Where will the New Jobs come from?

A global recession is slashing jobs. But even if industry was booming, pubic sector undertakings and old industries are so overmanned that job cuts would be needed for efficiency.

And new technology is mechanising every line of manufacturing, reducing jobs relentlessly. Global telecom companies have doubled their output while halving their workforce.

Tata Steel once had 70,000 workers, and now has a bit over 500,000. But new steel plants like those of Ispat and Essar employ barely a couple of thousand workers.

Maruti has long been a really lean and mean operation, with labour constituting only 2.5 per cent of sales. But as it upgrades technology, even Maruti feels overmanned, and so has used a VRS to cut jobs.

If even competitive manufacturers are slicing manpower, how will India generate the millions of new jobs required ever year?

The answer lies in services. Although the labour content of manufacturing is falling steadily towards zero, the labour content of services can approach 100 per cent.

Fortunately, services are the fastest growing part of our economy. Between 1980 and 1998, the share of industry in GDP increased a marginally from 24 per cent to 25 per cent, but that of services shot up from 38 per cent to 46 per cent (World Development Indicators 2000). Recent statistical revisions suggest that services now exceeds half of GDP.

I initially hoped that India’s economic reforms would create millions of new jobs in labour-intensive manufacturing for export, as had happened earlier in the Asian tigers.

If only our procedures and infrastructure became internationally competitive, our low wages would become a huge advantage, and the world’s manufacturing would gradually shift to India.

Alas, our procedures and infrastructure remain terrible. Red tape and corruption make life hell, and nothing happens quickly or efficiently. Trade unions thwart rational labour policies.

The quality of roads, railways and ports remains well below international standards. Power costs twice as much as in neighbouring countries.

However, even if we had done better in these areas, I now doubt if manufacturing would have generated much employment.

A few industries like garments and leather goods have yet to be mechanised, and employ many people. But in most industries, the labour content has fallen below 10 per cent, and in many is below 4 per cent.

Take a look at the accompanying table, extracted from a study by Tushar Mahanti in The Economic Times. It gives the share of wages and salaries in sales of a wide range of Indian companies.

It shows dramatically how low labour-intensity is in manufacturing, and how much higher in services. In industrial companies in the list, labour-intensity is highest in Tata Steel: labour costs are 15.3 per cent of sales.

By contrast, new steel producers like Ispat (2.5 per cent) and Jindal (2.2 per cent) have a farlower labour content. Remember that steel was once regarded as a huge employer. Not any more, though.

Older industries tend to have higher labour-intensity. During the licence-permit raj, the lack of competition lulled companies into hiring large, unproductive workforces.

Today, many are downsizing through VRS. Century Textiles has a labour content of 11.2 per cent. Most industrial companies in list have a labour content under 10 per cent, and many under 5 per cent.

I am particularly struck that Nirma has a labour content of just 1.9 per cent today. It came up as a labour-intensive manufacturer, but has now gone to the other extreme.

Next, take a look at the services companies. These are clearly more labour-intensive, and none more so than the computer software companies.

Heading this short list with 66.6 per cent labour-intensity is Mascot Systems, a software company which specialises in doing work in India rather than sending engineers to the US (body-shopping, as that is called).

Wipro, one of biggest software companies, has a labour content of only 15.8 per cent. That, I suspect, is because it is a conglomerate with several lines of manufacturing, including edible oil and medical equipment.

Hotels are labour intensive. East India Hotels (the Oberoi group) has a labour to sales ratio of 29.2 per cent, and Indian Hotels (the Taj group) of 22.6 per cent.

Shipping is generally regarded as a highly capital-intensive industry, and interest costs are indeed a high proportion of total costs.

Yet it is more labour-intensive than most industry— 14.1 per cent for Varun Shipping and 11.4 per cent for Great Eastern Shipping.

While this list is by no means comprehensive, it shows that the future of employment in India lies in services, not manufacturing.

We are lucky that, while the half-baked nature of economic reform has prevented us from becoming internationally competitive in manufacturing, it has sufficed to make us competitive in services.

But, it will provide white collar rather than blue collar jobs. We must greatly improve education and vocational training. Those without education and skills will suffer badly in the job market.

What do you think?