
7 Public corporation -10.62 3.43 1.36 11.3 470.5 Pradesh and Uttarakhand. In Uttara
8 Corporate sector (4+5+6+7) 8.68 66.09 69.63 23.2 114.5 khand, the growth rate of employment in
9 10 Khadi and village industry Handloom industry -8.02 -15.16 0.10 0.05 0.05 0.02 137.8 102.4 55.0 117.7 organised manufacturing was 41% per a nnum between 2003-04 and 2008-09
11 Cooperative society 12 Others (incl NR) All -4.21 34.11 7.56 3.61 0.32 100.00 2.02 0.97 100.00 86.0 92.3 31.8 133.2 80.3 61.0 and the growth rate in real value added was 68% per annum (Table 2). Himachal

Manufacturing accounts for 97% of total ASI in terms of employment as well as value added. Pradesh has attained a growth rate of Source: Based on ASI results for 2003-04 and 2008-09.

e mployment (in organised manufacturing)

The distribution of organised manufac-of fur), 28 (fabricated metal products), of about 25% per annum in this period turing employment according to employ-and 34 (motor vehicles, trailers and semi-and a growth rate of real value added of ment size class of factories has not under-trailers). Only one of these three has a about 39% per annum. This exceptionally gone any marked change between 2002-03 l abour-intensity well above the all industry good performance of Himachal Pradesh and 2008-09 (data for 2003-04 being not average. Other industries in which employ-and Uttarakhand has probably a lot to do readily available, a comparison is made ment growth was more than 10% per annum with the tax exemptions (excise and with data for 2002-03). The share of em-include 26 (non-metallic mineral products), i ncome tax) provided to industrial units ployment size class 0-49 out of total ASI 27 (basic metals) and 31 (electrical ma-set up in these states. Other states that employment has fallen by about 3 percent-chinery and apparatus, nec). Two of these have attained a growth rate in organised age points between 2002-03 and 2008-09, three rank low in labour intensity. Clearly, manufacturing employment of 10% per

while the share of employment size class Table 2: Growth in Employment and Value Added in Organised Manufacturing, 2003-04 and 2008-09 by State and Union Territory

1,000-1,999 has increased by 2 percentage

States Share in Share in Growth Rate Growth Rate in Employment Labour Reformspoints. The latter is relatively much less Employment, Employment, in Employment, Real Value Added, Elasticity Index 2003-04 (%) 2008-09 (%) 2003-04 to 2003-04 to

labour-intensive (in terms of employment

2008-09 (% pa) 2008-09 (% pa)

to value added ratio) than the former, and Andhra Pradesh 11.0 9.7 4.8 13.5 0.356 56
therefore the changes in the size structure Assam 1.4 1.3 5.5 -7.1 NC 34
of factories between 2002-03 and 2008-09 Bihar 0.7 0.7 5.1 27.0 0.189 29

Chhattisgarh 1.3 1.5 11.5 19.0 0.606 24

have not contributed to a faster employ-

Delhi 1.5 1.1 1.9 4.7 0.406 39

ment growth. Rather the changes in size

Goa 0.4 0.5 9.0 9.6 0.942 28

structure that have occurred would reduce

Gujarat 9.3 9.9 9.1 9.2 0.981 53

employment growth.

Haryana 4.0 5.4 13.8 10.7 1.295 53

The shares of various two-digit indus-Himachal Pradesh 0.5 1.0 24.6 39.3 0.625

tries in organised sector industrial employment have not changed much between 2003-04 and 2007-08 (a comparison is made with the results for 2007-08 b ecause the ASI for 2008-09 has used a new industrial classification (NIC) 2008).

Jammu and Kashmir 0.3 0.5 15.2 62.4 0.243
Jharkhand 1.8 1.4 2.5 6.0 0.417 32
Karnataka 6.4 6.8 8.7 17.1 0.510 42
Kerala 4.0 3.4 3.8 7.3 0.523 32
Madhya Pradesh 2.7 2.4 5.0 14.6 0.342 46
Maharashtra 14.2 13.2 6.0 14.6 0.411 35
Orissa 1.6 1.9 11.3 27.3 0.414 44

The industries (four) that lost employ-Pondicherry 0.5 0.4 4.5 2.4 1.869

ment share by about 1 percentage points or more are: 15 (food products and beverages), 16 (tobacco and related products), 17 (textile products) and 24 (chemicals and chemical products). Three out of

