special article
Growth sans Employment: A Quarter Century of
Jobless Growth in India’s Organised Manufacturing
K P Kannan, G Raveendran
There has been considerable debate in India about the
impact of growth on employment especially in the
organised manufacturing sector for different periods
since the early 1980s. However, changes in the coverage
of the Annual Survey of Industries demand a fresh look
at the issue over a longer period. This paper attempts
such an analysis for 1981-82 to 2004-05. For the period
as a whole as well as for two separate periods – the
pre- and post-reform phases – the picture that emerges
is one of “jobless growth”, due to the combined effect of
two trends that have cancelled each other out. One set
of industries was characterised by employment-creating
growth while another set by employment-displacing
growth. Over this period, there has been acceleration in
capital intensification at the expense of creating
employment. A good part of the resultant increase in
labour productivity was retained by the employers as
the product wage did not increase in proportion to
output growth. The workers as a class thus lost in terms
of both additional employment and real wages in
organised manufacturing sector.
An earlier version of this paper was presented by the first author at the
First National Technical Consultation on Employment Policy for India
organised by the Ministry of Labour, Government of India and the
International Labour Office (Sub-regional Office for South Asia),
on 21 February 2008, New Delhi. The authors would like to thank
Arjun Sengupta, T S Papola, Ajit Ghosh, B N Goldar, Arup Mitra and
Sukti Dasgupta for several rounds of discussion on various aspects of the
findings of this paper. A special word of thanks is due to Ajaya Kumar
Naik for his able computational assistance. However, the authors alone
are responsible for errors, if any.
K P Kannan (kannankp123@gmail.com) and G Raveendran are with the
National Commission for Enterprises in the Unorganised Sector,
New Delhi.
80
T
here is unanimity amongst scholars that the organised
manufacturing sector registered “jobless growth” during
1980-81 to 1990-91. While the average annual rate of
growth of gross value added during this period was about 8.66%,
the corresponding average annual employment growth was
merely 0.53%. The resultant employment elasticity was 0.06.
The reasons advanced by scholars for the near stagnation of
employment are, however, varied. One of the views is that job
security regulations introduced in the late 1970s and strengthened
in the early 1980s is the reason for employment stagnation – a
view shared by most official economists and policymakers.
Some empirical evidence in support of this view has also been
provided by Fallon and Lucas (1993). It has, however, been
contested by Papola (1994), Ghose (1994) and Bhalotra (1998). It
was pointed out by Bhalotra that the pattern of employment
growth in factories of different size classes is not consistent with
the threshold effect that one would expect of the job security
regulations. Her stand has also been supported by Dutta Roy
(1998) through econometric models.
According to a study undertaken by the World Bank (1989), the
stagnation in factory employment in the 1980s is due to accelera-
tion in product wages as a result of a union push. This view has
been negated by Papola (1994), Kannan (1994) and Nagaraj (1994).
It has been pointed out by Papola that the increase in labour
productivity during the 1980s was much faster than the growth
in real wages and, therefore, the latter cannot be a reason for
stagnation in employment. He has argued that the decline in em-
ployment in cotton textiles and food products, which accounted
for a sizeable part of factory employment, was caused by closure
of mills due to sickness and rationalisation due to obsolescence.
Kannan demonstrated that the increase in product wage in
organised manufacturing was lower than labour productivity
during 1973 to 1988 although the difference narrowed since the
early 1980s. There was no convincing evidence to show that the
presence of unions was incompatible with dynamic efficiency, i e,
a higher growth in labour productivity as compared to product
wage. The decline in dynamic efficiency in some industries could
have been due to other factors as industrial sickness (as happened
to many textile mills) and supply constraints with regard to
certain inputs or problems in capacity utilisation.
Nagaraj argued that there was a decline in the bargaining
power of organised workers during the 1980s and the structure
of employment within the organised sector moved towards
smaller sized establishments. It was, therefore, unlikely that
unionised labour secured a disproportionate increase in the wage
march 7, 2009  vol xliv no 10   EPW   Economic & Political Weekly

rate. Nagaraj also found that about one half of real earnings per
worker was accounted for by an increase in mandays per worker.
The alternative explanations given by Papola (1994), Nagaraj
(1994) and Bhalotra (1998) for the stagnation of employment in
the organised manufacturing sector in the 1980s are (i) changes in
industrial composition, and (ii) increase in actual hours worked
per worker indicating a more intensive use of the workforce.
Nagaraj has also mentioned the overhang of employment by the
end of 1970s caused by a markedly decelerated growth of indus-
trial output but a sustained growth of employment. In the 1980s,
when demand picked up, the industries would have first used the
existing stock of labour intensively before deciding to employ
additional workers.
Kannan (1994) argued that those who advocate a “flexible”
labour market without intervention emphasise only the cost
dimension of wages and not the demand dimension arising out of
its role of providing income to the workers. The narrow base of
the domestic market is due to the small size of the organised
sector workforce. Hence policies are required to help increase
labour productivity in the unorganised sector and thus the
income of a vast segment of the workforce to create a bigger and
wider base for domestic demand, i e, an argument for expanding
the home market.
Introduction
The growth of employment in the organised manufacturing sector
during the 1990s has also been analysed by a number of researchers
and the general consensus has been that employment growth
picked up considerably during the first half of the 1990s. Goldar
(2000) has shown that employment in the organised manufac-
turing sector including electricity registered an impressive annual
rate of growth of about 2.83% during 1990-96. The growth was
mainly contributed by private and joint sector companies as the
growth rate registered by the public sector was only 0.39% as
against 3.72% by the other firms. Goldar has also shown that
there was a marked change in the size structure of industries,
particularly in the 1990s in favour of smaller size classes. While
firms the size classes of 50 to 500 employees gained significantly,
the size classes of 2000 and above lost their share of employment
substantially. This structural change must have contributed to
the growth of employment during the 1990s till 1997-98. By us-
ing econometric analysis, he has shown that growth in output
(GVA) and real wages have a significant influence on growth in
employment. He concluded that changes in the size structure of
industries in favour of small and medium-sized factories and the
slowdown in the growth in real wages were the factors which
contributed to employment growth in the 1990s. Nagaraj (2000)
has, however, contested the findings of Goldar and attributed the
employment growth during the 1990s to the investment boom
that was witnessed in response to the industrial deregulation and
trade policy reform. In another article in 2004, Nagaraj has also
noted that jobless growth during the 1980s was followed by an
employment boom for four years during 1992-96 and retrench-
ment thereafter. Between 1995-96 and 2001-02, 1.3 million em-
ployees lost their job. These losses have been widespread across
major states and industry groups. Real wages have practically
Economic & Political Weekly  EPW   march 7, 2009  vol xliv no 10
special article
stagnated, when per capita income grew close to 3% per year
during the 1990s. Nagaraj, however, seems to have not taken note
of non-coverage of electricity undertakings in the Annual Survey
of Industries (ASI) from 1998-99. Nagraj’s conclusions, quite sig-
nificant as they are, also call for further investigation on a number
of counts. First and foremost, there is need to pay attention to some
database issues since the ASI has excluded certain industries
(mainly departmental undertakings such as electricity and water
supply). Second, it is important from a policy point of view
to identify industries that have contributed to jobless growth
performance of the manufacturing sector as a whole. The question
is whether jobless growth is a generalised phenomenon or the
net result of the jobless growth industries cancelling out the job
creating growth performance of some other industries. All these
issues can now be examined for a longer period of time of almost
a quarter century.
Scope and Objectives
This is the background against which this paper examines the
performance of the organised manufacturing sector. In specific
terms, the objectives of this paper are: (i) to examine the long-
term growth performance since the beginning of the 1980s by
dividing the period into pre- and post-reform years to signify
the onset of major economic reforms in the early 1990s for
economic liberalisation and globalisation, (ii) to examine the
employment implications of growth performance in terms of
growth in employment as well as the resultant employment
elasticities so as to further probe the “jobless growth” pheno­
menon reported for earlier but shorter periods, (iii) to subject
the examination of the growth and employment performance
in terms of industry-groups at the 2-digit level to find if there
are any discernible patterns, (iv) to examine the changes in the
distribution of income arising out of the growth as between
capital and labour, and finally (v) to explore the causes under­
lying the performance of the organised manufacturing sector
and put forward certain plausible hypothesis. Some comments
on the larger implications to the economy are also offered for
further discussion.
The Data Sets for the Present Study
The present study is aimed at analysing the growth trends in
organised manufacturing at disaggregated levels. The published
results of the ASI from 1981-82 to 2004-05 at the 3-digit level of
industrial classification were used for the study. Since the indus-
trial classification used for the surveys up to ASI 1988-89 it was
NIC-70 and up to ASI 1997-98 it was NIC-87 and thereafter NIC-98,
the concordance between NIC-70 and NIC-87 with NIC-98 at the
3-digit level was used to convert the data sets into NIC-98. The
estimates at the 2-digit level of industry classification were then
obtained by aggregating the relevant 3-digit level industries. The
total employees, including contract workers, supervisory and
managerial staff, other employees and unpaid family workers,
were considered for the analysis. The workforce is not collected
in ASI as a direct headcount of the persons in the firm but the
average is calculated by dividing the number of mandays worked
with the number of working days.
