Globalization, Growth and Employment in India

Abstract

The opening-up of India’s economy to trade and capital flows in the early 1990s did lead to growth acceleration. But it also led to developments that had not been anticipated. Far from promoting specialisation in unskilled-labour-intensive products, openness to trade increased the capital-and-skill-intensity of exports. Inflow of foreign finance stimulated growth not by boosting investment but by boosting consumption. Not surprisingly, the growth stimulus generated by increased openness was short-lived. The stimulating effect of trade disappeared after 2004. And the stimulating effect of capital inflow was visible only during 2004–08. Employment conditions showed substantial improvement only after 2000. During 2000–10, growth of the organised sector was both rapid and employment-intensive. So the sector was pulling labour out of the unorganised sector. The consequent deceleration in labour force growth combined with accelerated output growth to produce rapid improvement in employment conditions in the unorganised sector. The increased employment intensity of growth in the organised sector is explained by (a) the rapid growth of construction and services, and (b) the declining unit cost of labour that resulted from the rapid expansion of informal employment of relatively low-skilled labour.