MacroScan - The Job Loss Syndrome

The message from reports from the ground is clear. Unemployment in India's industrial and services sectors is on the rise. If earlier growth was being described as ''jobless'', the problem now is that growth that is lower comes with job losses. The recessionary impact that the global financial and economic crisis has had is resulting in huge job losses in various segments of the labour market. However, a reliable aggregate estimate of the extent of increase in unemployment is not available from the official statistical system. Recognising that unemployment is on the rise, the government did make an attempt to estimate the impact of the downturn on employment. On its request, the Labour Bureau conducted a sample survey covering eight sectors (Mining, Textile & Textile Garments, Metals & Metal Products, Automobile, Gems & Jewellery, Construction, Transport and the IT/BPO industry) to arrive at an estimate of job loss. The survey was designed to cover a sample of units employing 10 or more workers, with the sample being drawn from 20 centres in 11 states and uUnion Territories..

Finally, 2581 units were covered, of which 1168 were from the Textile & Garments industry, 752 from Metals & Metal Products, 242 from Information Technology & Business Process Outsourcing, 132 from Automobiles, 104 from Gems & Jewellery, 103 from Transportation, 19 from Mining, and 61 from Construction. Based on this limited sample, the total employment in all the sectors covered by the survey is estimated to have declined from 16.2 million during September 2008 to 15.7 million during December 2008, implying a job loss of about half a million (Table 1). Given the coverage and methodology of the survey, few believe that this is an acceptable estimate. The actual decline in employment during this period is likely to have been much higher. Moreover, the decline is likely to have occurred over a much longer period.

However, the survey does suggest that employment fell in every month during the period studied. After September 2008 employment in all industries declined at an average rate of 1.01 per cent per month. A comparison of employment in export and non-export units indicates that employment declined at an average monthly rate of 1.13 per cent in the case of the former, as opposed to 0.81 per cent in the latter (Table 2), pointing to the direct role of the global slowdown.
Table 1 >> Table 2 >>

With aggregate data being limited, the assessment of and response to rising unemployment has been driven by episodic evidence of job loss highlighted by the media. However, given the nature of India's boom and the pattern of recent growth it is the loss of white collar jobs that garners attention from the media. This was evident when Jet Airways, beleaguered by high oil prices, increased competition and falling demand, laid off around a thousand employees. The response to the announcement was so adverse that the company was forced to go back on its decision and focus instead on restructuring its operations and obtaining concessions from the government to reduce its losses.

Similarly, other labour market developments that have received and are receiving media attention are evidence of sluggishness in on-campus recruitment from elite institutions like the IITs and IIMs, lay-offs and redundancies in software services and business process outsourcing firms and evidence of job losses in the Gulf countries. Much less attention has been paid to job losses of informally employed blue collar workers in the organized sector or those dependent on wage- or self-employment in unorganized manufacturing, services and agriculture.

The attention devoted to white collar jobs in select sectors is partly understandable, given that the crisis originated in and affected most of all the financial sector in the source countries. Moreover, even in India the crisis hit the financial sector first, being transmitted through the exodus of foreign financial capital that withdrew from the country in order to meet commitments or cover losses incurred by these firms in the source countries. This impacted immediately on white collar workers employed in the financial sector. Predictably, the crisis in the developed countries also affected workers in the software and IT-enabled Services (ITeS) sector, because the crisis-afflicted financial industry in the developed countries was an important outsourcer of business to India. Software and ITeS, which were among the fastest growing exports , were also likely to be the most affected in the wake of a developed country downturn. Here too the victims of job losses were sections considered part of the white collar elite.

However, there were more routes than these through which the crisis was transmitted to India. One, for example, was the direct impact of the global trade slowdown on traditional export industries like textiles and garments, gems and jewellery, leather and carpets. According to the IMF, the growth of exports from emerging and developing economies is likely to fall from a positive 9.6 per cent in 2007 and 5.6 per cent in 2008 to a negative 0.8 per cent in 2009. It is small recompense that the rate of growth is projected to rebound sharply in 2010. Such projections are suspect, since the IMF has made it a habit of putting out optimistic projections and then revising them downwards. In fact, the 2009 slump could prove sharper than currently predicted. With traditional exports still dominating India's manufactured exports, these industries were bound to be affected most, as is clearly true in Surat's diamond cutting industry where low wage workers cater to the world market for an expensive luxury.

Besides this, the recession is bound to affect demand, capacity utilization and employment in a wide range of manufacturing industries catering to the domestic market. Moreover, growth in a number of areas such as the housing sector, automobiles and consumer durables had been driven by credit-financed purchases encouraged by easy liquidity and low interest rates. The curtailment of credit provision by a damaged or cautious financial sector would further reduce demand, increase inventories and lead to job losses in industries directly or indirectly catering to such credit-financed investment and consumption. Influenced by these trends and the second-order of effects of contraction in these areas on demand for other manufacturing sectors, there will be a wider range of industries and segments of the labour market that will be affected by the ongoing crisis.

