Despite growth, why Indian workers need to worry

To provide some perspective: India’s workforce rose from around 460 million in 2017-18 to roughly 560 million in 2022-23 — an increase of 100 million workers over a five-year period. But, during this period, employment in the more productive manufacturing sector grew by just a shade above two million on average each year, while in the less productive agriculture sector, it rose by more than eight million. (The absolute numbers are based on population projections).

Second, not only were seven of 10 new entrants to the workforce self-employed, but almost seven of the 10 new entrants were also women, with a greater share from rural areas. These new entrants were more engaged in small establishments or as unpaid helpers in household enterprises, and not in regular salaried or casual wage employment.

Notions of empowerment via self-employment ring hollow considering their meagre earnings. Not only have real incomes (adjusting for inflation) of self-employed women in rural areas barely risen, but they actually earn less compared to others. For instance, during April-June 2023, the average gross earning of self-employed females in rural areas was Rs 5,056 during the last 30 days. In comparison, for males it was Rs 13,831. For the regular wage/salaried female employees in rural areas, the average earning (during the preceding month) was Rs 13,825, while for males, it was Rs 17,274.

Alongside this increase in self-employment, there has also been a steady rise in demand for work under NREGA. The number of individuals working under the scheme rose from 7.5 crore in 2017-18 to 8.75 crore in 2022-23, and has so far touched 7.38 crore this year, with women increasingly accounting for a greater share of person days of work. These trends suggest that not only is the rise in female workforce participation possibly an outcome of financial distress, but they also point towards the limited options available for more productive jobs. It is worrying that such trends have persisted despite growth firming up.

Third, perhaps a consequence of limited job opportunities, of strained incomes, is the surge in households availing unsecured personal loans. The loans availed could have been to meet their consumption needs and/or for financing self-employment activities. As per RBI data, outstanding unsecured personal loans of banks rose from Rs 10.5 lakh crore in March 2022 to Rs 13.3 lakh crore in March 2023, and by September 2023 had touched Rs 14.5 lakh crore. To put this growth in context: In September 2023, just the personal unsecured loan book of banks, not the entire retail loan portfolio, was equivalent to 42 per cent of total outstanding loans to industry, up from around 33 per cent in March 2022. And this does not include loans by NBFCs. This increase in such loans has been so rapid that the RBI has been forced to take action to slow down its pace, to obviate problems for the financial sector. While some signs of stress are visible, hitting the brake hard on these loans, as what seems to be happening, could have implications for household incomes and consumption.

These trends do, in part, explain why the appeal of redistributive palliatives pervades the political class — more so, when juxtaposed with an asset price boom and a fast-growing, highly productive services economy, especially the IT sector. It should thus be no surprise that despite the economy growing at 7 per cent, political parties are locked in a game of one-upmanship in announcing measures such as providing free food grains for another five years and schemes such as the Ladli Behna Yojana.

Fourth, it should be equally concerning that despite this steady economic momentum, the massive ramp-up in public sector capex, the PLI scheme, and healthy bank and corporate balance sheets, there are indications that private sector investments remain uneven, and have not revived to the extent hoped. In fact, as per CMIE, new investment project announcements plunged in the September quarter. And, as per the RBI’s October monetary policy report, investment activity in the first half of the year “drew strength mainly from government capex”. The “crowding in” has so far failed to materialise.

What has picked up is investments in physical assets (real estate) by the relatively more affluent households. This can be inferred from the bank credit numbers. Housing loans outstanding rose from Rs 16.8 lakh crore in March 2022 to Rs 19.36 lakh crore in March 2023, and by September 2023, had touched Rs 20.53 lakh crore. To provide a frame of reference: The housing loan book was equivalent to 59 per cent of the industrial loan book of banks in September 2023, up from 53 per cent in March 2022. And this also does not include NBFCs. As the household sector accounts for roughly two-fifths of all investments in the economy, it could have played a part in driving up the investment rate during this period.

This combination of a rapidly growing workforce, where new entrants are more reliant on less productive forms of employment in the least productive sectors, and an investment cycle that is more dependent on governments and households than the corporate sector, calls for a more measured, nuanced assessment of the country’s growth prospects.

ishan.bakshi@expressindia.com