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Why has Indian manufacturing been losing jobs since 2016?

Topics Covered: Employment related issues.

Why has Indian manufacturing been losing jobs since 2016?


The words “lives” and “livelihoods” are often mentioned together. But the ongoing Covid pandemic has created a difference between these two: Measures aimed at saving lives are proving to be terrible for livelihoods.

What is the current scenario?

Impact on livelihoods before the second Covid wave unfolded- As per Azim Premji University’s the State of Working India (SWI) report 2021:

  1. The pandemic had forced people out of their formal jobs into casual work, and led to a severe decline in incomes.
  2. Not surprisingly, there is a sudden increase in poverty over the past year.
  3. Maharashtra, Kerala, Tamil Nadu, Uttar Pradesh, and Delhi, contributed disproportionately to job losses.

As per a report brought out jointly by the Centre for Monitoring Indian Economy (CMIE) and Centre for Economic Data and Analysis:

  1. Indian economy has gotten worse over the past few years even without the help of Covid.
  2. The number of people employed in the manufacturing sector of the economy has come down from 51 million to 27 million — that is, almost halving in the space of just four years!
  3. Besides, the number of people employed in agriculture is going up. Equally disheartening is that employment in non-financial services has fallen sharply.

Why is job loss in the manufacturing sector worrisome?

Traditionally Indian policymakers have been of the view that the manufacturing sector is our best hope to soak up the surplus labour otherwise employed in agriculture.

  • Manufacturing is well suited because it can make use of the millions of poorly educated Indian youth, unlike the services sector, which often requires better education and skill levels.

Why is Indian manufacturing failing to create jobs?

  1. Manufacturing units require the highest amount of fixed investment upfront.
  2. What has traditionally made this truly risky is the highly extractive nature of Indian governments (corruption, weak supply etc).
  3. Also, historically Indians have always consumed relatively less of manufacturing goods and relatively more of food and services (This is because most Indians are quite poor and hence most of the income is spent on food, and repairs and maintenance costs are high).
  4. By treating the labour-intensive manufacturing firms as small-scale industries, policies held back their growth.
  5. India did not push for integrating its labour-intensive manufacturing in the global supply chains by aggressively following exports. Instead, the idea was to substitute imports in the name of self-reliance.

Issues with ambitious Make in India (MII) initiative and the latest Production-Linked Incentive (PLI) scheme:

They are again aimed more at capital intensive manufacturing, not labour intensive ones. Moreover, India is reverting to the protectionist approach, aimed at self-reliance, yet again in recent years.

Simply put:

From the perspective of creating jobs, India is facing a double whammy. The manufacturing and construction sectors are bleeding jobs instead of creating them. Making matters worse is the decline in employment in large sections of the service industry, thanks to the Covid-induced disruption.

Need of the hour:

Indian manufacturing, which is still India’s best hope for creating new jobs and soaking up excess unskilled labour from agriculture, requires policymakers to target labour-intensive firms, especially in the informal sector (read MSMEs) and help them — through better infrastructure and easier regulatory support — to create millions of new jobs.

Sources: Indian Express.