Finally, as a result of all these developments, the demand for agricultural commodities and the viability of crop production is being increasingly eroded. But with the government confident that the National Rural Employment Guarantee Scheme (NREGS) has generated additional employment in rural areas, the impact that the crisis is having on employment in agriculture and non-agriculture in the rural areas is being underplayed. The budget estimates that the NREGS delivered 13.88 million person days of additional employment in 2008-09. But this employment in public works, which definitely needs to be celebrated and expanded, need not have fully or even substantially neutralised the loss of routine or regular employment in rural India, however limited or underpaid such employment is. The NREGS is a demand-driven scheme and the sharp increase in employment generated through the scheme need not only be because the previously unemployed opted for it, but because those losing jobs are turning to it as an alternative. If so, the urgency of increasing allocations substantially is obvious.

Overall, therefore, the unfolding crisis is resulting in significant job losses across the country, as the accompanying reports and assessment by Frontline correspondents attest. What is surprising, however, is the lack of any sense of urgency on the part of the government in the face of this crisis. In fact, the initial response was that since the Indian financial sector was not significantly exposed to the sub-prime mortgage crisis and the toxic assets associated with it, the crisis would not impact India. Subsequently, while it was accepted that India was indeed being affected, the perception seemed to be that this effect was largely because of the liquidity squeeze and credit decline that resulted from the exodus of foreign capital from the stock market. The government's response was thus focused on increasing liquidity in the system and reducing interest rates. The first sign of the government's recognition that there was a slump in demand that needed direct action came only in December 2008. Unfortunately, the resulting response was limited, so that the economy and employment are still slipping.

Yet, even as recently as at the time of the presentation of the Interim Budget in mid-February, the government seemed to be complacent. Pranab Mukherjee's budget speech referred to the effect of the crisis as follows: ''A crisis of such magnitude in developed countries is bound to have an impact around the world. Most emerging market economies have slowed down significantly. India too has been affected. For the first nine months of the current year, the growth rate of exports has come down to 17.1 per cent. According to the latest figures available, the industrial production has fallen by 2 per cent year-on-year basis in December 2008. In these difficult times, when most economies are struggling to stay afloat, a healthy 7.1 per cent rate of GDP growth still makes India the second fastest growing economy in the world.'' In sum, the view seems to be, we are not untouched but are faring relatively well all the same.

A consequence of such complacence is that the interim budget chose to avoid taking any further steps of significance to counter the crisis. Such a state of denial is possible only because public resentment at the effects of the crisis is just building up. Further, since the strength of unions has been eroded by casualisation, outsourcing and high unemployment and the political opposition is divided, the government is not under pressure to address the crisis seriously. Despite these possible explanations, the attitude of the UPA government is puzzling. With an election nearing and an economic crisis offering the justification and therefore an opportunity to the government to spend its way to victory, it is surprising that the state is still seized by fiscal conservatism.

There could be two explanations for this. The first could be that the Congress party is actually in a state of disconnect, having lost its links with the grass roots and increasingly unconscious of developments on the ground. With the party having to depend on the prestige of one family and its scions to garner it votes this is not unlikely. The situation may be worsened by media that are disconnected and focused merely on the stock markets and India's attractiveness to foreign capital. In the event, the party and UPA government may not even be cognizing the dimensions of the unfolding crisis. Unfortunately for it, there is no organized, vocal force at the moment strong enough to make it recognize reality. This could mean that a voiceless electorate may be forced to respond in the coming elections with a mandate that treats the ''Bharat Nirman'' slogan of the current UPA government with the same contempt it gave its predecessor's ''India Shining'' campaign.

The second explanation could be that the levers of the Congress have been seized by fiscally conservative neoliberal economic ideologues and cynical political satraps, neither of whom have an inkling of either the current electoral strength of the Congress or of what needs to be done to win the forthcoming elections. It is possible that long years of destruction of the mass mobilisation infrastructure of the party may have denuded it of those who can forcefully make the case for alternative policies that can meet the aspirations of a beleaguered electorate. In the event, the fiscal conservatives and neoliberals may have come to dominate the economic discourse, making a case for reversing the foreign capital drain through more liberalisation and offering concessions to private capital, rather than creating the domestic political space for a national revival and rejuvenation plan.

In either case the loss is national, since there are no left allies to force the hands of the Congress. This was what happened in the case of the rural employment guarantee scheme, which is now being touted as a flagship scheme that has helped India beat the recession and praised even by those who had bitterly opposed it earlier. Without some pressure for more such policies, job losses will continue, attributed by industry to ''attrition'' and cynical analysts to the inevitable downsizing needed to enhance competitiveness. It is possible that once again a surprise mandate may force a course correction, but that mandate is more than three months away. The intervening period can be one where the economy and mass livelihoods suffer damage of a kind that can take too long to repair.