Rural Employment in India: Current Situation, Challenges and Potential for Expansion

Issues in Employment and Poverty Discussion Paper 7 Rural Employment in India: Current Situation, Challenges and Potential for Expansion by G.K. Chadha Recovery and Reconstruction Department International Labour Office, Geneva February 2003 Contents Page Preface v Author’s Acknowledgement vii I The Decade of Economic Reforms 1 1.1 Employment under the Spell of Economic Reforms 2 1.2 The Scope of the Study 4 II Data and Concepts 5 III Structure and Mode of Employment 6 3.1 Labour- and Work-force Participation Rate 7 3.1.1 State-wise Labour- and Work-force Participation Rate 8 3.2 Sector-wise Distribution of Workers 10 3.2.1 State-wise, Sector-wise Distribution of Workers 11 3.3 Employment Diversification within Agriculture 12 3.4 Increasing Casualization in Rural Employment 14 3.4.1 State-wise Evidence on Casualization 16 IV Growth of Employment 17 4.1 Employment Growth Rates: All India Scenario 17 4.1.1 State-wise Growth Rates of Rural Employment 20 4.2 Incremental Workforce 32 4.2.1 State-wise Analysis of Incremental Workforce 34 V Quality of Workforce 36 5.1 Educational Background of Rural Workers 37 VI Investment, Growth and Employment 39 6.1 Investment in Recent Years 39 6.1.1 Investment in Production Sectors: All-India Picture 40 6.1.2 State-Level Investment Scenario 42 6.2 Macro-economic Variables and Employment 45 6.2.1 Growth and Employment: All-India Picture 45 6.2.2 Growth and Employment: State-Level Scenario 47 VII Summing up Broodings and Cheers 50 References 59 Tables 61 List of Tables Table 1 Labour Force and Work Force Participation Rate by Age-Group, Place of Residence and Person's Sex: 1987/1999-00 Table 2 State-wise Labour Force and Work Force Participation Rate by Place of Residence and Person's Sex: 1983/1999-00 Table 3 Sectoral Distribution of Usual Status Workers in India by Workers' Sex and Residence: NSS Data: 1972-73/1999-2000 Table 4 Sectoral Distribution of Usual Status Rural Workers in Indian States by Workers' Sex: 1983/1999-00 Table 5 Distribution of Usual Status (Principal+ Subsidiary) Rural Workers within Agriculture: 1983/199-00 Table 6 Composition of Usual Status (Principal+ Subsidiary) Workers by Sex and Rural- Urban Residence: NSS Data 1972-73/1999-00: All-India Table 7 Compositions of Rural Usual Status (Principal + Subsidiary) Workers in Indian States: NSS Data 1983/1999-2000 Table 8 Annual Compound Growth Rate of Employment for Usual Status (Principal + Subsidiary) Workers by Sex, Residence and Production Sectors Table 9 Growth of Rural Employment in Indian States by Workers' Sex and Major Sectors: 1983/1999-2000 Table 9A Number of States Witnessing Higher/Lower Growth Rates in Post-Reform Period Table 9B Intensity of the Post-Reform Employment setback for Rural Workers: A State Level view for Agriculture and Aggregate Employment Table 10 Sectoral Distribution of and Rural Workers' Share in Incremental Workers by Major Production Sector and Place of Residence: 1983/1993-94 and 1993-94/1999-00 Table 11 Sectoral Distribution of Incremental Workers in Indian States Table 12 Educational Background of Rural Workers in Indian States: NSS Data 1983/1999-00 Table 13 Distribution of Educated Rural - Workers Staying Back in Agriculture and those Moving out to Non-Agricultural Jobs by Workers' Sex:1983/1999-2000 Table 14 Gross Fixed Capital Formations in India by Industry of Use: 1993-94 Prices (Rs. Crores) Table 15 Public Sector Capital Expenditure for Agricultural and Rural Development in Indian States: 1983-84/1998-99 (Rs. Lakhs at Constant 1993-94 Prices) Table 16 Investment, Growth and Employment in the Indian Economy: 1983/1999-2000 Table 17 State-wise Growth Rate of Public Sector Capital Expenditure, for Agriculture and Rural Development and Employment iv Preface The experience of countries that succeeded in reducing poverty significantly indicates the importance of high rates of economic growth in achieving this. High growth, however, is not a sufficient condition for poverty reduction; the pattern and sources of growth as well as the manner in which its benefits are distributed are equally important from the point of view of achieving the goal of poverty reduction. And employment plays a key role in that context. Indeed, countries which attained high rates of employment growth alongside high rates of economic growth are also the ones who succeeded in reducing poverty significantly. Since July 1991, the Indian economy has witnessed a series of economic reforms, encompassing all major sectors of the economy (agriculture, industry, trade, foreign investment and technology, public sector, financial institutions and so on). These reforms favouring an export-linked development strategy mark a significant break from the import- substituting development strategy nurtured by the Indian planning regime since 1951. In this outward-looking