81
speciAl article
All the monetary values given here were adjusted for 1993-94
prices by using the Wholesale Price Index (WPI) numbers relevant
to specific industry groups at the 2-digit level. The choice of
1993-94 prices was also a matter of convenience as it is one of the
middle years on which the earlier series of national accounts
were based.1
Changes in the Sampling Design and Coverage
There were significant changes in the classification, sampling
and coverage of industrial units in the ASI over different periods
of time. Till ASI 1986-87, all large establishments employing 50 or
more workers and using power or 100 or more workers without
using power and electricity undertakings constituted the “Census
Sector” and the remaining establishments constituted the “Non-
Census or Sample Sector”. In the case of the sample sector, 50%
of the establishments were surveyed every year, covering all the
units once in two years. However, in the case of industries in
which the total number of units in the country did not exceed 50
and the units were located in relatively less industrialised states2
the manufacturing units were surveyed completely every year.
In the case of other establishments, the units with odd serial
numbers were surveyed in the first year and those with even
numbers during second year, after stratifying by industry and
district and arranging in descending order of employment.
From ASI 1987-88 to ASI 1996-97, the Census sector comprised
all the units employing 100 or more workers, irrespective of the
use of power, and all electricity undertakings. Out of the remain-
ing units, if the number of factories at the 3-digit level of NIC in a
state was 20 or less, those units were completely enumerated.
Further, the units located in 12 relatively less industrialised states
and union territories (UTs) (see Note 2) were also completely
enumerated every year. From amongst the remaining units in
each industry in each state, one-third of the units subject to a
minimum of 20 were selected circular systematically for survey
every year. All the units were surveyed once in three years.
For ASI 1997-98 the Census Sector was redefined to consist of
the following: (i) The units belonging to all the 12 less industrialised
states/UTs, (ii) in the case of other 16 States/UTs: (a) units having
200 or more workers, (b) significant industries in terms of NVA as
reflected in ASI 1993-94, ASI 1994-95 and ASI 1995-96 results, and
(c) all units belonging to the public sector undertaking (PSU) and
the electricity sector.
All the remaining units were included in the sample sector.
The sample size at the all-India level was determined on the basis
of variability of specific industry group and further allocated to
different states on a proportional basis.
In ASI 1998-99, a number of modifications were made to the
design adopted in ASI 1997-98. These are: (i) the number of com-
pletely enumerated states/UTs was reduced to Manipur, Meghalaya,
Nagaland, Tripura and Andaman and Nicobar Island, (ii) NIC-1998
was introduced for industry classification, (iii) electricity under-
takings registered with Central Electricity Regulatory Authority
were excluded, and (iv) public sector units were not considered
as Census only.
In ASI 1999-2000, the same methodology was used except that
the concept of significant units was not used for the identification
82
of census sector units. It was also decided to exclude departmen-
tal undertakings like railway workshops, P&T workshops, etc, from
the survey. However, in practice, the sampling frame did include
the departmental undertakings.
From ASI 2000-01 to ASI 2003-04, the census sector was modi-
fied to include units employing 100 and more workers instead of
200 and more workers. In ASI 2004-05, NIC 2004 was introduced
and a complete change in sampling design was made. These related
to: (i) the units employing 100 or more workers were included in
the census sector, (ii) each 4-digit level industry in each state is
considered as a stratum, (iii) sampling has been done for each of
the years 2004-05 to 2008-09 so that all the units are surveyed
during the five-year period, and (iv) a supplementary frame has to
be prepared every year and samples have to be selected.
Though the change of sampling design over successive rounds
would have introduced some amount of design effect, the unbi-
ased character of the estimates are not expected to be affected,
except from ASI 1998-99 onwards when significant changes were
introduced in coverage. For example, electricity undertakings
were excluded since 1998-99 and departmental undertakings
were excluded since ASI 1999-2000. The use of published results
for estimating growth and elasticity has to be, therefore, industry-
specific taking into account the coverage changes.
The period of 23 years from 1981-82 to 2004-05 has been
divided into the pre-reform period up to 1991-92 and the post-
reform period from 1992-93 onwards for the purpose of the anal-
ysis. The division is guided by the initiation of major and wide-
ranging reforms of economic liberalisation in the country in
1991-92. The focus of the analysis is primarily on manufacturing
industries as per NIC-98, as there have been significant changes
in the coverage of ASI in the case of industries not classified as
manufacturing. The industries which are grouped together and
are not considered as part of manufacturing are given in Table 1.
Table 1: Industries Excluded from the List of Organised Manufacturing in this Study
NIC Code Description
14 Extraction of salt
40 Electricity, gas, steam and hot water
41 Collection, purification, and distribution of water
50 Sale, maintenance and repair of motor vehicles
52 Retail trade except motor vehicles and motorcycles: repair of personal and
household goods
63 Storage and warehousing
72 Maintenance and repair of office, accounting and computing machinery
90 Sewage and refuse disposal, sanitation and similar activities
92 Recreational, cultural and sporting activities
93 Other service activities
In addition to the above, the industry, Recycling (NIC-37) was
also grouped along with non-manufacturing activities, as the
industry group was not covered prior to 1998-99.
Growth, Employment and Employment Elasticity
The performance of the organised manufacturing for the two
time periods as well as the combined period of nearly a quarter
century with regard to output (gross value added), employment
and the resultant employment elasticity are given in Table 3 (p 83)
and Tables 4, 5 (p 84).
march 7, 2009  vol xliv no 10   EPW   Economic & Political Weekly

The average annual growth of employment in the manufactur-
ing industries during the period from 1981-82 to 2004-05 was
0.78%. During the pre-reform period from 1981-82 to 1991-92,
the employment growth rate in manufacturing industries was
0.40% while it marginally increased to 0.63% during the post-
reform period from 1992-93 to 2004-05.
What is important to note is that a majority of industries – 16
out of 22 – registered positive employment growths during the
first period 1981-82 to 1991-92. But this declined to 12 in the sec-
ond period. However, the employment growth in the first period
was strong enough to show a positive growth in 15 industry
groups for the whole period. Six industry groups showed a de-
cline in employment but this increased to 12 in the post-reform
period. Whether this is indicative of a polarisation of the manu-
facturing sector in terms of “job creating” and “job displacing”
ones even while they continue to grow in terms of output is some-
thing that we shall return to later in the discussion.
As can be seen from Figure 1, the employment growth scenario
for a period close to a quarter of a century analysed here is not
one of continuous stagnation but marked by a period of net in-
crease (roughly from 1987-88 to 1997-98) preceded and suc-
ceeded by periods of net decline. Whether the recovery in
2004-05 to the level of 1996-97 is the beginning of a turnaround
to sustained employment growth is something we cannot now
say given the diverging tendencies of industries. During the
whole period of 24 years a mere 1.77 million jobs were created
while 0.42 million jobs were destroyed with a net job creation of
around 1.35 million. This works out to just 0.3% of the workforce
in the economy as on 2004-05. The “excluded industries”
accounted for around 12 to 16% of total employment. As such the
manufacturing group considered here accounted for 84 to 88% of
Figure 1: Total Employment, Supervisory Staff and Workers (1981-82 to 2004-05, in lakhs)
100
100
Total persons engaged
80
80
60
60
Workers
40
40
20
20
Supervisory staff
00
1981-82
1981-82 1984-85
1984-85 1987-88
1987-88 1990-91
1990-91 1993-94
1993-94 1996-97
1996-97
total employment in organised manufacturing including indus-
tries that are now excluded.
Workers Total Persons Engaged Supervisory Staff
Unlike the employment scenario, the growth scenario is
indeed a buoyant one. All the 22 industry groups examined
here showed positive growth of 7.4% per annum for the whole
period as well as the second period relating to post-reform. The
pre-reform period witnessed only a marginally lower growth
rate of around 7% mainly due to the negative growth rates of
two industries. In fact, one of them – Medical, Precision and
Optical Instruments – rebounded in the second period and
registered a growth rate of more than 14%. Therefore, in terms
of output growth, all the manufacturing industries seem to have
Economic & Political Weekly  EPW   march 7, 2009  vol xliv no 10
special article
done quite well with many of them registering double digit
growth rates during the post-reform period. Unlike in the case of
employment no polarisation is discernible.
Making Sense of Employment Elasticities
Employment elasticity expresses the percentage change in em-
ployment growth for a percentage change in growth of output.
