Fiscal Policy, Capital Intensity and Employment

Abstract

The Revised Draft Plan 1978–83 has described the employment situation in India as follows:

‘A look at the distribution of workers in India in seven decennial censuses 1911–1971 shows up the historically unique fact that in spite of an impressive development of large-scale manufacturing and infrastructure sectors, the share of agriculture in the work force has not diminished at all. It was 72 per cent in 1911, 73 per cent in 1961 and nearly 74 per cent in 1971… In almost all countries economic development is associated with a significant decrease in this share… In India, however, a fairly rapid growth in the nonagricultural sectors during the last twenty-five years of planned development has not made any noticeable impact on the industrial distribution of the work force. For six decades the share of mining and manufacturing in the work force has stuck around 9 to 10 per cent and that of the tertiary sectors around 16 to 18 per cent. The inference is clear: employment growth in these sectors has been insufficient to absorb an increasing proportion of the labour force. Investment and output have grown at a high rate but the production-mix and the technology-mix have been so capital-intensive that employment did not grow pari passu. Between 1961 and 1976, for example, in the modern factory sector, investment increased 139 per cent and output 161 per cent, but employment increased only 71 per cent. Therefore, employment per unit of gross output decreased by 34 per cent and employment per unit of capital declined by 28 per cent.¹

In other words, the capital intensity of output in the modern factory sector in India has gone up.

The views expressed in this paper are the personal views of the author and not necessarily those of the Institute in which he works.