jobs market

No dividend here: The slowdown in jobs shows that India is headed for demographic disaster

The double blow of demonetisation and GST has triggered job losses.

India’s telecom industry offers direct employment to around two million people, according to the Department of Telecom’s Annual Report for 2016-’17, and indirectly employs at least two million more, besides giving life to entire industries that wouldn’t have come into existence without it. But by this time this time next year, at least 100,000-200,000 of this workforce is likely to be aggressively sending out their resumes as they find themselves without work.

The Department of Telecom reckons that it will receive just Rs 29,500 crore as revenue share (a percentage of their gross revenue that telecom operators give the government body) in this fiscal. That is 37% less than the Rs 47,300 crore revenue share estimated in the Union Budget released in February. As revenues contract, telecom operators will have to consolidate and shed between 5%-10% of their workforce just to survive, industry analysts estimate.

Major players will merge and those who cannot will shut down. The Idea and Vodafone merger is the biggest one on the anvil, while Airtel has acquired Telenor’s India business and is set to merge with Tata Teleservices and Tata Teleservices Maharashtra. After the Reliance Communications-Aircel merger fell through, both companies are also on the lookout for partners.

Every merger will be followed by downsizing and at least 15,000-20,000 jobs have already been dispensed with after the existing deals were struck. Many of those laid off will be white-collar employees, some of them with annual compensations running to tens of lakhs.

Where are the jobs?

Two other massive employment generators – construction and textiles – have shed an even larger number of employees. Construction and infrastructure, hit hard by demonetisation, has laid off a chunk of its 30-million-strong workforce. While precise numbers are hard to get in this fragmented industry, as an indicator, one of India’s largest companies in this sector, Larsen & Toubro, has laid off about 11% of its workforce in the last six quarters.

The textile industry, already hurt by the November 8 note ban, has been crippled with the rollout of the Goods and Services Tax, with job losses reportedly running into lakhs.

Across other sectors too, jobs are scarce and net employment dwindling. For instance, HDFC Bank reportedly cut its workforce by about 11,000 in the last financial year, while YES Bank has cut about 2,500 jobs. FICCI’s Quarterly Manufacturing Survey released in July indicates that 73% of the respondent businesses have no plans to hire in the next three months. The Survey polled 300-odd companies with an aggregated turnover of more than Rs 3.5 trillion.

The Information Technology sector, another major recruiter in India, is also generating fewer jobs than before – Nasscom’s projections of a 200,000 net increase in employment across the sector in 2016 was belied as only 170,000 jobs were generated – and its employees are facing the risk of becoming irrelevant in the age of automation. Mckinsey predicts that about 600,000 of the industry’s 3.9 million workers will be laid off by 2020 and another one-third of the workforce needs to be re-skilled to hold on to their jobs, as Indian IT has failed to catch up new technologies like artificial intelligence and digital- and cloud-based services.

Nobody seems to have started aggregating the GST’s impact on the services sector in the public domain – across medium-sized business in industries like advertising, hospitality and in small-scale enterprises like electrical and plumbing, hardware assembly, repair and maintenance services. But preliminary information suggests that most small and medium-sized units are struggling to cope with GST. Many are said to have laid-off staff or simply shut-down for the moment.

Blow to services

Why has the services sector has been particularly disadvantaged by GST?

Manufacturing had always faced inter-state barriers in terms of transportation of goods and different excise rates in various states. With the implementation of the GST, this sector is currently struggling to come to terms with an absurdly complex compliance system but it can hope for things to ease-up in the long term as the market integrates.

But the services sector has always operated across an integrated market. There was no compliance barrier, or extra tax incidence if, say, an advertising agency in Chennai serviced clients in Guwahati. But post-GST, a business in the services sector will have to file a whole extra set of documents for every out-of-state client.

The fact that tax has to be paid upfront under GST, at the time of generating invoices, has also created a working capital crunch. Moreover, input tax credit – refunds on taxes that businesses paid while buying the inputs that went into the business – are not refunded on time.Most firms also have to wait 60 to 90 days before they are paid by their customers or clients, leaving them cash-strapped. The upfront tax incidence for many services 18%, which may actually be higher than the operating margin in many industries. So, the services sector is hit without discernible long-term benefits.

Broken promises?

Eventually all the reasons cited above come down to one over-arching factor: the Indian economy is not growing fast enough to create new jobs. What’s more, the supposed reforms, like demonetisation and GST, have not improved ease of doing business, to put it mildly.

If there is no hiring across sectors, and companies have to file umpteen amounts of paperwork and advance taxes even before receiving payments, there’s not much room for start-ups and self-employment opportunities either.

This is at a time when India is expected to reap the benefits of the so-called demographic dividend. It has a very young, growing workforce that should be able to generate growing output for decades. If per capita productivity improves, good. But even otherwise, GDP should grow simply because the workforce is growing.

Every nation goes through a version of this workforce bulge, when a large proportion of its population is within the working age (15-65). Historically, the Asian Tigers – Japan, China, Thailand, Hong Kong, Singapore, South Korea and Taiwan – and before them, the Europeans and Americans in the 19th century, saw accelerated GDP growth during their respective bulges. (Significantly, the Tigers as well as the Europeans made huge investments in universal primary education before the dividend even arrived).

The scale of unemployment and under-employment in India is hard to grasp because of poor statistical data. But it’s huge. One million or so Indians enter the workforce every month. That’s roughly 40 million additions to the workforce since the Bharatiya Janata Party came to power in May 2014 with the promise of bringing acche din.

The BJP’s poll promises included the creation of 25 million jobs per year over 10 years. But every indicator suggests that 2017 will see net job losses. The Centre For Monitoring Indian Economy Pvt Ltd started estimating employment trends in January 2016 when it reckoned that around 39 million people were looking for work. Between April and December last year, the employed workforce grew from 401 million to 406.5 million. The workforce had fallen to 405 million by April this year. That implies a net 5.5 million jobs were generated between January to December 2016 but a net 1.5 million jobs were lost between January to April this year.

If policymakers are incapable of creating the preconditions for the Indian workforce to be educated or employed, that dividend is just jumla. It could be a demographic disaster instead.

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This article was produced by the Scroll marketing team on behalf of Lufthansa as part of their More Indian Than You Think initiative and not by the Scroll editorial team.