For the pre- and post-reform periods as well as the combined pe-
riod we have calculated the employment elasticities for organ-
ised manufacturing as a whole and for individual industry groups
at the 2-digit level. It must, however, be noted that employment
elasticities cannot be used or interpreted uncritically because
some of them are meaningless and some of them are not useful.
We therefore classify employment elasticities as in Table 2.
In these possible outcomes A2 is clearly meaningless because
the industry is declining and the positive sign is due to the double
Table 2: Possible Outcomes in the Sign of Employment Elasticity (EE) and Their Meaning
A  EE Positive B  EE Negative C  EE Zero/Close to Zero
A1 Growth in both B1 Positive growth in C1 Positive growth in
employment and output output but negative output but no
growth in employment growth or decline
in employment
A2 Growth both in B2 Positive growth in C2 No growth or decline
employment and output employment but in employment
negative (declining negative growth in and output
industry) output
Table 3: Growth in Output and Employment and Employment Elasticities in Period I
(in average annual %, 1981-82 to 1991-92)
NIC Industry Name Growth in Growth in Employment
Code Gross Value Employment Elasticity
Added (Arc)
A Employment creating growth
16 Tobacco products 9.10 1.37(58.6) 0.15
18 Wearing apparel, dressing and dyeing of fur 22.53 9.61(76.9) 0.43
19 Leather tanning and dressing 10.74 5.65(49.3) 0.53
21 Paper and paper products 4.69 0.90(12.6) 0.19
23 Coke, refined petro products and nuclear fuel 10.47 2.15(11.1) 0.20
24 Chemicals and chemical products 9.77 2.41(130.6) 0.25
25 Rubber and plastic products 13.42 3.89(57.9) 0.29
26 Other non-metallic mineral products 12.82 2.17(89.7) 0.17
27 Basic metals 2.20 0.23(13.6) 0.10
28 Fabricated metal products 4.51 1.36(36.3) 0.30
29 Machinery and equipments 7.29 2.99(119.2) 0.41
30 Office, accounting and computing machinery 35.92 14.89(22.7) 0.41
31 Electrical machinery and apparatus 6.67 0.46(11.1) 0.07
32 Radio, TV and communication equipment 23.28 7.92(62.9) 0.34
1999-2000
1999-00 2002-03 2004-05
2002-03 34 Motor vehicles, trailers, etc 6.09 0.87(15.8) 0.14
36 Furniture, manufacturing nec 7.77 1.33(7.5) 0.17
Total of A 7.93 2.07(775.9) 0.26
B Employment displacing growth
15 Food products and beverages 8.75 -1.71(-215.8) -0.20
17 Textile 4.33 -1.37(-200.6) -0.32
20 Wood and products of wood and cork 5.48 -2.00(-13.3) -0.37
35 Other transport equipment 2.27 -0.69(-21.7) -0.30
Total of B 5.58 -1.45(-451.5) -0.26
C Neither growth nor employment
22 Publishing, printing, etc -0.02 -0.89(-13.8) 57.31
33 Medical, precision and optical instruments -4.48 -6.89(-30.0) 1.54
Total of C -0.84 -2.19(-43.7) 2.62
All manufacturing 6.97 0.40(280.6) 0.06
The absolute change in employment (in ‘000) is given in brackets.
Source: Annual Survey of Industries, Summary Results for Factory Sector.
83
speciAl article
negative signs. B2 is useless because employment is retained even
when the industry concerned is declining in terms of output. C2
is also not useful since it is a case of stagnation. Based on this
classification the results of our exercise are given in Tables 3 to 5.
The 2-digit level industry employment elasticities present a
differentiated picture. During the pre-reform period 16 out of 22
industry groups showed positive employment elasticities arising
out of what we call “employment creating growth”. These varied
from a high of 0.53 in Leather Tanning and Dressing to a low of
0.10 in Basic Metals. We may recall here that limited economic
reforms in capacity utilisation, broad-banding and so on were ini-
tiated during the 1980s that confined to internal economic re-
form. The main reason for hardly any growth in employment
during this period is due to the performance of six industry
groups who accounted for more than half the employment in the
beginning of the period. Therefore a majority of the industries
which performed well, both in terms of employment and output
growth, accounted for only a relatively small share of total em-
ployment to begin with. What is striking is the job loss in two
major industry groups, viz, Food Products and Beverages and
Textiles which together accounted for 42% of the employment
share. This has resulted in an employment elasticity of just 0.06
which is close to zero.
Despite a higher rate of growth in output during the post-
reform period, the growth in employment witnessed only a very
marginal improvement to 0.63% per annum as against 0.40% in
Table 4: Growth in Output and Employment and Employment Elasticities in Period II
(in average annual %, 1992-93 to 2004-05)
NIC Industry Name Growth in Growth in Employment
Code Gross Value Employment Elasticity
Added (Arc)
A Employment creating growth
15 Food products and beverages 5.11 0.47(73.0) 0.09
18 Wearing apparel, dressing and dyeing of fur 10.60 9.58(300.0) 0.90
19 Leather tanning and dressing 3.49 2.28(35.5) 0.65
21 Paper and paper products 4.45 1.13(22.4) 0.25
23 Coke, refined petro products and nuclear fuel 9.24 1.33(11.6) 0.14
24 Chemicals and chemical products 5.60 1.33(115.2) 0.24
25 Rubber and plastic products 9.08 3.62(105.7) 0.40
26 Other non-metallic mineral products 7.94 0.99(58.3) 0.12
28 Fabricated metal products 3.83 0.98(35.3) 0.26
33 Medical, precision and optical instruments 13.79 5.03(27.6) 0.37
34 Motor vehicles, trailers, etc 13.86 4.46(137.2) 0.32
36 Furniture, manufacturing nec 11.44 8.05(106.6) 0.70
Total of A 7.38 2.07(1028.5) 0.28
B Employment displacing growth
16 Tobacco products 5.06 -0.35(-20.4) -0.07
17 Textile 5.34 -0.15(-24.8) -0.03
20 Wood and products of wood and cork 0.31 -2.15(-15.1) -6.94
22 Publishing, printing, etc 1.69 -2.28(-36.8) -1.35
27 Basic metals 8.88 -1.19(-89.4) -0.13
29 Machinery and equipments 7.33 -1.21(-68.6) -0.16
30 Office, accounting and computing machinery 7.29 -2.46(-9.0) -0.34
31 Electrical machinery and apparatus 6.24 -0.57(-16.8) -0.09
32 Radio, TV and communication equipment 9.62 -1.62(-22.1) -0.17
35 Other transport equipment 10.63 -4.13(-121.9) -0.39
Total of B 7.41 -0.93(-424.9) -0.13
All manufacturing 7.39 0.63(603.6) 0.09
The absolute change in employment (in ‘000) is given in brackets.
Source: Annual Survey of Industries, Summary Results for Factory Sector.
84
the first period. This resulted in an employment elasticity of just
0.09. Even this marginal increase is mainly due to the perfor­
mance in the last year of the second period, i e, 2004-05. Other-
wise the employment elasticity would have been a lower one of
0.01. Figure 1 illustrates this point clearly. Industries shed jobs
that increased to 10 from the earlier six and together they ac-
counted for 43% of the total employment in 1992-93.
For the whole period of 24 years, the picture is somewhat
brighter from an employment point of view because the employ-
ment elasticity inched up to 0.10. However, this is as good or
bad as jobless growth since the total employment effect was
only 8.29 million in 2004-05 which is less than the peak of
8.78 million in 1995-96.
The picture emerging from the employment elasticities is one
of acceleration in capital intensification in organised manufac-
turing at the expense of creating employment. While we must
recognise that this is not a generalised phenomenon across all
industry groups, but the net effect of employment creating
growth in some industries and the employment displacing
growth of another group. While the increase in number of such
individual groups should be a matter of concern, their decreasing
share in employment holds a ray of hope.
