Essay on the Economic Reforms and Growing Unemployment


Joblessness has been a global phenomenon in the last few years. But the magnitude of the problem in India seems to defy any solution.

Development of Thought:


India already has close to 26.58 million people registered as unemployed. Only a small percentage (8 to 9 percent) of the total workforce of the country is employed in the organized sector.

The rate of growth of employment on Current Daily Status (CDS) declined from 2.7% per annum in 1983-94 to 1.07% per annum in 1994-2000. This will have an adverse Impact on the creation of jobs. Also any shift from public to private sector will reduce the employment in the organised sector.

As the new economic policies bite deeper it will be the poorer sections of society who will bear the brunt of unemployment as they will be pushed out of the organized sector.

Women too will suffer greater unemployment. Small scale units have already been rendered unviable in the new economic environment. The decline in the rate of employment in the 1990s was associated with a comparatively higher growth rate in GDP indicating a decline in the labour intensity of production.



The fact is that there are not only no jobs, there are not even a set of policies remotely aimed at creating them. Without counter measures growing unemployment could lead to increased social tensions on a scale which would threaten not merely economic stability but the entire socio-political fabric which is already under pressure from ethnic and religious tensions.

The World Labour Report released by the International Labour Organization reveals dismal facts about ever increasing unemployment worldwide.

The Industrial market economies are taking a long time to emerge from recession, and overall unemployment has risen yet again. Eastern European countries have seen unemployment rising steeply as they begin to move towards market economies.


Africa too, has made little progress, struggling to adjust, but with few obvious rewards as yet. The picture is somewhat brighter in Latin America where adjustment does seem to have been more effective.

According to ILO Report 2005, Global unemployment declined in 2004, albeit slightly, for the first time since 2000, falling at 6.1% that is 184.7 million unemployed people at the end of 2004 from 6.3% (185.2 million) in 2003.

The sharpest decline in unemployment was seen in Latin American and Caribbean countries, where it dropped from 9.3% to 8.6%. In Southeast Asia and Pacific, it fell to 6.4% in 2004 from 6.5% in 2003. South Asia recorded a rate of 4.7% from 4.8%

The New Economic Policy is aimed at progressively privatizing the production and distribution system in India. A question that crops up relates to the impact of the new economic policy on the employment opportunities in the country. In India, there exists a very high rate of unemployment and underemployment.


In the past, especially during the eighties, the employment conditions have further deteriorated. During this period the employment in the private organised sector has been zero or even negative. As against this, the public sector, annual growth rate in employment was about one to one and a half per cent.

Census data reveal that during 1971 and 1981, about 6.44 crore persons entered the labour force where as during 1981-91 new entrants were about 5.65 crore.

Sectoral desegregation reveals that the declining trend was faster in the manufacturing sector. In the private sector there was negative absorption dun the eighties compared to an addition of six lakh during the seventies. This decline may be related to a shift in industrial policy, from employment creation to importliberalisation and the resulting de-industrialization.

The relative share of the unorganized sector in the total GDP has also declined over the period. The share of this sector in the GDP declined first from 72.5 pa cent in 1970-71 to below 60 per cent by 1989-90.


A rise in the share of persons dependent on and a decline in its share of the GDP indicate deterioration in the per capita earning of the persons engaged in the unorganized sector. Further, analyses of data from employment exchange reveal that as of August 1992 about 372 lakh persons were registered with the employment exchanges. All these may not be completely unemployed but definitely they were not fully or satisfactorily employed.

This figure, showing the numbers of the unemployed, is an underestimate due to (a) non-existence of employment exchanges in villages, and (b) lack confidence in the utility of these exchanges as a result of which many do not gel themselves registered in the exchanges. This rise, which is at a rate more than that in population, is a pointer to the fast declining employment opportunities in India.

The new economic policies would affect employment in several ways. First, consider the case of inviting MNCs. The MNCs will bring with them plant and equipment denying us opportunities to produce them. This means, the employment which could have been generated in the production of these imported capital goods will be missing.

Secondly, in the past, the MNCS have been interested mostly in producing final consumer goods. If the same tendency continues, except meeting some consumption demands of the affluent sections, there will be no forward linkages i.e., these will not help in industrialization and in the economy. These industries established with MNCs will stifle their Indian counterparts.


