Employment Policy in Growing Economies & India's Plans

Employment Policy Approaches in Growing Economies

• Three Strategies for Promoting Employment

  • According to Bhaduri (2006), policy approaches for promoting employment in a growing economy can be grouped into three categories: a) strategy for using surplus labour through extensive growth, b) inter-sectoral transfer of labour out of agriculture induced by sectoral difference in labour productivity, and c) change in the pace and composition of industrialisation.

  • The conventional approach, as seen in the Lewis model, emphasizes sectoral transformation of the workforce but often overlooks alternative mechanisms that may influence employment growth.

  • This limitation has been echoed in several policy documents and writings which raise concerns over the persistence of workforce distribution despite India's high economic growth rate [Bhalla, 2009; Rangarajan et al., 2011].

• Issues in Agricultural Productivity and Employment

  • Proactive policies often aim to raise labour productivity in agriculture regardless of the economy’s absorption capacity, especially in the industrial sector.

  • While sectoral transformation is justified due to under-employment in agriculture, the strategy struggles in contexts like India, where labour-intensive industries are limited and growth is oriented towards global markets and capital investment, sidelining domestic demand [Bhaduri, 2006].

  • In such scenarios, enhancing rural productivity becomes central, though it may lead to a decline in the labour force and a slowdown in workforce addition (2004–05 to 2009–10).

  • Nayyar (2008) points out that productivity strategies often substitute labour via mechanisation, input intensification, or cropping pattern changes — potentially displacing labour rather than expanding employment.

  • This results in shrinkage of rural employment even as agricultural productivity increases, potentially boosting demand for industrial goods, exports, and creating surplus that could support industrial and service sectors.

• Environmental Constraints and High-Value Agriculture

  • A high-productivity, high-value agriculture trajectory can be hindered by environmental and poverty-linked challenges such as climate uncertainty, a shrinking resource base, and pressures on poor farmers to grow low-value crops [FAO, 2008].

  • Such constraints are aggravated under climate change, as intensive input use and water demand rise with high-value agriculture.

  • Additionally, sectoral labour shifts face challenges due to low availability of decent employment in industry and services.

• Altering Industrial Growth for Inclusive Employment

  • The growth strategy must align with the third policy option: changing the pace and composition of industrial growth to enhance agriculture’s employment potential [Bhaduri, 2006].

  • This does not equate to an ‘agriculture first’ strategy as once advocated [Johnston and Maler, 1961; Maler, 1976], but seeks to integrate inclusive growth with agricultural labour absorption.

  • The aim is to increase labour participation through agricultural restructuring rather than labour migration.

  • This requires renewed recognition of agriculture's capacity to absorb surplus labour and enhance productivity, independent of sectoral shift strategies [Bhaduri, 2006].

  • The Green Growth model may further expand agriculture’s role by reversing earlier trends of labour substitution.

• Sustainable Development and Demand-Side Dynamics

  • A balanced approach could restructure production and consumption by emphasizing demand-side growth to raise effective domestic demand.

  • This convergence aligns employment, environmental concerns, and social sustainability under the sustainable development framework [Shah, 2011].

Twelfth Five Year Plan: Employment and Labour Policy

• Objectives of Employment Strategy

  • The Twelfth Plan aims for rapid employment growth along with improved quality of employment.

  • While self-employment will remain important (58% of employment in 2004–05), there is a need to increase regular employment, which was only 18% in 2004–05 (up from 17% in 1983).

  • Policy focus should be on increasing the share of regular jobs and reducing casual employment (33% currently).

• Importance of Formal Employment

  • Labour policy success should be measured by the number of regular wage jobs with written contracts.

  • Appropriate changes in rules and procedures are needed to tap the potential for formal employment creation.

  • Excessively rigid labour laws are seen as a key constraint. Greater flexibility should be encouraged to:

    • Promote labour-intensive sectors in the corporate sector.

    • Support unorganised enterprises in expanding output and employment.

• Policy Barriers and Needed Reforms

  • Current incentives and subsidies discourage firms from growing beyond micro/small units. Excise and tax policies must be revised.

  • Policy reforms must also address:

    • Linking incentives to employment outcomes – existing incentives are rarely calibrated based on actual job or wage creation.

    • Extending fiscal incentives for formal/regular employment, especially to small and medium enterprises (SMEs).

• Sensitive Nature of Labour Law Reform

  • Consensus is essential for labour law reform, but several non-controversial measures can be implemented:

    • Differential treatment for high employment-generating locations and sectors.

    • Encouragement of women's employment with attention to working hours and family support (e.g., childcare).

    • Contract labour in domestic tariff areas should be promoted with social security provisions.

    • Simplify monitoring of labour laws via IT-friendly reporting systems.

• Improving Employment in the Unorganised Sector

  • Beyond expanding formal jobs, steps must be taken to improve job quality in the unorganised sector.

  • NCEUS (2007) recommended a 13-point Action Programme to support informal workers (see Box 12.1).

  • Most unorganised workers shift from crop agriculture to manufacturing/services, and their inclusion in formal systems must be decentralised rather than centrally administered.

• Institutional Framework for Worker Inclusion

  • Large-scale coverage through schemes like:

    • Provident Fund (43 million)

    • Employee State Insurance (33 million)

    • Welfare Funds (e.g., Beedi Workers – 5 million)

  • These programs work due to formal relationships established via Acts (e.g., ESI Act, Beedi Workers Welfare Fund Act).

• Formalisation Strategy for Unorganised Workers

  • The quality of employment depends on creating formal links between workers and the hiring establishments.

  • NCEUS initiatives focus on:

    • (i) Employment strategies for unorganised enterprises.

    • (ii) Labour regulations to encourage formal recognition of workers.