The main points arising from the analysis so far may be
summed up as follows. First, the higher growth in organised
manufacturing both during the pre- and post-reform periods is
due to an increase in labour productivity. Second, the process
Table 5: Growth in Output and Employment and Employment Elasticities Over the
Larger Period (in average annual %, 1981-82 to 2004-05)
NIC Industry Name Growth in Growth in Employment
Code Gross Value Employment Elasticity
Added (Arc)
A Employment creating growth
16 Tobacco products 6.80 0.71(70.9) 0.10
18 Wearing apparel, dressing and dyeing of fur 15.55 9.92(399.0) 0.64
19 Leather tanning and dressing 6.93 3.54(82.5) 0.51
21 Paper and paper products 3.84 1.24(44.0) 0.32
23 Coke, refined petro products and nuclear fuel 11.58 2.31(32.5) 0.20
24 Chemicals and chemical products 8.30 2.11(299.7) 0.25
25 Rubber and plastic products 11.28 3.96(179.8) 0.35
26 Other non-metallic mineral products 8.62 1.47(149.1) 0.17
28 Fabricated metal products 3.77 1.06(68.6) 0.28
29 Machinery and equipment 7.25 1.01(90.0) 0.14
30 Office, accounting and computing machinery 19.69 5.50(18.3) 0.28
32 Radio, TV and communication equipment 15.34 2.72(47.0) 0.18
33 Medical, precision and optical instruments 6.37 0.24(3.3) 0.04
34 Motor vehicles, trailers, etc 9.90 2.91(162.7) 0.29
36 Furniture, manufacturing nec 8.06 5.37(123.3) 0.67
Total of A 8.64 2.26(1770.8) 0.26
B Job displacing growth
15 Food products and beverages 6.50 -0.06(-20.2) -0.01
17 Textile 4.96 -0.53(-178.9) -0.11
20 Wood and products of wood and cork 0.09 -1.57(-22.2) -16.55
22 Publishing, printing, etc 0.35 -1.44(-45.8) -4.07
27 Basic metals 7.13 -0.09(11.8) -0.01
31 Electrical machinery and apparatus 6.46 -0.03(-1.5) -0.00
35 Other transport equipment 6.79 -2.44(-141.5) -0.36
Total of B 6.05 -0.45(-421.9) -0.07
All manufacturing 7.41 0.78(1348.9) 0.10
The absolute change in employment (in ‘000) is given in brackets.
Source: Annual Survey of Industries, Summary Results for Factory Sector.
march 7, 2009  vol xliv no 10   EPW   Economic & Political Weekly
 special article

of jobless growth is not uniform across industries. In fact, Figure 2: Index of Output of Emoluments in Organised Manufacturing Industries
(1981-82 = 100, Index of GVA employment and emolument)
there is a divergence in the situation with one set of industries 600
600
able to register employment creating growth while another set
registering jobless growth. Since they cancel each other out, the 500
500
GVA
performance of the organised manufacturing as a whole has
400
400
been a dismal one. Third, the jobless growth phenomenon has
been going on for far too long a period, i e, almost a quarter of 300
300

a century. Fourth, the jobless growth process has profound

200
200
implications for the distribution of the gross surplus as between Emoluments
capital and labour. If labour has not benefited in terms of 100
100
expanded employment opportunities, has it benefited in terms
00
of wage share as well as real wages? We turn to this question in 1981-82 1984-85 1987-88 1990-91 1993-94 1996-97 1999-2000 2002-03
1981-82 1984-85 1987-88 1990-91 1993-94 1996-97 1999-00 2002-03 2004-05
the following section.
Figure 3: Share of Total Emoluments of Employees, Wages of Workers and
Trends in Labour Productivity and Share of Wages Wages of Supervisors (as % of Gross Value Added)
45
45
When an industry grows, it could result in greater employment
as a result of expansion of capacity resulting in creating more Total emoluments
employment to the workers as a class. Or, it could result in higher 35
35

wages if growth is the result of increasing capital intensity.

Both these are also possible depending on the character of
the techno­logy as well as the extent of the sharing of the value
added as between capital and labour. The case of organised
manufacturing examined here is one of jobless growth. The share
of wages has fallen sharply indicating a fall in product wage
Table 6: Percentage Share of Gross Value Added (GVA) and Employment in
Organised Manufacturing
NIC Description 1981-82 1992-93 2004-05
Code GVA Employ- GVA Employ- GVA Employ-
ment ment ment
A Employment creating growth
27 Basic metals 16.0 8.5 12.8 8.7 18.9 7.0
24 Chemicals and chemical products 12.9 7.0 19.1 8.7 16.6 9.5
15 Food products and beverages 8.7 19.6 9.3 16.5 7.3 16.2
28 Fabricated metal products 4.7 3.6 3.2 3.7 2.3 3.9
34 Motor vehicles, trailers, etc 4.3 2.5 3.6 2.6 6.7 4.1
26 Other non-metallic mineral products 4.2 5.4 5.1 6.1 5.0 6.3
21 Paper and paper products 3.1 1.9 2.0 2.0 1.5 2.1
23 Coke, refined petroleum products
and nuclear fuel 2.9 0.7 5.7 0.9 11.4 1.0
25 Rubber and plastic products 1.7 1.8 3.1 2.6 3.0 3.7
36 Furniture, manufacturing nec 1.2 0.8 0.9 0.9 1.4 2.1
33 Medical, precision and
optical instruments 1.1 0.8 0.4 0.4 0.9 0.7
19 Leather tanning and dressing 0.7 1.0 0.9 1.5 0.5 1.8
18 Wearing apparel, dressing and
dyeing of fur 0.4 0.7 1.5 2.0 1.7 5.4
Total of A 61.9 54.3 67.6 56.6 77.2 63.8
B Job displacing growth
16 Tobacco products 1.6 5.8 1.8 6.4 1.7 5.7
17 Textile 14.4 22.4 10.7 18.2 6.7 16.6
20 Wood and products of wood and cork 0.8 1.0 0.4 0.9 0.2 0.6
22 Publishing, printing, etc 4.0 2.3 1.6 2.0 1.2 1.4
29 Machinery and equipment 6.4 5.0 6.3 6.6 5.1 5.3
30 Office, accounting and
computing machinery 0.1 0.1 1.0 0.5 0.5 0.3
31 Electrical machinery and apparatus 5.3 3.4 4.9 3.3 2.9 2.9
32 Radio, TV and communication equipment 0.7 0.8 2.6 1.6 1.6 1.2
35 Other transport equipment 5.0 4.7 3.1 4.0 2.9 2.2
Total of B 38.3 45.5 32.4 43.5 22.8 36.2
Total manufacturing 100.0 100.0 100.0 100.0 100.0 100.0
Economic & Political Weekly  EPW   march 7, 2009  vol xliv no 10
25
Wages
15
15
Other than wages
50
1981-82
1981-82 1984-85
1984-85 1987-88
1987-88 1990-91
1990-91 1993-94
1993-94 1996-97
1996-97 1999-2000
1999-00 2002-03 2004-05
2002-03
(i e, share of wages in the value added per worker) which is the
relevant element of cost of labour in production. However, it is
also important to examine the wage as real wage to workers rep-
resenting its purchasing power or income.
When organised manufacturing as a whole grows at an
annual growth rate of 7.4% for nearly a quarter century what it
means is that it has increased its output by more than five times.
This could be compared with the increase in share of wages that
represents the “product wage”. There was hardly any significant
increase in employment except for a short interim period from
1989-90 to 1995-96. The aggregate results are worth noting. As
we can see in Figure 2, while output grew by more than five
times, the total emoluments paid to employees (wages to work-
ers and supervisory staff combined) grew only by a little more
than two and three quarter times (i e, 277%). This means that a
good part of the productivity increase – a doubling of labour
productivity measured by GVA per employee – was retained by
employers. The increase in total emoluments being less than the
increase in output resulted in a sharp decline in the share of
wages from 41% in 1981-82 to around 32% in 1991-92 and then to
around 25% in 2004-05.
There is a sub-text in this story of a steady decline in the share
of wages. As we noted above the total emoluments paid called
share of wages can be split into two categories, i e, share of wages
to workers and the share of wages to the supervisory (including
managerial) staff. Two things seem to have happened. First, the
share of wages of workers declined from around 27% in 1981-82
to 21% in 1991-92 and to 12% 2004-05. Second, the share of wages
of supervisors declined from 14.5 in 1981-82 to 12% in 1991-92
and remained at that level up to 2004-05 (Figure 3). What this
85
speciAl article
tells us is that the decline in the share of wages of workers has
been far in excess of the decline in the share of wages to super­
visors. The workers’ share went down by half whereas the super-
visors’ share went down by less than one-fourth. The share of
supervisory (including managerial) staff in total employees
remained more or less constant around 22 to 23% throughout the
whole period. On the whole the evidence suggests that much of
the decline in the share of wages has been at the expense of the
low paid blue-collar workers.
The industry-wise details of the fall in share of wages to all
employees as well as workers are a generalised phenomenon
across industries during the whole period. The only exception
seems to be Wearing Apparel, Dressing and Dyeing of Fur where
the sharp decline during the first period has been reversed during
the second period. This could be due to the dismantling of the
Multi Fibre Agreement governing the export of apparels. The
sharpest fall has been in six industry groups, viz, Coke,
Refined Petroleum Products and Nuclear Fuel, Basic Metals,
Other Transport Equipment, Tobacco Products, Other Non-
Metallic Minerals, and Office, Accounting and Computing
Machinery, in that order.