Punjab 4.3 4.8 10.1 12.2 0.827

Rajasthan 3.1 3.1 7.5 17.6 0.423

Tamil Nadu 14.8 15.7 8.8 9.5 0.930 41
Uttar Pradesh 7.2 6.5 5.3 7.7 0.693 58
Uttarakhand 0.5 2.0 40.8 67.7 0.602 41
West Bengal 6.5 4.9 1.3 8.4 0.155 27

these four are labour-intensive industries. Others 1.8 2.0 10.1 12.9 0.785

On the other hand, the industries (three) All-India 100.0 100.0 7.6 13.7 0.553 Based on ASI results for 2003-04 and 2008-09. Gross value added has been deflated by the wholesale price index for manufactured

that have gained employment share by

products to compute growth rate in real value added. Employment elasticity is computed as the ratio of growth rate in about 1 percentage points or more are: employment to growth rate in real value added, NC= not computed. Source: Labour reforms index is taken from a paper by Sean Dougherty (“Labour Regulations and Employment Dynamics at the State Level 18 (wearing apparel, dressing and dyeing in India”, OECD Economics Department Working Paper No 624, 2008, published in Review of Market Integration, 29 June,Vol 1, No 3, 2010).

EPW
february 12, 2011 vol xlvi no 7

COMMENTARY

annum or more during 2003-04 to 2008-09 include Chhattisgarh, Haryana, Jammu and Kashmir, Orissa and Punjab.

While the organised manufacturing sector at the all-India level has recorded a growth rate of employment of about 7.5% per annum between 2003-04 and 2008-09, organised manufacturing employment in West Bengal has grown at the rate of only 1.3% per annum in this period (Table 2). Other states that have recorded a relatively low rate of growth of employment are Delhi (1.9% per annum), Jharkhand (2.5% per annum) and Kerala (3.8% per annum).

In Haryana and Pondicherry, the growth rate of manufacturing employment has been higher than the growth rate in manufacturing output. In Goa, G ujarat and Tamil Nadu, the growth rate in manufacturing employment has been over 90% of the growth rate in manufacturing output. Another interesting case is that of Assam; manufacturing output (real value added) has declined between 2003-04 and 2008-09, but manufacturing employment has grown at the rate of about 5.5% per annum.

Labour Reforms

There is a view that the disappointing growth of employment in India’s organised manufacturing is primarily due to l abour market rigidities. A recent report of the World Bank (2010) notes that by i mposing excess rigidity in the formal manufacturing labour market, labour regulation has created disincentives for employers to create jobs. The report presents an estimate according to which the Industrial Disputes Act has caused about three million less jobs to be created in formal sector manufacturing. There is, however, a divergent view on whether the Indian industrial firms have actually been facing strong labour regulations. Nagaraj (2007) has questioned the hypothesis that labour market rigidities are holding up industrial growth. According to him, the fine print of exemptions and loopholes built into the labour laws provide sufficient flexibilities to the industrial firms. There is other l iterature on labour regulation in India which takes the position that several I ndian states have relaxed the provision of enforcement of labour laws leading to flexible practices at the ground level (Sharma 2006; Papola 2008). The belief that several Indian states have relaxed the provisions of enforcement of labour laws leading to flexible practices at the ground level seems to go well with the observation that in recent years organised manufacturing has achieved a fast rate of growth in employment. Also, the fact that there are differences among states in r egard to the extent of relaxation done, could to some extent account for the differences in the growth rate of industrial employment achieved.

Interstate differences in the rate of growth in organised manufacturing employment presented in Table 2 show a p attern that suggests that job creation in organised manufacturing in different Indian states may be positively related to the e xtent of labour reforms undertaken. The last column of Table 2 reproduces an

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february 12, 2011 vol xlvi no 7

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Economic Political Weekly

COMMENTARY

indicator of labour reforms undertaken by various states. Taking the top five states in terms of the labour reforms index, the growth rate of employment in the organised manufacturing achieved by these five states combined is found to be 7.5% per annum. Taking the bottom five states in terms of the labour reforms index, the corresponding figure is 3.7% per annum. This is consistent with the idea that labour reforms undertaken by the states had a f avourable impact on growth of industrial

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employment. It may be added that the correlation coefficient between the labour r eforms index and employment elasticity is 0.35, and if Andhra Pradesh is dropped the correlation coefficient increases to 0.46, which is statistically significant. It seems, therefore, reasonable to argue that the substantial increase in the organised manufacturing employment that has taken place since 2003 is traceable to a large e xtent to the labour market reforms that Indian states have undertaken.

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References

Nagaraj, R (2007): “Are Labour Regulations Holding Up India’s Growth and Exports? A Review of Analysis and Evidence”, paper prepared for the National Commission for Unorganised Sector Enterprises.

Papola, T S, ed. (2008): Labour Regulation in Indian Industry, Vol 1-10 (New Delhi: Bookwell Publishers).

Sharma, N Alakh (2006): “Flexibility, Employment and Labour Market Reforms in India”, Economic Political Weekly, 27 May.

World Bank (2010): India’s Employment Challenge: Creating Jobs, Helping Workers (New Delhi: O xford University Press).

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