    • (iii) Enabling workers to access social security.

Thirteen Point Action Plan by NCEUS for Employment in the Unorganised Sector

• A. Protective Measures for Workers

  • 1) Ensuring Minimum Conditions of Work: Enactment of two Bills—one each for agricultural and non-agricultural workers—establishing statutory minimum conditions of work including a national minimum wage for all workers.
  • 2) Minimum Level of Social Security: A universal National Minimum Social Security Scheme covering life, health, disability, maternity, and old age pension through comprehensive legislation for workers in the unorganised sector.

• B. Package of Measures for Marginal and Small Farmers

  • 3) Special Programme for Marginal and Small Farmers: Revive targeted programmes focusing on small and minor farmers in high-yield-gap areas. A dedicated agency or coordination mechanism may be established.
  • 4) Accelerated Land and Water Management: Prioritise and upscale programmes for land and water management. Revise priority sector lending policies to reserve quotas for micro and small enterprises.
  • 5) Credit for Marginal-Small Farmers: RBI to monitor credit separately for this segment, expand outreach of rural credit institutions, and create a credit guarantee fund to reduce collateral barriers. Target: 10% share in priority sector lending.
  • 6) Farmers’ Debt Relief Commission: Central Government to issue guidelines and offer 75:25 assistance to states for setting up State-level Debt Relief Commissions in agrarian distress regions.

• C. Measures to Improve Growth of the Non-Agricultural Sector

  • 7) Improve Credit Flow to Non-Agricultural Sector: Specific targets for credit flow:
    • 10% for small & marginal farmers
    • 8% for other farmers
    • 4% for micro enterprises with investment ≤ ₹5 lakh (excluding land & building)
    • 6% for other micro and small enterprises
    • 12% for loans up to ₹5 lakh to socio-economically weaker sections for housing, education, professions, etc.
  • 8) Promote SHGs and MFIs: Expand Self-Help Groups (SHGs) and Microfinance Institutions (MFIs) in poor and backward regions to improve livelihood generation.
  • 9) National Fund for the Unorganised Sector (NAFUS): Establish a statutory agency with ₹5000 crore corpus to support micro and small enterprises in agriculture and non-agriculture sectors not covered by SIDBI or NABARD.
  • 10) Upscaling Cluster Development via Growth Poles: Create 25 growth poles in traditional industry clusters with benefits equivalent to Special Economic Zones (SEZs).

• D. Measures to Expand Employment and Improve Employability

  • 11) Strengthen Self-Employment Programmes: Rationalise and consolidate four major self-employment schemes to target 50 lakh jobs annually.
  • 12) Universalise and Strengthen NREGA: Expand the National Rural Employment Guarantee Act (NREGA) to cover all districts in India.
  • 13) Enhance Employability through Skill Development: Launch an on-the-job training programme with ₹5000 incentive per person for employers providing one-year skill enhancement.

Report to the People on Employment 2010

• Employment as a Framework for Inclusive Growth

  • The report provides a framework to understand the contemporary employment scenario. It focuses on key issues of generating quality employment for people seeking work. A central concern is the provision of decent work to those who are excluded and marginalised in the labour market. The report highlights that employment growth, when combined with equity and distributive justice, can become a powerful instrument for achieving the national agenda of ‘inclusive growth’.

  • The report views employment as a primary means of realising citizenship—through acquiring a stake in society, overcoming insecurities like old age and ill health, and ensuring a better future for children.

• Link Between Growth and Quality Employment

  • A core idea of the report is that high economic growth and growth of quality employment reinforce each other. It recognises the low earnings and poor working conditions faced by casual labourers and sections of the self-employed, advocating for an increase in the share of organised sector employment, especially in manufacturing and services.

  • The report stresses the importance of utilising the demographic dividend by generating gainful employment for youth, with a particular focus on young women.

• Enhancing Employability and Skill Development

  • The report notes the very low proportion of skilled workers and calls for a practical framework to improve employability. This includes training at various levels, recognising and certifying informally acquired skills, and expanding skill development institutions.

• Labour Laws and Equitable Employment Growth

  • The report advocates for rationalisation of labour laws and broadening of labour reforms to ensure equitable employment growth. It outlines both short-term and medium-term strategies, with special focus on disadvantaged sections of society.

• Short-Term Strategies and Targets

  • Employment growth should be targeted at 2.5% per annum, in alignment with the goal of 9% economic growth.

  • Promote labour-intensive and high employment elasticity sectors.

  • Focus on inclusion of youth, women, and vulnerable groups through training and skill development.

  • Statutory provisions to improve social security and working conditions for contract workers at par with regular employees.

  • Expand outreach of the Rashtriya Swasthya Bima Yojana (RSBY) to all poor households.

  • Initiate re-skilling and redeployment of retrenched workers.

  • Develop information systems and real-time e-monitoring, along with annual collection of employment/unemployment data.

• Medium-Term Strategies and Targets

  • Improve livelihood for self-employed and casual workers.

  • Increase organised sector employment, especially for the less advantaged and in poorer states.

  • Ensure social security coverage for unorganised sector workers.

  • Rationalise and simplify labour regulations to support labour market reforms.

  • Promote rural workforce diversification into off-farm and non-farm activities.

  • Target areas with high concentrations of vulnerable groups (e.g., ST, SC, minorities, women, illiterate, and less skilled) for active labour market policies.

  • Implement detailed skill mapping and create a credible accreditation and certification system.

  • Upgrade training institutions and strengthen delivery via public-private partnerships (PPP).

  • Establish numerous skill development institutions and address shortage of qualified trainers.

  • Set up Sector Skills Councils and develop a National Vocational Qualification Framework.