The industry-wise picture also show that the fall in share of
wages to workers has been much faster than share of wages to
supervisors across industries. The picture emerging is one
that is loaded against the interests of workers who are either
Table 7: Share of Emoluments to Employees, Wages to Workers and Wages to
Supervisors in Gross Value Added (in %)
NIC Description Total Emoluments/GVA Total Wages of Worker/ has been a controversial theme. Measuring capital stock poses
Code GVA
1981-82 1991-92 2004-05 1981-82 1991-92 2004-05
15 Food products and beverages 38.7 33.7 29.1 24.3 21.6 16.2
16 Tobacco products 55.2 31.6 19.6 45.0 27.9 15.4
17 Textile 56.7 48.0 36.0 45.8 38.3 24.3
18 Wearing apparel, dressing and
dyeing of fur 44.8 21.8 44.3 30.7 14.9 27.6
19 Leather tanning and dressing 51.8 36.3 41.8 38.2 25.8 26.8
20 Wood and products of wood and cork 40.3 32.9 37.9 28.7 24.0 22.2
21 Paper and paper products 38.9 29.1 30.1 24.8 19.5 17.4
22 Publishing, printing, etc 58.9 47.7 34.8 36.4 30.0 12.6
23 Coke, refined petroleum products
and nuclear fuel 15.7 13.2 4.4 8.8 8.3 2.4
24 Chemicals and chemical products 30.3 24.1 17.8 15.2 13.4 7.0
25 Rubber and plastic products 38.5 24.7 24.3 23.2 15.0 12.7
26 Other non-metallic mineral products 42.1 20.8 19.1 28.9 14.1 10.6
27 Basic metals 36.2 29.1 12.5 23.8 18.4 6.8
28 Fabricated metal products 41.1 36.0 34.5 19.3 21.8 18.3
29 Machinery and equipment 42.1 41.0 32.0 23.7 24.2 14.1
30 Office, accounting and
computing machinery 54.5 21.8 25.5 31.2 8.2 6.6
31 Electrical machinery and apparatus 37.8 34.9 28.9 20.8 18.6 13.5
32 Radio, TV and
communication equipment 50.2 25.2 28.4 26.8 12.5 9.6
33 Medical, precision and
optical Instruments 41.6 38.9 26.5 20.8 20.8 10.9
34 Motor vehicles, trailers, etc 37.3 35.9 21.5 22.1 22.7 11.1
35 Other transport equipment 67.9 55.5 23.2 47.4 37.8 12.1
36 Furniture, manufacturing nec 47.7 34.7 31.5 31.6 24.4 19.0
All manufacturing 42.4 32.3 22.7 27.5 21.0 11.8
40+ Non-manufacturing 34.7 27.8 16.4 22.1 17.8 7.8
Total ASI 41.1 31.6 22.6 26.6 20.5 11.7
86
semi-skilled or skilled but generally with lower educational
attainments and engaged in manual work relating to production,
transportation, etc.
Increasing Capital Intensity
Having found that employment elasticity is very close to zero in
organised manufacturing in India despite a trend rate of growth
of output of over 7% during the last quarter century, what
emerges is the indisputable fact that there has been a consistent
increase in labour productivity. We now investigate the extent of
the increase in labour productivity during the two periods for the
different industry groups and go into the factors behind such an
increase. When capital is substituted for labour, it leads to an
increase in labour productivity. However, if the growth in labour
productivity is equal to the growth in capital labour ratio (capital
intensity) and no decline in capital productivity then the situa-
tion is characterised as technological upgradation. If there is
positive growth in capital productivity, then part of the growth
in labour productivity is due to substitution of capital for labour
as another part due to increased efficiency arising out of techno-
logical upgradation. What we find here is a case of sustained
increase in capital intensity that has resulted in substitution of
capital for labour as well as technological upgradation for organ-
ised manufacturing as a whole. However, there are notable varia-
tions when we examine the 22 industrial groups.
This takes us first and foremost to the question of measure-
ment of capital. In economic theory, the measurement of capital
too many inherent problems such as the age-composition, tech-
nological changes embodied in newer capital equipments and so
on. However, scholars engaged in empirical research have to
resort to some measurement of capital by choosing from feasible
alternatives. While examining the performance of organised
manufacturing in India, Ghose (1994) adopted a method by using
the estimates of net capital stock prepared by the Central Statistical
Organisation (CSO) for broad sectors of the economy at 1980-81
prices. The estimates for the ASI sectors “Aggregate Industry” and
“Manufacturing” were available for the year 1973-74. The esti-
mates for individual industries were derived for the year 1973-74
by using the ratio of book value of net fixed capital of the industry
to the total book value of all the industries in the manufacturing
sector. The estimates of capital consumption computed by the
CSO for the years 1980-81 to 1988-89 were then regressed against
the corresponding values of gross capital stock and the coefficient
6.05 was taken to measure the standard rate of depreciation.
The NCS for subsequent years were then estimated by using the
following formula
NCSt+1 = d[NCSt + (NCS*t+1 – NCS*t) + DPt+1]
where NCS = net capital stock
NCS* = book value of net fixed capital reported in ASI
deflated by GDP deflator for Gross Fixed Capital Formation
(1980-81=100)
DP = Value of depreciation reported in ASI deflated by the
same deflators
d = estimated standard rate of depreciation
march 7, 2009  vol xliv no 10   EPW   Economic & Political Weekly

The NCS employed in any particular year is then taken as the
average of the preceding and the current year
(NCSt+1 + NCSt)
NCSt+1 =
2 mation was computed by using the total depreciation and depre-
The limitation of his method is that the industry-wise net
capital stock for 1973-74 was derived by using the share of book
value of net fixed capital which is a crude approximation. Fur-
ther, the depreciation rate has been derived externally for all the
industries taken together by using a regression analysis of the
data sets of just eight years. It has nothing to do with the actual
depreciation provided by specific industry groups.
Goldar (2004) adopted the perpetual inventory method in
which he constructed the series of gross investment in fixed
capital for the entire manufacturing sector at constant prices of
1981-82. It was done by subtracting the book value of fixed assets
in the previous year from that in the current year and adding to
that the reported depreciation in fixed assets in the current year.
The implicit price deflators of gross fixed capital formation in
registered manufacturing sector were used for converting gross
investment to constant prices. A constant depreciation of 5% was
assumed for obtaining net fixed capital.
In this paper, we have used a similar methodology, at the
2-digit industry level rather than for the aggregate manufacturing
Table 8: Growth Rate of Net Capital Stock (NCS), Labour Productivity (O/L), Capital
Productivity (K/L) and Capital Intensity (O/K) in the Organised Manufacturing during
1983-84 and 1991-92
NIC Description 1991-92 to 1983-84
2- Digit NCS O/L K/L O/K
A Employment creating growth
16 Tobacco products 9.5 5.84 7.68 -1.71
18 Wearing apparel, dressing and dyeing of fur 17.8 14.57 6.02 8.07
19 Leather tanning and dressing -1.4 1.99 -7.49 10.25
21 Paper and paper products -0.2 7.10 -1.07 8.25
23 Coke, refined petroleum products
and nuclear fuel -2.1 16.63 -4.64 22.30
24 Chemicals and chemical products 8.4 5.92 5.93 -0.01
25 Rubber and plastic products 8.3 7.70 5.11 2.46
26 Other non-metallic mineral products 7.0 10.43 6.08 4.10
27 Basic metals 6.6 5.00 10.46 -4.94
28 Fabricated metal products -1.8 3.07 -3.19 6.46
29 Machinery and equipments 5.8 2.75 2.80 -0.05
30 Office, accounting and computing machinery 12.7 17.01 -6.05 24.54
31 Electrical machinery and apparatus 2.7 4.69 2.28 2.36
32 Radio, TV and communication equipment 11.1 11.89 5.23 6.33
34 Motor vehicles, trailers, etc 6.7 4.64 5.34 -0.67
36 Furniture, manufactured nec 5.2 5.16 2.04 3.05
Total of A 5.2 6.15 3.88 2.18
B Employment displacing growth
15 Food products and beverages 6.4 3.52 5.59 -1.96
17 Textile -1.3 5.62 0.80 4.78
20 Wood and products of wood and cork 1.7 6.18 4.10 2.00
35 Other transport equipment 0.1 2.81 1.26 1.54
Total of B 1.6 4.50 2.52 1.94
C Neither growth nor employment
22 Publishing, printing, etc -1.8 1.17 -0.18 1.35
33 Medical, precision and optical instruments 23.4 -0.89 36.73 -27.51
Total of C 4.7 0.76 8.42 -7.06
Total manufacturing 4.5 5.78 4.26 1.46
Source: Annual Survey of Industries, Summary Results for Factory Sector.
Economic & Political Weekly  EPW   march 7, 2009  vol xliv no 10
special article
sector. Further, the gross fixed capital formation for each year
from 1979-80 was obtained by adding the share of depreciation
of fixed capital addition during the year to the net fixed capital
formation. For the years prior to 1979-80, gross fixed capital for-
ciation rates of 1980-81. The wholesale price indices of manufac-
turing sector were used for obtaining the estimates of gross fixed
capital formation at 1993-94 prices. The depreciation rates for
different years as computed from ASI data were used for obtain-
ing net fixed capital stock for different years. The methodology
that we have used is given in the Appendix.
