A large structural shift has happened from manufacturing to agriculture, which is reverse of what India should be doing.
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India in reverse - people going from factories to farms!
- The story: All modern economies since 1950s were built on the foundation of moving people away from agriculture, and into factories. The India of today, since 2015, is moving in the reverse direction, as data indicate.
- Details: There are two primary surveys that help document this drastic shift.
- This reverse migration of labour from factories to farms was recorded through the years in CMIE’s Consumer Pyramids Household Survey and it is also reflected in the government’s PLFS (Periodic Labour Force Survey report).
- The latest PLFS report shows a sharp increase in employment in agriculture from 42.5 per cent of the total employment in 2018-19 to 45.6 per cent in 2019-20. This shift of labour to agriculture is larger than estimated by CPHS.
- Such a large shift of labour in favour of agriculture is not voluntary, but is a sign of distress in the labour market where non-agricultural sectors are unable to provide employment (so it is forced to shift to agriculture).
- Wages data: The forced or at least involuntary nature of this migration is evident from the wages data provided by the PLFS. Salaried jobs provide wages of the order of Rs.16,780 per month. Self-employment provides wages of the order of Rs.10,454 per month. These translate into wage rates of Rs.558 per day and Rs.349 per day, respectively. In comparison casual labour which is the type of employment provided by agriculture yields much lower wages – of the order of Rs.291 per day. Labour would not voluntarily shift to this lowest wage-rate sector unless it had no better option.
- What agri does: Agriculture in India is a low wage safety net for labour during times of distress. In fiscal 2019-20, real GDP growth declined to 4 per cent, the lowest growth rate since the global financial crisis more than a decade earlier in 2008.
- PLFS estimates are for a 12-month period from July 2019 through June 2020. It therefore includes the period when India suffered the first Covid-19 wave around April-June 2020.
- The sharp fall in growth before the pandemic and then the pandemic induced lockdown could have squeezed labour out of non-farm jobs who then had no option but to fall back on agriculture.
- This safety-net provided by agriculture reduces the political pressure that widespread loss of jobs could have created if such a large contingency destination in the farmlands were not to exist.
- The biggest increase in employment in 2019-20 was in agriculture and within agriculture the increase was largely among women. Nearly 60 per cent of all employed women were engaged in agriculture. This shows the domination of poor quality of employment that women get in India.
- The sinking sectors: The rise in share of agriculture in employment raises a question on the sectors that are losing employment.
- According to the PLFS, the losers are manufacturing, construction and transport, storage and communication.
- The share of manufacturing in total employment fell from 12.1 per cent to 11.2 per cent.
- Of all the specific sectors for which PLFS provides data, the manufacturing sector saw the biggest fall (0.9 percentage points). The next largest loser was construction (0.5 percentage points). And then it is transport, storage and communication (0.3 percentage points). These three account for a little over half of the increase in the share of employment in agriculture. The rest is mostly accounted for by “others”.
- Large parts of employment from the relatively unorganised construction sector and the unorganised manufacturing sector moved into agriculture. Nearly 60 per cent of the employment in manufacturing industries is in the unorganised sector. It is labour from here that migrated into agriculture.
- The numbers: The manufacturing sector and the construction sectors waited for the migrant workers to return to resume work. But, 2020-21 (July to June) period saw the second wave of Covid-19. India reacted differently to the second wave, as 2020-21 saw a continuation of the reverse migration to agriculture. The share of agriculture in total employment jumped to 39.4 per cent in the year from 38 per cent in 2019-20. The share of manufacturing dropped sharply from 9.4 per cent to 7.3 per cent. Construction recovered. Its share in total employment which had fallen from 15.4 per cent in 2018-19 to 13.5 per cent in 2019-20, shot up to 15.9 per cent in 2020-21.
- Summary: Clearly, government efforts to boost manufacturing through production linked incentives (PLIS) or liquidity support to medium and small scale enterprises have not been effective in stemming the decline of manufacturing in India.
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