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Is the Centre's Focus on Increasing Self-Employment Paying Off?

THE WIRE 2019-09-09 17:34:22

The Indian economy has been going through the slowdown, with GDP growth of the first quarter in the current fiscal having skidded to 5% as compared to 8% in the same quarter of last year.

Even the government has acknowledged that all is not well, which has resulted in weekly announcements by finance minister Nirmala Sitharaman, who is looking to stem the fall in growth. 

A closely-linked issue to the GDP slowdown is the question of how it will affect employment in the country. Over the last three months, news reports are flush with job losses in the automobile and other industrial sectors. In the last two years, media reports have largely focused on the employment story in the unorganised sector, particularly in the aftermath of demonetisation and GST. But now it appears that major organised sectors are also feeling the heat.

The employment policy of the Modi government’s first tenure was focused around the self-employment and mantra was that “people should become job creators rather than job seekers.” Heavily publicised government schemes like ‘MUDRA Yojana’, ‘Skill India’ programme, “Start-up India” and ‘Stand-up India’ focused on incentivising self-employment.

As we enter the second term of the Modi government, it becomes vital to ask two questions. How well did this strategy succeed? And is it worth continuing?

The recently leaked draft labour ministry report on Mudra Yojana sets the broader context for this as it contradicts some of the government’s claims. 

The draft report indicates that a total of 12.27 crore loan accounts have received Rs 5.71 lakh crore between April 2015 and December 2017. It also suggests that during this 33-month-period, just 1.12 crore ‘additional jobs’ have been created, which is less than 10% of the total loan accounts that have received loans. Out of these total jobs, self-employment accounts for 45.6 % while the remaining were employee/hired workers.

Out of the total loan accounts (12.27) disbursed under the scheme, only 51.1 lakh additional self-employment has been created, which is just 4.1% of the total loan accounts. The Indian Express also reports that only 20% of the surveyed beneficiaries had started a new enterprise, while the rest has just expanded their businesses. 

The cost of generating one job is very high (Rs 5.1 lakh), which is why it is difficult for small enterprises to create additional jobs.

The draft report focuses only on employment generated through the Mudra Yojana though. Until recently, we didn’t have much data related to the employment-unemployment situation in India. 

Now, after much controversy, the government also finally released the PLFS data, which offers useful context regarding ‘self-employment’. Namely, whether ‘self-employment’ has increased or not, whether its potential earnings are sufficient to attract further people down the entrepreneurial path, and the prevalence of gender pay gaps in different employment types.

There is no problem in comparing the different household types reported in the previous 68th round and the PLFS round as the classification of households into different types was the same in both rural and urban areas. However, this is not true for the earlier rounds. 

The table below shows the distribution of self-employed households in rural and urban areas.

A large chunk of households are self-employed and this share is significantly high in rural areas as compared to urban areas. In rural areas, 49.8% of households were self-employed in 2011-12 which increased to 52.2% in 2017-18. This is mainly on account of rising self-employment in agriculture as the overall share of non-agricultural households has declined. 

However, in urban areas, the share of self-employed households has declined from 35.3% in 2011-12 to 32.4% in 2017-18

Now if we look at the data related to the share of workers engaged in self-employment, we see a considerable decline in all categories except for rural male.

Self-employment is the main source of income for the majority of workers in rural areas. And this share has been declining over time, except for the rural male for whom it increased from 54.5% in 2011-12 to 57.8% in 2017-18. 

A significant proportion of urban workers are also engaged in self-employment. However, their share is continuously declining for both male and female categories.

Now, we turn to the earnings of workers involved in self-employment and other jobs. 

The data related to the earnings of the self-employed was not collected in the earlier NSSO rounds. PLFS 2017-18, for the first time, provides estimates of the earnings of the self-employed workers. 

The chart below depicts the median earnings per day for different kinds of employment for different settings (rural and urban):


The data shows that across sectors (rural and urban) the earning per day is highest for the regular salaried persons followed by self-employed and casual workers. 

A regular worker earns Rs 343/day while self-employed and casual workers earn Rs 283 and Rs 250 respectively.

Gender pay gap

Differences in pay based on gender are prevalent across the globe. The importance of the issue can be gauged from the fact that the ILO’s global wage report of the 2018-19 is focused specifically on gender pay gaps. 

The table below is based on the PLFS 2017-18 data and shows the ratio of per day male earnings to female earnings across different types of employment.

The gender pay gap is highest in the self-employed category in both rural and urban areas. In rural areas, male workers earn 2.67 times more than female workers. In urban areas, a male worker earns three times what female workers earn.

The gender gap is also widely prevalent in regular salaried and casual work. In rural areas, the gender pay gap is higher for regular workers (1.96) as compared to casual workers (1.67) while in urban areas, the gender pay gap is higher in casual workers (2) than in regular workers (1.5). 

Given the facts, return from the self-employment is often not the highest. And two, people are not inclined towards self-employment as the share of employment is declining over time (as setting up an enterprise requires initial capital and there is always risk associated with it). Lastly, the gender pay gap is highest in self-employment. 

The Centre has nevertheless maintained focus on promoting self-employment; it has made many announcements in this year’s budget regarding the same. Why is there so much focus on self-employment? One explanation is that it is politically convenient for the government to promote self-employment as it shifts the burden from the government towards the individuals. This helps the government show that it is tackling the unemployment problem as there will always be some success stories. 

Along with this, self-employed workers won’t be able to enjoy basic employment rights that are generally guaranteed to regular workers. These may include minimum wages, maternity leave, paid leave, sick leave, secure employment, health and right to join unions. 

As the above analysis based on the PLFS data suggests, the government’s focus on self-employment jobs needs to be examined further to understand whether it is bearing the required results. 

Amit Kumar is a PhD student at the Centre for Economic Studies and Planning, JNU. Gautam Kumar is pursuing PhD from Centre for the Study of Regional Development, School of Social Sciences, JNU.