We discuss the results, given in Tables 8, 9 and Table 10 (p 88),
by keeping the broad division of industries as between “Employ-
ment Creating Growth” and “Employment Displacing Growth”.
During the first period there has been a modest growth in NCS of
around 1%. However this has resulted in an impressive growth
in labour productivity (O/L) of 5.8% largely contributed by an
equally impressive growth in capital productivity (O/K). Capital
intensity (K/L) increased by around 4.3% per year. Given the limited
and internal economic reforms, it could be hypothesised that the
impressive growth in labour productivity could be due to a better
and higher utilisation of capital and additional capital infusion.
This might have also been accompanied by better management
and related internal efficiency. This period in fact witnessed
the creation of 7,76,000 new jobs and displacement of 4,95,000
jobs resulting in a net employment creation of just 2,81,000
Table 9: Growth Rate of Net Capital Stock (NCS), Labour Productivity (O/L), Capital
Productivity (K/L) and Capital Intensity (O/K) in the Organised Manufacturing during
1992-93 and 2004-05
NIC Description 2004-05 to 1992-93
2- Digit NCS O/L K/L O/K
A Employment creating growth
15 Food products and beverages 6.02 4.62 5.52 -0.86
18 Wearing apparel, dressing and dyeing of fur 15.16 0.93 5.09 -3.96
19 Leather tanning and dressing 9.70 1.19 7.26 -5.66
21 Paper and paper products 16.84 3.29 15.54 -10.60
23 Coke, refined petroleum products and
nuclear fuel 15.48 7.81 13.97 -5.40
24 Chemicals and chemical products 7.24 4.21 5.83 -1.53
25 Rubber and plastic products 10.55 5.27 6.69 -1.33
26 Other non-metallic mineral products 9.53 6.89 8.46 -1.45
28 Fabricated metal products 7.16 2.82 6.12 -3.11
33 Medical, precision and optical instruments 5.39 8.34 0.34 7.98
34 Motor vehicles, trailers, etc 8.64 9.00 4.00 4.80
36 Furniture, manufactured nec 12.80 3.13 4.40 -1.21
Total of A 10.23 5.20 7.99 -2.59
B Employment displacing growth
16 Tobacco products 4.74 5.43 5.10 0.31
17 Textile 6.67 5.50 6.83 -1.25
20 Wood and products of wood and cork 2.41 2.52 4.66 -2.05
22 Publishing, printing, etc 11.50 4.06 14.10 -8.80
27 Basic metals 5.00 10.20 6.26 3.70
29 Machinery and equipments 1.56 8.64 2.80 5.68
30 Office, accounting and computing machinery 16.13 10.00 19.06 -7.61
31 Electrical machinery and apparatus 3.77 6.85 4.36 2.39
32 Radio, TV and communication equipment 13.37 11.43 15.24 -3.31
35 Other transport equipment 6.97 15.40 11.58 3.42
Total of B 5.59 8.42 6.58 1.73
Total manufacturing 7.94 6.72 7.26 -0.50
Source: Annual Survey of Industries, Summary Results for Factory Sector.
87
speciAl article
(an annual average of 28,000) against an annual output growth
rate of close to 7%. Hence the employment elasticity that is closer
to zero (0.06).
The situation in the second period (i e, since the beginning of
wide ranging reforms) has been quite different except the overall
jobless growth performance (see Table 9). First of all the growth
in NCS at 7.9% per annum is close to double of that in the earlier
period. This gave rise to a high growth in capital intensity of
2.3% per annum and resulting in the growth of labour produc-
tivity at 6.72%. The growth in capital productivity has been
negative. What this suggests is that the growth in capital stock
has been, on the whole, to replace labour without the kind of
technological upgradation of the previous period. This could be
due to the fact that the scope for further technological upgrada-
tion was not so pronounced. But the output growth increased to
around 7.4%. New employment of a little more than a million
was created but around 4,02,000 jobs was destroyed thus creat-
ing net employment of around 6,04,000. Given the high growth
in output, employment elasticity remained closer to zero but
increased to 0.09.
For the whole period of 24 years, the picture (Table 10) is one of
sustained increase in NCS followed by an impressive increase in
labour productivity (6.3%) that saw replacement of labour with
capital through a continuous increase in capital intensity (6%
growth in K/L) along with minimal technological upgradation (a
growth rate of 0.30% in capita productivity, i e, O/K).
Table 10: Growth Rate of Net Capital Stock (NCS), Labour Productivity (O/L), Capital
Productivity (K/L) and Capital Intensity (O/K) in the Organised Manufacturing during
1983-84 and 2004-05
NIC Description 2004-05 to 1983-84
2- Digit NCS O/L K/L O/K
A Employment creating growth
16 Tobacco products 7.99 5.22 6.77 -1.45
18 Wearing apparel, dressing and dyeing of fur 17.88 5.49 5.83 -0.32
19 Leather tanning and dressing 6.32 2.06 2.22 -0.16
21 Paper and paper products 9.53 3.69 7.68 -3.70
23 Coke, refined petroleum products
and nuclear fuel 8.46 12.34 5.40 6.58
24 Chemicals and chemical products 7.91 5.47 5.34 0.12
25 Rubber and plastic products 11.30 6.29 6.84 -0.52
26 Other non-metallic mineral products 8.37 6.74 7.01 -0.25
28 Fabricated metal products 4.38 2.63 3.10 -0.45
29 Machinery and equipments 4.02 5.82 3.02 2.72
30 Office, accounting and computing machinery 15.15 12.53 7.53 4.65
32 Radio, TV and communication equipment 12.38 11.22 10.24 0.89
33 Medical, precision and optical instruments 12.95 5.07 12.57 -6.67
34 Motor vehicles, trailers, etc 8.60 6.74 4.75 1.90
36 Furniture, manufactured nec 9.71 1.76 2.62 -0.84
Total of A 8.42 6.10 5.69 0.39
B Employment displacing growth
15 Food products and beverages 6.92 3.53 5.49 -1.85
17 Textile 4.14 5.43 4.70 0.70
20 Wood and products of wood and cork 1.79 0.61 3.39 -2.69
22 Publishing, printing, etc 6.23 2.02 7.83 -5.38
27 Basic metals 6.44 8.95 7.80 1.07
31 Electrical machinery and apparatus 3.46 5.94 3.38 2.48
35 Other transport equipment 3.44 10.03 6.21 3.60
Total of B 5.75 6.12 5.98 0.13
Total manufacturing 7.11 6.29 5.97 0.30
Source: Annual Survey of Industries, Summary Results for Factory Sector.
88
Figure 4: Index of Total Capital Stock and Capital Intensity (K/L) in the Organised
Manufacturing Sector during 1983-84 and 2004-05
500
500
400
400
300
300
200
200
Total capital stock
100
100
K/L
00
1983-84 1986-87 1989-90 1992-93 1995-96 1998-99 2001-02 2004-05
1983-84 1986-87 1989-90 1992-93 1995-96 1998-99 2001-02 2004-05
This overall picture, while quite instructive to understand the
broad trends in the organised manufacturing, has to be further
probed in terms of what we call “Employment Creating Growth”
industries and “Employment Displacing Growth” industries.
Wage as Cost to Employers and Income to Workers
The distribution of surplus generated in a production system
between workers and capitalists is a classical problem because of its
implications on the long-term development of capitalism in gen-
eral and the welfare of the workers in particular. As far as the per-
formance of the organised manufacturing sector in India is con-
cerned, we have seen that the impressive growth performance has
been achieved by increasing labour productivity and a correspond-
ing increase in capital intensity. We have also seen that a higher
proportion of the incremental surplus has gone to capital resulting
in a declining share of wages to all employees in general (except
perhaps a thin layer of managerial staff) and workers in particular.
There are two aspects of wages here. When expressed in terms
of product prices (i e, share of wages in value added) it represents
the cost to the employers and a declining share means a declining
cost of labour. When expressed in purchasing power terms, or
what is usually referred to as real wages, it represents the income
to the workers. These two dimensions of wages along with output
growth are given in Table 11. Real wages were derived by deflating
money wages with the Consumer Price Index for Industrial Workers.
Table 11: Growth Rates in Labour Productivity, Product Wage and Real Wage
(Annual average growth in %)
Period Output Product Wage Real Wage
Workers Supervisors All Employees
Period I 6.54 3.68 3.46 2.58 3.26
Period II 6.72 3.69 0.27 3.79 1.60
Whole period 6.58 3.73 1.55 3.86 2.50
The implications of the findings are quite significant. The
growth rate in product wage was a little more than half during
both the periods. However, the real wage increase was only
around half of the growth in output during the first period that
declined to around one-third during the second period when all
employees are taken into account. But the losers in this scenario
are the workers. While their real wage growth was less than but
closer to the product wage during the first period, it declined
sharply to one-fourth of a per cent in the second period. In actual
terms, workers hardly experienced an increase in real wages
during the second period (post-reform) while the supervisory and
managerial staff experienced a 3.8% increase in real wages. This
march 7, 2009  vol xliv no 10   EPW   Economic & Political Weekly

has resulted in a long-term annual growth of 3.9% in real wages
for supervisors and just 1.6 for workers. Given the fact that the per
capita earnings of supervisory staff is two times higher than the
workers in early 1980s, such an uneven growth meant a widen-
ing of inequality in the earnings as between supervisory staff and
workers. The ratio of earnings at the end of the period was 3.3:1.
