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Book Review: Of Growth and Change; By K. Subramanian

Updated: Sep 1

C3S Paper No. 0165/2015

Courtesy: The Hindu

Labour, Employment and Economic Growth in India, Edited by K.V. Ramaswamy, Cambridge University Press, £64.99.

Labour issues are not ‘fashionable’ these days. This is despite the fact that globalisation and multinational corporations have reduced the power of labour and trade unions. The lone ranger going against the tide and defending labour interests, bringing out valuable studies on the impact of globalisation on the labouring class, is the International Labour Organization (ILO). Fortunately, we also have a few committed institutions working on labour-related issues. This collection of articles brought out by Professor K.V. Ramaswamy of the Indira Gandhi Institute for Development Research (IGIDR) is one such effort.

The first part comprises six chapters, each analysing a distinct area or issue such as trends in labour market and services-led growth. They are not stand-alone pillars; all of them connect thematically in one way or the other and hark back to the basic objective, i.e. ‘inclusive’ growth. They evaluate the extent to which current strategies have either succeeded or not; their conclusions are based on voluminous data brought out by government agencies such as the National Sample Survey Organization (NSSO) and the Central Statistical Organisation (CSO).

Voluminous data are analysed clinically and the trends are studied applying economic tenets. Sectoral studies suggest long-term employment trends. Overall, the trends resulting from the current strategies are not encouraging. The structure of the economy is skewed and, with agriculture getting a diminished role and manufacturing languishing with low levels of productivity, there is heavy reliance on the service sector. Reliance on the service sector is found to be unsustainable in the long run. The growth potential in the service sector is limited for the skilled; as for the unskilled, it is in construction, retail, and other sectors which are mostly in unorganised or informal sectors. These trends do not add up to inclusive growth. With the kind of labour laws in force, even the organised sector relies heavily on contract/informal labour. This results in constricting their expansion and also makes them globally uncompetitive. A dual structure is emerging between those covered by the thresholds set for labour laws and those which circumvent them by operating below the threshold. (Chapter 7 by Prof. Ramaswamy elaborates this at length.)  In a broader or organic way, each area studied by these authors gets linked with others such as population increase, skewed structure, lack of employment generation, low levels of labour absorption, lack of productivity and gender discrimination. Government policies tend to promote service sector more than agriculture or manufacturing. Though this is a crude summary, even this may disturb those who are gung-ho about our reforms and growth. Most papers contain valuable insights and challenge popular beliefs and understanding of employment and growth in India. As the blurb says, “The contributors have extended the boundaries of contemporary debate in variety of ways by undertaking detailed empirical studies of selected aspects of growth and employment change in India.”

Jayan Jose Thomas analyses ‘India’s Labour Market during the 2000s.’ He finds that there is an absolute decline in the number of workers engaged in agriculture and related activities. This was observed for the first time in the NSSO Survey of 2009-10. Another disturbing fact was that in the second half of the 2000s, the number of women engaged in agriculture declined sharply. Apart from the tremendous wastage of talent and opportunities, it ‘is the single biggest hurdle that India faces in achieving the demographic dividend.” Chapter 5 by Narayana examines this in greater depth and Chapter 7 by Goldar and Agarwal investigates ‘gender discrimination’ and explains how trade liberalisation which is expected to reduce gender inequality has been belied in India’s case.

Compulsory education has resulted in the withdrawal of young people from agriculture. The new generation of educated persons seek jobs in other sectors even as “the generation of employment in the country has been far from adequate to meet this challenge.” Data clearly suggest that “the gap between labour supply and labour demand will widen in the coming years unless jobs are generated at a much faster pace to absorb the newer entrants into the labour force.”

Ajit Ghose deals with issues connected with ‘services-led growth and employment in India.’ He refers to the explosion of the services sector in India and how it defies patterns historically witnessed in developing countries, especially China and East Asian countries which moved from agriculture to industry and later to services. His closer study reveals that it dates back to earlier years from 1980. Over the period, there has been marginalisation of manufacture. The pattern of development in India is attributed to the fact that “government policies have systematically privileged services vis-a-vis manufacturing.” This has persisted even in the post reform years. While it helped to build the skilled-intensive ICT sector, it emaciated the competitive strength of manufacturing. He develops the theme that services led growth can be sustained only at a lower level. The most important point he makes is that rapid services-led growth will be made impossible by endemic balance of payments difficulties.  Data suggest a large mismatch between the structure of domestic absorption and domestic production that has emerged in the economy. It implies that 26 percent of domestic demand had to be met by imports while the net services exports was 3 percent of GDP based on data for 2010.This gap will widen in the coming years and it would pose a heavy import burden.

In the chapter on ‘growth, structural change and poverty reduction’ the authors note that the contribution of agriculture to aggregate growth has been declining over time. The main driver of growth has become the service sector. The growth in manufacturing has been by registered units and the contribution of unregistered sector has been low. They feel that growth has been inclusive viewed from the perspective of poverty reduction but there is scope for further inclusion.

A close study of labour intensity in Indian manufacturing (Chapter 6 by three authors) is insightful. It is seen that employment elasticity of labour-intensive industries witnessed a decline in 2000s after showing signs of improvement in the 1990s. The major factor leading to this trend is reliance on capital-intensive manufacturing. Employment protection has also reduced the incentive for expansion in the absence of ability to downsize operations in the event of export decline or downturn in demand. Labour laws promote engagement of informal labour. (Chapter 8 by Bibhas Saha narrates how China handled labour laws and created an environment for company growth and how India got stuck.) Other factors are lack of infrastructure, non-availability of bank credit for small and medium sector firms. As the authors conclude, “… in the post-reform period there is no evidence of an increase in contribution of labour intensive industries to organized manufacturing value added.”

The study of ‘Labour Jurisprudence of the Supreme’ is valuable. The study is important at a time when labour rights have been weakened by government policies and employers’ practices. In the past, the Supreme Court had built a strong reputation for the protection of labour rights. However, labour activists began to allege that there was a “paradigm shift in the approach of the court.” Ms. Gopalakrishnan reviews the rulings of the Court in recent years to weigh this criticism. She finds contradictions in some of the rulings. Indeed, the court has defended labourers’ rights, especially the contract workers and women. However, in some of its recent judgments the court is observed to have bowed to the winds blowing on issues like globalization and reforms. It accepts the new economic rationale in its rulings as in Hombe Gowda Educational Trust vs. The State of Karnataka. The judgment in Harjinder Singh vs. Punjab State Warehousing Corporation was more explicit. It had approved privatisation and divestiture of government shares from public undertakings as in the Balco case. At the same time, the court has defended the rights of workers in some cases. As the author concludes, “…… Supreme Court’s judgments on labour-related issues are a mixed bag.”

The contributions are dispassionate while addressing issues which have generated so much political heat after the ‘reforms.” They take contrarian positions without fear or favour on issues which are shrouded in myths and shibboleths. This book is indeed a landmark in studies on labour economics, an area neglected in recent years.

(The writer Mr. K. Subramanian, is an Associate of the Chennai Centre for China Studies – C3S. Email:

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