India vs the US
India is in a special situation because of its informal sector, [which accounts for around 92 per cent of employment in the country]. Job losses in the formal sector tend to get absorbed in the informal sector, as a result of which they don’t show up in numbers of unemployed. The informal sector is like a sponge which keeps expanding. So what will happen here is that the informal sector will swell, but actual job losses will be much less. Job losses in India will be lesser than in China or the US.
The US’s entire workforce is statistically defined, and most of the people there register for unemployment benefits. Given that we don’t have a social security system, nobody bothers to go and register themselves if they are unemployed, as there is no point. Therefore, the numbers that we keep in the employment exchange are pretty meaningless. So, you can’t compare India’s job market with, say, that of the US, where the unemployment data is far better and the market more structured.
How many will go?
There are two reasons why I cannot venture any numbers in terms of how many jobs are likely to go. First, we simply don’t have good data; and second, a lot of lay-offs in India happen covertly. Besides, I also think we haven’t yet seen even the beginning of the downturn. We all know that in some of the export-oriented industries like gems and jewellery and textiles, people have been laid off, units have shut down, and so on.
But when it comes to the auto sector, for instance, we haven’t heard such news. But if the downturn persists, that is when people will shift from only shutting down plants for three days a week, to laying off workers. But this has not yet been happening in the formal sector. In the informal sector such as auto-components and textiles, it is already happening, but we don’t have the numbers yet.
The turnaround
I have made a forecast that the first half of the next fiscal, that is, by September 2009-10, we’ll get 4 per cent growth. This is worse than what we are going to get in the second half of 2008-09 (October to March 2009), when we’ll get about 5.5 per cent. This will pull down the growth for the whole year to about 6.5 per cent. So we could see some recovery in the second half of 2009.
Worst hit sectors
The export-led sectors will see the maximum lay-offs. Then you have sectors which are dependent on interest curbs, such as all consumer durables, and those that depend on EMI payments such as real estate. Next in line would be those which are highly income-elastic — luxury goods, tourism. Sectors that won’t get affected are telecom, pharma and food, which are pretty much income elastic.
Effect of the stimulus package
Jobs are dependent on growth, and the question is clearly whether the package will enable growth. I believe it will, as they have taken monetary policy steps — of cutting down interest costs, pumping in more liquidity, etc. This will push up growth, but after a lag of about 6 to 8 months, by August.
Impact of elections
Their impact will depend on the outcome. If we get either a UPA (without the Left) or a BJP majority, there is unlikely to be much change in policy. But if it is an unstable coalition, led by the Left, for example, there will be complete uncertainty and policy paralysis. If we get the UPA with the Left, it will be the same story as the last four years.
What the government can do
It should aim at proper implementation of the stimulus package. Rather than sit back and wait for the private sector to deliver, the state should gear up the public sector implementation and delivery mechanisms — and deliver the goods, be it in terms of infrastructure, roads, housing, or power because that is what will draw in private investment. It could also announce good policy measures, such as allowing foreign universities to set up campuses in India, which will show everyone that the govt means business, and this will help business confidence to grow.
Rajiv Kumar is the director and chief executive of the Indian council for research on International Economic Relations (ICRIER), New Delhi.