The MNCs have superior technology. With the establishment of big MNCs, especially when MRTP clause has been abrogated, many of the local units may face closure as these units will fail to compete with the MNCs. Already in the post-reform period; many small units have either closed down or are approaching sickness.

It is also possible that if capital (goods and services) is imported, domestic investment may be adversely affected. Given the infrastructural bottlenecks, the local units may fail to succeed. To the extent the domestic investment is adversely affected, it will curtail the development of Indian industries. In 1991-92 in the first year of reforms, investment in real terms declined by 6 to 7 per cent.

There is also a wide gap between MNCs’ technology and the indigenous technology. Of course, over a period shine technology transfer will take place, but meanwhile, because of inferior technology.

Indian industry will receive a severe set-back and with that the employment generation would suffer. In India, capital per employee formed about 1/4 to 1/3 of that in the industrial countries. In this respect India’s position is very weak.

Finally, rapid and excessive privatization as envisaged in new policy, will also fuel unemployment. The private sector is not interested in the eradication of employment. The impact of policy reforms on employment may be divided into quantitative impact and qualitative impact.

With regard to India

1. Employment elasticity of output has gone down from 0.52 over the years 1983 to 1993-94 to 0.16 over 1993-99 to 1999-2000. This decline in employment elasticity is observed in most sectors except transport, financial services and real estate.

2. Employment in the organized sector had been hardly 8.34 per cent of which pubic sector accounts for 5.77 per cent and private sector only 2.58 per tent in the total employment generated.

3. Though private sector contribute more than 75 per cent of the total organized manufacturing output, but it hardly constitutes 1.5% of the total employment in the country and 16.5% of the total manufacturing employment.

4. Agriculture including allied activities comprises 57 per cent of India’s total employment.

5. Organised sector employment, as on March 31, 2002, was 27.2 million out of which public sector employment stood at 18.8 million or 69% and private sector, 8.7 million. The public sector accounted for about 69 per cent of total employment in the organised sector in 2001.

Whereas it is found that the GDP elasticity of employment (change in the number of employed with changes in GDP) has declined over the period, the elasticity in future projection is assumed to remain constant.

A constant elasticity implies that employment per unit of output will not increase for the period concerned. This is contrary to the spirit of reforms. In fact, the objective of the structural reforms is to increase the productivity per person employed by adopting latest available technology from the West.

Thus, whatever may be the elasticity for the base year, if reforms are to take place in real sense, the output per person must rise and consequently the elasticity will decline?

This is also obvious if one considers the policy of privatization. The growth rate in employment in the second half, as we saw above, has been almost negligible or even negative.

It was only in the public sector that employment grew. Thus, any shift from public to private sector will reduce the employment in the organised sector. It can be shown that the actual extent of new unemployment may be greater.

The qualitative impact of New Economic Policy on the working and living conditions of the workers is also detrimental.

If a market economy is to work in its real sense, it cannot be confined to the goods market alone, its tentacles will also spread to the labour market.

Therefore, as labour supply in India forms a huge reservoir, the wage-rate in real terms wit be compressed substantially. This is what the industry demands in the name of labour market ‘reform’. Essential elements of this programme are wage-freeze lay-offs, ban on collective bargaining backed by strikes, in short, de-unionization.

The deterioration in working and living conditions of the working class and a rise in unemployment will have its serious repercussion on society. This will lead to distortions in social tranquility and values which is already in evidence.

CSO’s estimates for the very first year of reforms reveal that per capita consumption has declined by about two per cent in 1991-92.

Deaths from hunger have been reported in 1992 from many districts of Bihar, Orissa, and Adivasi areas of West Bengal and other areas. There are instances of parents selling children for as low as Rs 20 in Orissa.

The new industrial policy for the small-scale sector could result in 8.5 million workers in small units losing their jobs over the next 24 to 36 months.

The Karnataka small-scale industries forum president estimates that the new policy would render one million small-scale units sick, ultimately leading to their closures.

The fact is that scores of units lying idle or sick in the Indian textile industry would come alive and never be able to meet the demand-if only they turned their eyes to the internal market – if they tried to supply just one meter of fabric to every Indian.

The internal market of the many millions has been ignored because that would mean improving the living standards of the hundreds of millions to improve their purchasing power. That purchasing power right now does not enable 350 million people to purchase even one meter of cloth.

