Indian Economy

Prospects and Policy Challenges in the Twelfth Five Year Plan

BY SOURAV DAS

A BRIEF REVIEW

As stated at the outset, the purpose of this paper was not to present firm conclusions, but rather to pose the issues we need to address in preparing the Twelfth Plan, in the hope of provoking a wider debate. However some broad conclusions can be drawn. The economy will enter the Twelfth Plan period in an environment of great promise but also one that presents major challenges. We have done well on the growth front, but not so well on inclusion, though it is possible that when the data for the entire period become available, we may find that the situation is better than currently envisaged. Much of what needs to be done to accelerate GDP growth to 9% or so will be done by the private sector, but the central and state governments have a crucial role to play in providing a policy environment that is seen as investor friendly and is supportive of inclusive growth. A credible time path for bringing the fiscal deficit under firmer control must have top priority. This must be accompanied by continued progress on reforms that are in the pipeline in many areas, especially those that are likely to generate an early investment response. A financial sector capable of mobilising and deploying resources efficiently is extremely important and there are many steps that can be taken in this area that are entirely in the domain of the central government. The government's own resources have to be deployed with a clear sense of priority. In this context, health and education and critical infrastructure development, especially in water management and rural infrastructure, and infrastructure development in backward areas must have top priority. For other infrastructure areas the maximum use must be made of PPPs both by the central government and by the states. Impediments in the implementation of large projects should be speedily removed. Four critical challenges facing the economy in the Twelfth Plan, which are perhaps more serious than they were at the start of the Eleventh Plan, are the challenges of (a) managing the energy situation, (b) managing the water economy, (c) addressing the problems posed by the urban transformation that is likely to occur, and (d) ensuring protection of the environment in a manner that can facilitate rapid growth. Difficult choices have to be made in each of these areas and both the central government and the states have an important role in bringing about a successful outcome. The prize, if we succeed, is that we will have put India in the small group of countries that have achieved the transition to sustained high growth and elimination of poverty. Finally, the efficiency in implementation of projects on the ground needs to be greatly improved. Most of what needs to be done in this context rests with state governments but the central government must find ways of improving project design, prioritising resources to fund well designed interventions that work, devolving resources to lower levels and helping build capacity. Evidence-based evalution is critical for redesign and prioritisation. We need to greatly strengthen capacities in the area and the proposed Independent Evaluation Office which is expected to be set up during 2011-12 will be a major step in this direction.

Where Is the Missing Labour Force?

Conclusions In the period 2004-05 to 2009-10, the labour force declined from 470.1 million to 469.9 million. This decline in the labour force was mainly on account of rural female withdrawals. This is surprising. An overall decline of labour force at a time when both population and GDP are growing is somewhat difficult to explain. The decline in the labour force was coupled with a slowdown in the additions to the workforce. As against a 60 million job creation in the period 1999-2000 to 2004-05, just about a million jobs were created in 2004-05 to 2009-10. However, in the recent fiveyear period, the employment picture for men looks diametrically opposite to that for women. In the case of men, there was an addition of 22 million to the workforce in the period 2004-05 to 2009-10, while in the case of women there was a decline of 21 million. Did men pick up the jobs that females had vacated? That does appear to be the case as the decline in workforce was concentrated in agriculture, while the increase of workforce was spread to the secondary and tertiary sectors. Interestingly, a decline in labour force coupled with an increase in workforce led to a decline in the total number of unemployed by 1.5 million in the period 2004-05 to 2009-10. Along with this absolute decline, relative unemployment (unemployed as a ratio of the labour force) also declined in this period. Education emerged as the major reason for people choosing to opt out of the labour force with 313 million people withdrawing in 2009-10 to study. The other reason was withdrawals, mainly by women to attend to domestic duties. These withdrawals especially those of rural women are indicative of improvements in wages and improvement in agricultural incomes. The survey provides evidence of a significant improvement in wages of both rural- urban and male-female. The launch of the MGNREG also had an impact on private sector wages which have increased much faster than the increase in the wages offered by the government for public works. Another way of looking at these withdrawals is that people may no longer be willing to pick up jobs which are unremunerative instead preferring to improve their skill sets. In the period 2004-05 to 2009-10, there was a large shift of workforce out of agriculture which moved into the secondary sector (mainly construction) and tertiary sector. The other change in the workforce composition was a decline in the selfemployed category which consisted mainly of women. This result when juxtaposed on the labour force decline is indicative of a high probability that with increasing rural incomes, women moved out of low paying self-employment activities choosing either to study or devote themselves to domestic duties. The workforce in the casual labour segment increased. The 66th round results have recorded many positive developments. In the period 2004-05 to 2009-10: . Absolute decline in unemployment by 1.5 million. Relative unemployment (as a proportion of labour force) fell from 2.37% in 2004-05 to 2.06% in 2009-10. . Evidence of increasing number of people choosing to opt out of labour force to educate themselves and improve their skill sets - the right course for India to leverage the demographic dividend. . Workforce is shifting out of agriculture - a sector known for supporting high levels of disguised unemployment. Number of jobs created in the secondary and tertiary sector in the recent period, albeit at a pace slower than in the earlier period (1999- 2000 to 2004-05). . Significant increase in wages across board. MGNREG appears to have driven up private sector remunerations for men and women. This increase in incomes has possibly led to large withdrawals of women from the labour force. However, the 66th round results do leave us with an unanswered question. How do we explain a decline in the labour force in a period where both population and GDP were growing strongly. Notes 1 Reference to be given of the study by Ministry of Labour on the job losses in export-oriented sectors. 2 The coverage of schemes under public works was restricted to those schemes through which the government-generated wage employment under these programmes

Employment Trends in India: A Re-examination

Conclusions Changes in the workforce structure have always been a concern for policymakers and planners. These are indicators of the working of the development strategy and also of the linkages between the workforce structure, levels of living and the extent of poverty. Given the vast magnitude of poverty and relatively modest levels of per capita income, a more effective system of redistribution or dependence on trickle down alone would not be enough in the Indian context. With population growth largely exogenous, a development policy leading to a higher long-term rate of growth of the economy is necessary. But a balance between objectives is achieved more easily in a pattern of economic growth that has a higher employment content. Rapid employment growth reduces the burden of redistributive justice through state intervention on the one hand, and, on the other, if this employment is "gainful", it also contributes to the national product making the task of growth with redistributive justice easier. This essentially is the best way.