The current problems of the Indian economy have been aggravated by the government’s refusal to accept the clear body of evidence suggesting an economic slowdown. Hence the government does not seem bothered to tackle the challenges of declining growth, rising inflation, and growing unemployment. While economic growth and inflation can still be addressed by corrective policies, unemployment is a more long-term difficulty that cannot be sorted out by appropriate macroeconomic policies alone. Unemployment is likely to grow in the coming years to an alarming degree, spurred by disruptive technological changes.
India is still very much an agricultural economy with around 50 per cent of the working population engaged in the sector. India is also known to have a large proportion of its labour force as disguised unemployed. This means that a lot of workers are apparently employed but not actually working to the full extent of their capabilities. Since there is a pressure of population on scarce resources like land, people tend to share jobs. For instance, a small farm that can optimally use four able-bodied persons per day, has six members of the family who can work. Hence six people do the work of four. They cannot find alternative employment and therefore do not migrate out of the farm. This problem of surplus labour continues as long as the growth of industrial and other kinds of modern sector jobs is inadequate to absorb the surplus. The informal sectors of the economy employs about 92 per cent of the labour force, and the formal modern sector only 8 per cent. This has been a bane for the Indian economy since Independence.
Even when the rate of growth of the Indian economy did pick up significantly during the last three decades, the rate of new jobs created in the modern sectors was limited. This phenomenon has been labelled jobless growth. There had been an apprehension that the age of computers would play havoc with all kinds of jobs. However, it can be observed that while a lot of new jobs were created in the information technology sector, there was no perceptible job loss in the low end of the skill spectrum. For instance, a gardener or a plumber or a mason or a cab driver or a farmer did not get displaced by IT. However, many small businesses were affected by the arrival of the internet. Hence, what actually happened was that there was a one-time (over a decade or two) churn in the labour market. New jobs were created and old jobs (businesses) lost. Once this correction was over, the rate of creation of new jobs in the more technologically sophisticated economy was much slower than before, leading to the phenomenon of jobless growth. The meaning of the term does not literally imply that no new employment is created, but rather, that the rate of new job creation is very low compared to the rate of growth of national income.
The structural features of jobless growth and disguised unemployment can appear to get worse when there are cyclical downturns in the economy, such as a deceleration in economic growth, or the onset of a recessionary trend. This is what has happened recently in India when the rate of unemployment has climbed to the highest level in over four decades. There are a few implications of this trend of overlapping kinds of unemployment in India: disguised unemployment, technological unemployment and cyclical unemployment. The first is the growing threat of unemployment that has adverse effects on the morale and productivity of workers. The second is the trend of falling wages in some sectors and slower rates of wage rate growth in others. This has an adverse effect on aggregate spending and hence economic activity, further restricting the possibility of new jobs being created. The third effect is that unemployment reduces the bargaining power of workers and hence makes it easier for industrialists to break up trade unions. It also helps the State to gradually renege on the social contract to protect a worker’s rights and privileges. Finally, to reduce labour costs, the security of permanent jobs disappears. Instead, what emerges is a large, temporary, contractual workforce for the low ends of the skill spectrum, and the gig economy for people with higher skills such as a programmer, or an auditor or a consultant.
The world economy has also changed during the last three decades. The developments in automation have made it cost-effective even for a medium sized enterprise to automate operations for higher productivity and precision. The development of robotics based on artificial intelligence and machine learning is already having disruptive effects. New technology is no longer restricted to creating more efficient car engines, but can now do the driving too. So a cab driver can now be replaced. On the biotechnology front, new technologies are being developed that can understand the human body and the human mind as a set of algorithms that can be replicated in machines. Machines can track biosensors implanted in human bodies and know more about our own bodies than we know, or feel, ourselves. This, for instance, will have a tremendous adverse effect on employment in the medical profession and the demand for new doctors in the near future.
Automation and artificial intelligence technologies comprise the new wave of scientific progress. They are getting cheaper by the day. These will have enormous computing power, accuracy, speed, and will be able to go beyond doing repetitive jobs in predictive environments; to doing work related to dynamic learning in uncertain environments thereby replacing human work based on cognizance. Human beings know two broad categories of work: manual and mental. If both types of jobs get replaced by machines, then new jobs will become scarcer than what they are today. All these changes are happening already, and will be entering our daily lives in pervasive ways within the current decade.
According to a recent International Labour Organization report, 51 per cent of India’s work activities can be automated with available technologies. The greatest possibilities are in the areas of manufacturing, retail, data collection and processing. India already has an unemployment crisis. With the threats coming from new technologies, the economic consequences of large scale unemployment will throw many fundamental challenges to society. It is often claimed that India has a demographic dividend comprising a very large number of young people entering the labour force. With technological changes going on in the entire world, the new entrants in India’s labour force will be unemployable. The ILO report estimates that 66 per cent of Indian businesses are looking for new skills in their recruits that none seem to possess. What does this mean for the future of the Indian economy? Over and above the poor and disguised unemployed, there will emerge a new class of educated poor who will not be able to find jobs. Even if India’s education system does change at an astonishing rate, the demand for new jobs will be few and infrequent, available for those with extraordinary analytical skills and intelligence.
Technological disruptions, along with climate change, remain the two biggest challenges before humankind in the 21st century. In India, the added burden of a population bulge may turn out to be more of a demographic tax than a dividend. The rise of a useless, unemployable class of young and educated people will be fertile soil for political extremism to strike deep roots. Some telltale signs of the coming dystopia are already visible; in India, as well as in many other parts of the world.
The author is former professor of Economics, IIM Calcutta