approach, different sectors of the Indian economy are linked with the outside world, either through their direct involvement in international trade or through their indirect linkages with the export or import transactions of other sectors of the economy. As this new policy regime is more than a decade old now, one can begin to assess the precise effects of the reforms on various segments of the Indian economy, and on people’s working and general standards of living. In order to do so it becomes crucial to consider the issue of employment, especially from the point of view of poverty reduction. In this context, it is important to examine the rural employment situation because a vast majority of India’s population still live in rural areas. The present paper looks into some of the crucial dimensions of the changing employment scenario in rural India at the national as well as the state level. The paper compares the pace and pattern of rural employment growth during the 1990’s (the decade of reforms) with the 1980’s (the pre-reform decade), without of course making any attempt to ascertain which element of change has been caused by which specific policy change. In doing so, the paper attempts to figure out the challenges and threats, as well as the potential for employment expansion that lies ahead. In terms of the all India pattern of rural employment, it is clear that there has been a sectoral shift, with the proportion of male workers engaged in the primary sector steadily declining from 83.2% in 1972-73 to 74.5% in 1987-88 and to 71.4% in 1999-2000. On the other hand the proportion of male workers in the secondary, tertiary and total non-farm sectors has witnessed a steady increase, for instance from 16.8% in 1972-73 to 25.5% in 1987-88 and to 28.6% in 1999-00 for all non-agricultural sectors. For females the trend in sectoral shift is less sharp in particular during the post-1987 years, indicating their relative inability to gain access to jobs in the secondary and tertiary sectors, which in turn is possibly due to the low level of their human capital index. At the state level, the proportion of rural persons engaged in agriculture continued to decline fairly noticeably, in the states of Assam, Bihar, Himachal Pradesh, Kerala and Uttar v Pradesh, whilst in Gujarat, Karnataka and Maharashtra the proportion increased during the post-reform years. In terms of manufacturing the proportion of rural male as well as female workers declined or remained constant in a number of states in the post-reform years. Only in West Bengal, Kerala and Tamil Nadu and to a lesser extent, in Assam and Orissa did the number of rural works in the manufacturing sector increase. On the whole, it is clear that the process of structural transformation of the rural work-force in favour of non-agricultural jobs, reversed in some states during the post-reform decade and decreased in pace in others; only in a few states, did the shift from agriculture continue even after the reforms arrived. The paper concludes that in overall terms, the rural workforce has been at a disadvantage; it gained relatively less in work-place increments and lost relatively more in work-place decrements. This is possibly due to the fact that the level of education is very low for rural workers, both in the farm and non-farm sectors as compared with urban workers. In years to come such low levels of education, training and skill capacities are likely to disadvantage rural workers even further. In this context the crucial role of education becomes evident whether towards the creation of additional avenues of self-employment in and outside agriculture, or for getting into wage-paid jobs in non-agricultural activities. Finally, the post-reform years have witnessed a number of sectors that can be confidently looked at as future sources of rural employment expansion. At the national level a wide range of manufacturing activities stand out as the most promising ones. Yet, it cannot be ignored that the agricultural sector continues to absorb more than 70% of the rural workforce in the majority of states and that the need to strengthen the agricultural base remains. Thus the fact that the public sector’s share of investment in agriculture and rural development has ceased to expand in recent years causing a slowdown in agricultural growth, agricultural productivity and rural employment remains a widespread concern. 12 February 2003 Rizwanul Islam Director Recovery and Reconstruction Department vi Author’s Acknowledgement The present study was undertaken at the instance of Dr. Rizwanul Islam, Director, Recovery and Reconstruction Department, ILO, Geneva. Dr. Islam not only initiated the study but also nursed its progress with utmost keenness and interest, firstly through personal discussion whenever he was in New Delhi, and secondly, through regular electronic correspondence.

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