Manufacturing will not create jobs

Last month, the RBI Governor, Dr D. Subbarao, made a fervent pitch for the manufacturing sector. “To reap the demographic dividends, we need to find jobs for 150-200 millions who will be thrown out of the farm sector.” The services sector will not do the needful, the Governor felt. “We need to focus on manufacturing,” he said.

A few days ago, in the Rajya Sabha, the Commerce and Industry Minister, Mr Anand Sharma, informed members that a “high-level panel chaired by Prime Minister Manmohan Singh” has confirmed the need for a new manufacturing policy that will enable the creation of mega industrial zones with world-class infrastructure facilities.

The plan, he solemnly affirmed, was to raise the contribution of manufacturing from its current contribution of 16 per cent to 26 per cent in the country's GDP within a decade and, in the bargain, create 100 million jobs within that period and double it by 2025.

POLICY TO REALITY

Dr Subbarao's plea for manufacturing was in the nature of a critique of the kind of growth that has come to characterise India's magical journey since 2003-04.

It confirms the trend in investments, especially foreign direct investments, that have flowed largely into the services sector and the least in manufacturing, the highest concentration in Maharashtra that houses the country's financial capital and the lowest in States such as Madhya Pradesh that house the largest number of farm-dependent labour.

If manufacturing has to play a bigger role in GDP growth, more than simple policy formulas are required. From the vantage point of New Delhi, numbers can tell spell-binding stories, and the concept of industrial zones peppered throughout the countryside, creating jobs with the latest technologies, can seem convincing as transformative catalysts.

But the history of recent policy-making tells a different story, mostly of operational neglect, ill-conceived and executed measures and hasty retractions that add confusion to disorder. The new mining policy reads wonderfully in air-conditioned seminar halls or in CCEA meetings. But out in the States from Goa to Bengal, both have proved dismal failures, with one investor after another facing up to the realisation that land or mines for that matter are not available as easily as the policy had made them out to be.

NO JOBS GOING AROUND

Assume a magic wand waves away every operational problem, the PM-blessed policy does get off the ground and industrial zones spring up like daffodils in spring.

Will they create the kind of jobs both the RBI Governor and the New Delhi policymakers dream of? It seems difficult to conceive of manufacturing based on increasing productivity through technology creating the kind of mass employment that traditional small enterprises do.

A report that appeared in this paper on August 23 pointed out that in automobile firms robots are increasingly replacing labour on factory floors. The quest for higher efficiencies and improved quality levels in a highly competitive market environment are in fact reducing the number of jobs in factories.

There is an additional reason for the drive to automation: To safeguard against production disruption arising from labour disputes. In the past few months, auto belts such as Gurgaon-Manesar, Chennai region and Halol have all seen labour strikes, the report points out.

Newer entrants such as Renault-Nissan and Volkswagen are not taking any chances and are being built with high reliance on machinery.

The tag words in this case are: Efficiency, low fatigue, greater throughput and lesser labour disputes.

So, seriously, do firms take them to heart that in a joint venture between Japan's Honda and Siddharth Shriram Group, Honda Siel Cars India, mechanisation levels at its Greater Noida factory have jumped to 80 per cent, from just 30 per cent in 1998.

TEMPORARY LABOUR

Not all firms will move to robotics or achieve the same level of automation across the board. In some lines of activity, assembly floors, for instance, manual labour still has its uses.

So employment could increase with greater manufacturing facilities. The issue however is: What kind of employment will that be?

To glimpse the future, gaze into the past. A study of factor employment and compensation in India's organised sector by the Bureau of Labour Statistics (BLS) of the US Department of Labor provides some useful insights.

Based on Annual Survey of Industries data between 1999 and 2005, the study found factory level earnings to be $0.91 an hour, roughly 3 per cent of compensation costs of manufacturing employees in the US.

Adjusting for difficulties in comparison across years and representative trends because not all registered companies report data, the BLS still found in 2005 that factory employment had increased 5 per cent over 1999 and that they comprised 74.2 per cent of all organised manufacturing employment.

What kind of employment? Contract labour had more than doubled between 1999 and 2005 to 28 per cent of the total workforce.

The 66th round of the National Sample Survey covering a later period found 18 million more casual workers as against 6.4 million regular workers over the five years after the BLS period. It may just be possible then that unemployment is falling but the kind of jobs sprouting up — “contractual” or “casual”— have grave implications for the policymaker. Contract workers do not get social insurance or other benefits enjoyed by regular permanent employees.

In effect, the onus of doing so for an increasing number of “employed” has in effect been transferred by the employer — often in the organised sector — to the state.

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