Students prepare for competitive exams on the banks of the Ganga, as part of free weekend classes, in Patna. (PTI/File)
Over the next few years, as the Indian economy continues its forward march, there are likely to be significant changes in the global economic order. Going by IMF projections, India is on track to surpass Japan to become the fourth-largest economy in the world by the end of 2025. Two years thereafter, it is expected to whisk past Germany to become the third-largest economy. From then on, the top three slots in the global economic rankings — occupied by the US, China and India — are likely to be fixed, barring, of course, any major catastrophe.
Five years from now, by roughly the end of the current government’s term, the IMF expects India’s GDP to have increased to $5.8 trillion, up from $3.5 trillion now — implying an addition of $2.3 trillion, which is just shy of the combined size of Spain and Netherlands today.
The Fund’s projections imply real growth, averaging 6.5 per cent during this period. This seems achievable. After all, it is broadly in line with the pace at which the economy has grown over the past two decades. But, it is a far cry from the growth rates achieved during the mid-2000s. It also implies a more gradual upward climb, not quite the rapid catch-up that many have hoped for. Thus, for the foreseeable future, India will remain the poorest nation amongst the largest economies in the world. With its per capita income expected to touch $4,281 by 2028-29, the country is unlikely to make the ranks of the upper middle-income category by then. That will have to wait.
These are, however, projections. And going by the past, such projections can be quite off the mark, on both the upside and the downside. Sustaining the healthy growth rates of the last few years over the medium to longer term, broadening the consumption base, will be challenging, considering that large sections of the labour force in the country continue to be trapped in low-productive jobs.
Data from recent government surveys shows that the number of informal enterprises in the country has risen from 5.76 crore in 2010-11 to 6.34 crore in 2015-16 and further to 6.5 crore in 2022-23 (There are some differences in coverage). Roughly 11 crore workers continue to be engaged in these establishments, a sizeable number of which are essentially one-man roadside shops. If the economy was producing more productive forms of employment, both these numbers — informal firms and the workforce therein — should have been going down sharply. In 2015-16, just under 16 per cent of these establishments hired workers. By 2022-23, it was down to less than 15 per cent. Hiring fewer workers is not something productive firms do.
This kind of employment is characterised by low levels of productivity and earning. Value added in such establishments works out to around Rs 1.4 lakh, while in comparison, it is roughly 10 times higher at Rs 15.04 lakh by workers in formal enterprises as per the annual survey of industries. For these workers in informal enterprises, wage growth has barely kept pace with inflation, which implies little to no real wage growth for the better part of the last decade.
To these 11 crore workers in non-farm informal enterprises, add the 23-odd crore engaged in agriculture and that is almost two-thirds of the labour force which continues to be engaged in low productive jobs in less productive sectors — sectors which are now capturing an even lower share of the entire value added in the economy than before. And then there are those informally employed in construction, and the formal parts of the economy. In the absence of low or semi-skilled job opportunities in the more productive formal manufacturing sector and lacking the education to enter the more skilled forms of formal employment in both manufacturing and high-end services, their alternatives only include precarious forms of employment in the gig economy. It is, perhaps, no coincidence that after the various arms of the Indian state such as defence and Railways, Uber, with more than 10 lakh drivers in the country, now ranks as amongst the largest employment generators in the country, followed by companies like Zomato and Swiggy, which together have more than six lakh delivery personnel.
The issue of jobs, or the lack thereof, has been a constant in India’s development story, not just restricted to the ruling dispensation. But what has changed in recent years is the youth bulge; the rising labour force participation rate, especially of women, as financial distress pushes them into the labour market; the dwindling share of value added by the informal sector; and the growing capital intensity of production in sectors that not only account for more value addition in the economy, but also those that are more labour intensive in nature. Add to that the fall in migration — the decline in Railway passenger traffic both suburban (where distances are less than 150 km) and non-suburban (longer distances) compared to pre-pandemic levels indicates that possibility — and the channel that facilitates the transfer of resources from urban to rural areas also appears to have cracked.
If such an employment situation persists, governments will find it difficult to restrict fiscal transfers to the less well-off. An obvious corollary is the possibility of continuing high levels of taxation of the more affluent — collections from the surcharge levied on high-income individuals have increased by almost 50 times over the past decade, from Rs 1,343 crore in 2014-15 to Rs 65,000 crore in 2023-24. But this approach of milking the rich, while increasing giveaways at the lower end, also has its limits.
The fallout from not being able to create more productive jobs on a sufficiently large scale, the deepening labour market duality, is likely to manifest in many ways, perhaps more visibly in the form of less social mobility and high-income inequality. As others have also noted, it will determine whether the country will resemble East Asia or end up going the Latin American way.
ishan.bakshi@expressindia.com