Table 12: Industry-wise Growth in Average GVA and Emoluments Per Employee
(% growth per year)
NIC Description GVA Per Employee Emolument Per Employee
Code Period I Period II Whole Period I Period II Whole market rigidity argument in the Indian context boils down to a
Period Period
15 Food products and beverages 10.64 4.62 6.57 9.11 2.59 5.26
16 Tobacco products 7.63 5.43 6.05 1.79 1.23 1.38
17 Textile 5.79 5.50 5.52 4.02 2.93 3.46
18 Wearing apparel, dressing
and dyeing of fur 11.79 0.93 5.12 4.00 5.73 5.07
19 Leather tanning and dressing 4.82 1.19 3.27 1.17 2.30 2.32
20 Wood and products of wood
and cork 7.64 2.52 1.69 5.49 2.53 1.42
21 Paper and paper products 3.76 3.29 2.56 0.82 2.69 1.43
22 Publishing, printing, etc 0.88 4.06 1.82 -1.22 1.85 -0.49
23 Coke, refined petroleum products
and nuclear fuel 8.15 7.81 9.06 6.31 1.69 3.25
24 Chemicals and chemical products 7.18 4.21 6.06 4.76 2.33 3.62
25 Rubber and plastic products 9.17 5.27 7.04 4.42 4.87 4.92
26 Other non-metallic mineral
products 10.43 6.89 7.05 2.91 3.52 3.43
27 Basic metals 1.97 10.20 7.23 -0.23 2.25 2.37
28 Fabricated metal products 3.11 2.82 2.69 1.76 1.93 1.91
29 Machinery and equipments 4.18 8.64 6.19 3.90 6.32 4.94
30 Office, accounting and
computing machinery 18.31 10.00 13.45 7.95 10.21 9.76
31 Electrical machinery and apparatus 6.19 6.85 6.49 5.33 5.55 5.24
32 Radio, TV and communication
equipment 14.23 11.43 12.28 6.63 12.25 9.54
33 Medical, precision and
optical instruments 2.59 8.34 6.12 1.90 5.22 4.06
34 Motor vehicles, trailers, etc 5.17 9.00 6.79 4.78 4.29 4.26
35 Other transport equipment 2.98 15.40 9.46 0.92 7.74 4.47
36 Furniture, manufacturing nec 6.35 3.13 2.55 3.02 1.36 0.72
All manufacturing 6.54 6.72 6.58 3.68 3.69 3.73
The declining share of wages as well as a slow growth in real
wages of workers would suggest a declining power of workers
and their organisations. The support for economic liberalisation
and globalisation from employers and higher paid supervisory
and managerial staff and the opposition to it from the workers
and their organisations seem to be grounded in the distribution
of benefits to these groups. The workers as a class lost in terms of
both additional employment as well as real wages.
Understanding Jobless Growth: Plausible Hypotheses
This section suggests some hypotheses for the phenomenon of
jobless growth.
The Argument about Labour Market Rigidity
In the beginning of this paper we dealt with the argument about
labour market rigidity as the prime cause for the absence any
perceptible increase in employment elasticity in the organised
manufacturing sector. The opinion, as we saw earlier, is divided
along those who continue to advance labour market rigidity as
the prime factor and those who contest it. The analysis here
Economic & Political Weekly  EPW   march 7, 2009  vol xliv no 10
special article
covering a period of close to a quarter of a century has shown
that at the 2-digit level there have been two opposing trends.
One set of industries showing employment creating growth
and another set showing employment displacing growth. It is the
net effect of these two opposing forces that have led to a near
absence of employment growth. This shows that labour market
rigidity does not seem to operate across the board, if at all it is a
major factor. It is also important to note that the so-called labour
particular clause in the Industrial Disputes Act – Chapter VB –
that mandates prior permission of the government for an enter-
prise with more than 100 workers if it wants to retrench its workers.
In case permission is granted, the employer is required to give
a three-month notice to the worker providing reasons for the
proposed retrenchment. However, such a provision is not appli-
cable to a number of categories of workers such as (a) managerial
or supervisory staff or to staff in administrative responsibili-
ties, (b) casual or temporary workers including badli workers,
and (c) workers who have not yet completed one year of continu-
ous service. Further a wage ceiling is applied to workers who
are subjected to this provision which is Rs 6,500 per month (as
on 2005). All these have restricted the applicability of the provi-
sion under Chapter VB to a narrow segment of workers.
Despite such a restricted application, there is so much heat
generated over this provision especially by those who are seen
as the advocates of economic liberalisation and globalisation.
Employers, despite their opposition to the clause, do not seem to
bother too much about when it comes to investment decisions or
are confident of dealing with it. It is quite possible that the con-
testation is more ideological than a practical hindrance to invest-
ment and increasing employment. Capital is certainly interested
in unhindered control of labour that would give them much flexi­
bility and discretion in the manner and pace of accumulation.
Therefore their position could be one of a strategy of labour
control. On the other hand, labour in organised manufacturing,
especially in the bigger establishments, are unionised and see
this as an ideological threat to their very existence, let alone
functioning within a framework of collective bargaining in which
trade union participation is a legitimate activity. In the Indian
context, this takes political overtones since trade unions are
affiliated to political parties. Such an ideological contestation
cannot be resolved through empirical verification of employment
and output growth performance of organised industries. We
therefore move to two other plausible explanations.
Has Capital Become Cheaper?
The second set of explanation for the jobless growth in organised
manufacturing relates to the wide range of measures that helped
reduce the cost of capital such that the employers found it more
attractive to continuously increase capital intensity of production
for maximising output growth. In a recent paper Chandrasekhar
(2008) calculated the cost of capital and compared it with the cost of
labour3 and concluded that there is a “negative shift in the price
of capital relative to labour” which “points to a major bias in prices
that favours capital intensity”. He also points out that there are
additional incentives encouraging capital intensity offered by
89
speciAl article
central and state governments in the form of cash subsidy based on
level of investment, interest subsidies and a range of other incentives
such as exemption from payment of electricity in several cases.
For an earlier period of analysis, Ghosh (1994) had also attributed
the increase in real cost of labour as a reason for capital deepening
in the organised manufacturing sector. As mentioned earlier, such a
view was then contested by both Papola (1994) and Nagaraj (1994).
Given the fact that we Table 13: Cost of Capital and Cost of Labour
have covered almost a Per Unit of Value Added and Their Ratios
Year Interest/GVA (%) Wage/GVA (%) Ratio of (2)/(1)
quarter of a century and
1981-82 12.2 41.9 3.4
have shown the differ- 1982-83 12.1 41.8 3.4
ential performance of the 1983-84 13.0 41.5 3.2
organised manufacturing 1984-85 14.3 42.3 3.0
sector in terms of indus- 1985-86 15.7 40.4 2.6
tries that are “job creat- 1986-87 17.1 41.0 2.4
1987-88 14.9 39.8 2.7
ing growth” and “job
1988-89 13.5 34.5 2.6
displacing growth”, we
1989-90 13.2 33.7 2.6
think it is important to 1990-91 13.0 32.0 2.5
further examine the the- 1991-92 15.9 32.4 2.0
sis of re­lative cheapness 1992-93 15.2 32.2 2.1
of capital vis-à-vis labour. 1993-94 16.8 28.7 1.7
While the WPI for ma- 1994-95 16.6 27.1 1.6
1995-96 13.7 27.1 2.0
chinery and index of
1996-97 12.6 24.3 1.9
money wages could rep-
1997-98 17.9 27.9 1.6
resent the cost of capital 1998-99 18.0 25.7 1.4
and labour, respectively, 1999-2000 18.6 25.3 1.4
we would argue that we 2000-01 22.3 28.5 1.3
need to find out the cost 2001-02 24.3 28.0 1.2
of capital and labour in- 2002-03 19.7 25.9 1.3
2003-04 17.1 23.7 1.4
curred by the firms. This
2004-05 12.4 20.9 1.7
ex-post data would then
show the relative cost of capital vis-à-vis labour as experienced
by the firms. For this we have taken the share of interest paid in
gross value added to represent cost of capital and share of wages
in gross value added to represent cost of labour. These are shown
in Table 13 and Figure 5.
