Page 45 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Unit 4: Economic Reforms in India Since 1991

(b) GDP Growth, Employment Growth and Poverty Notes
The question arises : Why is it that although GDP growth rates have been very high
during the recent years (especially after 1993-94), they have not been accompanied by
corresponding reduction in poverty. If poverty implies either unemployment or under-
employment or absence of good quality employment, then it would be of interest to study
the change in employment scenario before and after the economic reforms. Data provided
in Table 3 reveals that total employment increased from 3,026 lakhs in 1983 to about 3,568
lakhs in 1990-91 and then improved to about 3.829 lakhs in 1997-98. The rate of growth of
employment was of the order of 2.39 per cent per annum during 1983 and 1990-91, which
was just equal to the rate of growth of labour force during this period. However, it was
hoped that if this rate of growth of employment is sustained in the next decade, the country
would be able to reduce the backlog of unemployment significantly. But unfortunately,
the period of reforms (1990-91 to 1997-98) reveals that the overall growth rate of
employment was only of the order of 1.0 per cent. It may also be noted that since the
reform process is limited to the organised sector, more so to the large corporate sector, the
growth rate of employment in the organised sector also decelerated to 0.60 per cent during
1990-91 to 1997-98 as against 1.73 per cent per annum witnessed in the 7-year pre-reform
period of 1983 - 1990-91. This was just one-third of the growth rate of the employment
witnessed earlier. There was also a substantial slowdown in the employment growth rate
of the unorganised sector to merely 1.1 per cent during 1990-91 to 1997-98 as against
employment growth rate of 2.41 per cent witnessed during the 7-year pre-reform period
(1983 to 1990-91). This leads one to the natural conclusion that the trickle down effects of
the growth process did not benefit the poor. Dr. S. P. Gupta, therefore, states: “All these
trends make one rethink the utility of an exclusive policy on ‘GDP growth’ in resolving
poverty or employment. In contrast, it has been observed that high growth in employment
in India has almost always been associated with some reduction in poverty. For example,
the period of high growth of employment in the 1980s with a comparatively lower GDP
growth has witnessed a significant reduction in poverty. In the 1990s as hypothesized, a
low growth of employment is seen to be associated with an increase in poverty.”
Trend of Employment in Organised Sector
Since the focus of the reform process is on organised sector employment, it would be
desirable to examine the growth of employment in the organised sector.
2. Increase in Productivity and Real Wage Earning
Industrialist lobbies have frequently charged labour for not raising labour productivity, but
forcing an increase in the real wage of earnings of labour. Shariff and Gomber (1999) have
studied the problem of increase in labour productivity and real earnings of regular wage/
salaried employees. Their study reveals, whereas overall real labour productivity showed an
increase during 1983-88 by 3.16 per cent and during 1988-94 by 3.32 per cent, the real earning of
workers increased at the annual average rate of 7.0 per cent during 1983 and 1987-88, but showed
a miserably low increase of 1.0 per cent during 1987-88 and 1993-94. Though the post-reform
period is not long enough to arrive at any definite conclusion, but it does give some indication
of the straws in the wind that the gains of productivity increase during 1988-94 by 3.32 per cent
were passed on to the workers by only 1.0 per cent and the rest were pocketed by the employers.
This had an unhealthy impact on labour welfare.
The upshot of the analysis given above is that the basic problem with economic reforms is not
to treat labour as an asset but as a mere instrument, which can be dispensed with when in the
judgment of the employer, it is no longer useful. This is a very mechanical view of labour,
which is resented by trade unions on the one hand, and judiciary on the other. For the employer,
it is an attempt at downsizing leading to cost reduction, for the employee, it is the loss of job. In
developed countries, where social security systems have been extensively developed, the process
of downsizing is much less painful, because the worker can at least get some dole and thus is

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