From the data available from 945 employment exchanges in India, the no. of job seekers registered with employment exchange (all of which are not necessarily employed) was of the order of 4.11 crore out of which nearly 70% I are educated (10 standard and above).

Besides, the lot of those we call “employed” in India is itself, in most cases, quite pathetic. A country which cannot, find jobs for 36 million adults, finds ample space for 44 million child laborers. Now we are shaping a set of policies that will, if anything, only force more children to work to support their families. The total and complete abolition of child labour in India is a must.

The problem of child labour is a major social concern. The no of working children in the country declined from 2% of the total population and 3.59% of the total work force in 1994. The estimated no. of working children as per 55th MSSO Survey (1999-2000) is 10.4 million.

The employment of women in the organized sector (60th public and private) as on March 2002 was 4.95 million constituting about 17.9% of the total organized sector employment in country.

As new economic policies bite deeper, more and more women will be pushed out of the organised sector on one pretext or the other; one major pretext will be “self employment” which means large numbers of them could be reduced to price-rate workers.

And no one’s even looking at women agricultural laborers whose status can hardly be described as “employed” if wages and security of tenure are to be among the criteria.

In fact, the status of agricultural laborers as a whole points to why India can never solve the problem of joblessness without land reform. A very high degree of unemployment or underemployment prevails among the 160 million people engaged in agriculture either as cultivators or laborers in the country.

A study undertaken by the Luck now based Centre of Advanced Development Research quoted in the Patriot, revealed that these people were not even getting the minimum work opportunity of 270 days in a year.

On an average, the work opportunity for an agricultural worker in the country was only 180 days, leading to the conclusion that only 100, million people were sufficient to carry out all agricultural operations including those of animal husbandry. Thus as many as 60 million people were left with virtually no work in agriculture and allied activities.

Can any nation survive the strain of having 60 million people jobless? That too, a nation where the number of people below what the government calls the poverty line (in reality, a destitution line) was already 237 million, almost rivaling the population of Western Europe or four times the population of France-before the IMF and World Bank-inspired ‘reforms’ began?

It seems unlikely. What seems more likely is that we are asking not for one; tat several Khalistan, as more and more millions find themselves completely disinherited by their nations, as more and more lose their stake in the Indian nation.

Since the burden of the ‘reform’ will hit the poor the hardest, there seems little chance of India escaping the social tensions that the World Bank – IMF “programme entails.

Dr. Mundle, who curiously characterizes the government’s project as a stabilization programme, nonetheless points out that, it would be unethical and contrary to all modern principles of welfare if the burden of such austerity and adjustment is allowed to fall on those who are least capable of bearing that burden.

Unfortunately, it is precisely such groups which may end up bearing that burden, simply because they are not sufficiently powerful or organised to protect their interests.

Without counter-measures, this would lead to increased social tension no a scale which would threaten not merely economic stability but the entire so: political fabric, which is already under considerable pressure on account ethnic and religious tensions.

The connection between jobs and social tensions such as communalism very real. It is true that communal violence can occur in areas which have witnessed a rapid decline in employment (though it is likely that other form economic rivalry did obtain in those areas).

But it is also certainly true that high degree of unemployment makes communal violence that much morel Bombay is a tragic, classic instance.

The number of permanent industrial workers in Maharashtra has fallen only in percentage terms, it has declined even in absolute terms in ten ye Registered unemployment in the past decades alone has grown by about 250 cent. The rapid decline in employment over the past decades has also taken place in a period when the State’s population went up by 1.5 crore.

As the working class has shrunk, lumpenisation has expanded. This is the situation in which organizations like the Shiva Sena are able to sell the ideal “outsiders” are taking their jobs. The truth is that there are no jobs. There unlikely to be any with the economic policies we continue to follow.

Far from trying to even begin addressing the gigantic problems unemployment and underemployment in this country, the Narasimha Rao government, guided by the World Bank-IMF, has embarked on a course sure to bring misery to many more millions.

In accepting the Trade-Related Intellect Property Rights Agreement (TRIP) at GAIT. India would lose millions of jobs. Up to 10 lakh jobs could vanish in the drug, pharmaceutical and allied industries alone!

The fact is that there are not only no jobs, there are not even a set of policies remotely aimed at creating them. The emphasis and the overall direction will be on job reduction. Tens of thousands of factories in small, medium and sometimes big industries have either already beet or are being closed down.