Figure 5: Relative Cost of Capital and Labour (in %) in the quality of products characterised by high capital intensity,
50
50
40
40
Wage/GVA
30
30
Interest/GVA
20
20
10
10
Wage share/Interest share
00
1981-82
1981-82 1984-85
1984-85 1987-88
1987-88 1990-91
1990-91 1993-94
1993-94 1996-97
1996-97 1999-2000
1999-00
Clearly the cost of capital here has been showing an increasing
trend except for the latest year (2004-05) when it came down to
the level of the initial year (1981-82). However, the share of wages
in value added shows a more or less secular decline to such an ex-
tent that it is exactly half that of the initial years. The ratio of these
two shows that it is the cost of labour that has cheapened over time
vis-à-vis cost of capital. The puzzle here then is to explain the con-
tinuous increase in capital intensity for both “job-creating” and
90
“job-displacing” groups of industries. Since early 1990s the process
of capital intensification has accelerated as compared to the 1980s.
Demand Side Explanation: Changing Nature of Demand
We now move to another set of explanations that may be clubbed
as demand-side explanations. It would appear that there is a strong
case to move away from cost of production and problems in labour
hiring explanations to those which are related to the changing
nature and composition of demand for manufactured products
both in the domestic and foreign markets. Chandrasekhar (2008)
has dealt with this demand side effects as an added reason for the
jobless growth in organised manufacturing. We feel that this is
perhaps the dominant factor that has pushed India’s organised
manufacturing to a situation of jobless growth arising out of
economic reform policies.
We have already seen how the distribution of the value added
in organised manufacturing has shifted in favour of capital and
to the managerial class of employees. Given the same logic, similar
shifts might also have occurred in the organised segment of the
service sector. In fact this has been the experience in most coun-
tries that have embarked on the path of economic liberalisation
and globalisation. In the Indian case, the shift in demand takes
place in favour of those goods demanded by the newly rich
classes, which has been made easy by a rather aggressive pursuit
by banks expanding personal finance loans. This satisfied the
demand for products that are similar to “foreign goods” that were
not earlier satisfied. Since the enterprises also have to compete in
an open economy context, they have to produce goods, which
would be similar to those that could now be imported. If they are
export-oriented, then they have to produce goods that are de-
manded in the world market, produced with modern technology,
packaging, branding and so on. As Chandrasekhar points out,
opening the domestic market for transnational enterprises also
results in high import intensity of domestic manufacturing that
will in turn reduce the employment elasticity of growth in manu-
factures. In a nutshell, what we are witnessing is a drastic change
branding, import intensity and so on that results in slowing down
both the absorption of direct labour as well as backward and for-
ward linkages within the domestic economy.
Trade policies especially import duties and special incentives
for export, credit policies that push up the personal finance for
middle- and high-income segments, technology acquisition poli-
cies that are capital-intensive modern technologies, and fiscal
policies that favour a reduced rate of taxation and special incen-
tives for capital-intensive projects in fact work in favour of such a
qualitative shift in the composition and structure of demand.
2002-03 2004-05
2002-03
This has manifested in several countries in terms of jobless
growth in organised manufacturing. This leaves the vast informal
sector in manufacturing in India where around 71% of the total
workforce in manufacturing are engaged, to cater to the demand
for goods that are low value (arising out of the low-income of the
households), low productivity and low quality. Employment in
this sector is mostly by default in the form of self-employment
since many workers have no opportunities for wage employment,
let alone regular wage employment.
march 7, 2009  vol xliv no 10   EPW   Economic & Political Weekly
 special article

As we have noted earlier, jobless growth is not all pervasive
across all industries. Our analysis shows that a set of industries has
been able to grow with some net job creation. However, there is
another set of industries that grew largely by shedding employ-
ment perhaps to stay on course with the changing nature of the
product market and domestic competition. The interaction of these
two trends resulted in jobless growth over nearly a quarter of a
century. While growth has been high, it has not been high enough
to generate additional employment to come out of the syndrome
of “jobless growth”. Examining Table 6, one might be tempted to
say that there is some streak of hope in favour of employment since
industries that are “job creating growth” sectors have increased
their share of employment from 54% in 1981-82 to 64% in 2004-05
with a corresponding increase in share of output from 62% to 77%.
However, employment elasticity has remained within a narrow
range of 0.26 to 0.28 between the two periods analysed here.
While there has been reference to a “hollowing” of the small-
scale sector of Indian industry, what we have found is an increasing
divide between the formal and informal segments of Indian manu-
facturing. In another study (NCEUS 2008), we have reported that the
informal segment of manufacturing registered an annual growth
rate of 4.9% between 1999-2000 and 2004-05, the formal segment
has grown by 7%. What this points to is the relative decline of the
share of informal segment since the growth rate differential is so
huge. If this persists, there is sufficient reason to worry about
increasing inequality and its attendant economic and social reper-
cussions. The jobless growth performance of India’s organised manu-
facturing sector is indeed a matter of serious concern.

Notes
1 The sectoral wholesale price indices used for dif-
ferent industry groups are given in the Appendix.
2 These are: Goa, Himachal Pradesh, Jammu and
Kashmir, Manipur, Meghalaya, Nagaland, Tripura,
Andaman and Nicobar Islands, Chandigarh,
Dadra and Nagar haveli, Daman and Diu and
Pondicherry.
3 “The ‘cost of investment’ is captured not just by
trends in the prices of capital goods, but also by the
opportunity cost of capital as captured by the pre-
vailing rate of interest. One way to represent the
combined effect of these two elements is to apply
the rate of interest on an index of the price of capital
goods, say the wholesale price index of machinery,
and build an index of the resulting values. This is
what has been done to construct the index of cost of
capital, also presented in Chart 6. What is interest-
ing is that when we consider this composite index,
the trend has been more complex than revealed
merely by the relative movements of the prices of
capital goods and money wages. The high interest
rate regime that kicked in after the crisis of 1991-92,
and remained in place till the second half of the
1990s meant that the ‘cost of capital’ rose sharply
during the first half of the 1990s, often at a rate
much faster than the rate of rise in money wages.
However, after the government managed to engi-
neer a low interest rate regime starting from the
late 1990s, movements in money wages and the
cost of capital diverged with the former rising at
fast rate while the latter stagnated or declined”
(Chandrasekhar 2008: 10).
References
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Appendix: Methodology to Calculate
Total Capital Stock
The estimation of capital stock employed in the
production process in any year is generally
based on a number of reasonable assumptions.
Given the data sets available from different
sources, there exists no ideal method. Neverthe-
less, the perpetual inventory method is considered
to be useful and realistic in the estimation of
capital stock. The method has been used in this
study for the estimation of 2-digit level industry-
wise capital stock in the manufacturing sector
at 1993-94 prices. The time series data released
by the Central Statistical Organisation contain
information on Net Fixed Capital at the end of each
accounting year and net fixed capital formation
and depreciation since 1979-80. During the
period from 1973-74 to 1978-79, data on year-
wise depreciation and net capital formation are
not available though net fixed capital data are
available. The net fixed capital estimates are
book values after depreciation and net capital
formation estimates are at current prices.
In this exercise, one-fifth of the difference
between the net fixed capital estimates at the end
of 1978-79 and 1973-74 was notionally estimated
to be the net capital formation after depreciation
during each of the above years. The net fixed
capital at the end of 1973-74 and net depreciation
during each of the years up to 2004-05 were then
converted into 1993-94 prices by using wholesale
prices indices for machinery and equipments.
Thus NCF*74-75 = (NFC78-79 – NFC73-74)/5
where NCF* is Net Capital Formation after
depreciation
NFCR73-74 = NFC73-74 × (WPI93-94 /WPI73-74)
NCFRt = NCFt × (WPI93-94 / WPIt)
where NFCR is net fixed capital at constant
prices
WPI is wholesale price index for ma-
chinery and equipments and
NCFRt is net capital formation at con-
stant prices.
In the next step the rate of depreciation for each
year from 1979-80 was estimated by dividing
the depreciation at current prices with the sum
of the Net Fixed Capital of the previous and net
capital formation of the current year
RDt = Dt /(NFCt-1 + NCFt)
where RDt is the rate of depreciation in the
year t and
Dt is the amount of depreciation in the
year t.
The capital stock for each of the years from
1973-74 to 1978-79 is then estimated by using
the formula
NCS*t+1 = NFC*t + NCF*t+1
where NCS*t+1 is the net capital stock at the end
of year t+1, at constant prices
NFC*t is the net fixed capital at the end
of year t and
NCF*t+1 is net capital formation during
the year t+1, both at constant prices.
The capital stock for each of the years from
1979-80 was estimated by using the formula
NCS*t+1 = (NCS*t + NCF*t+1)×RDt
Since these capital stock estimates relate to the
end of the production year, the average of the
previous year and the current year was taken to
reflect the mean capital stock during the year.
Thus
NCS*t(mean) = (NCS*t-1 + NCS*t)/2

Economic & Political Weekly  EPW   march 7, 2009  vol xliv no 10 91