subir gokarn : people, jobs and productivity – the “ simple ” dynamics of inclusive growth keynote address by dr subir gokarn, deputy governor of the reserve bank of india, at the confederation of indian industry ( cii ) western region ’ s annual regional meeting and national conference on “ achieving double digit growth ”, mumbai, 26 march 2010. * * * the inputs of abhiman das, sunil kumar and muneesh kapur in preparation of this address are gratefully acknowledged. introduction let me begin by thanking the confederation of indian industry ( cii ) for inviting me to speak at its annual regional meeting and national conference on “ achieving double - digit growth ”. the theme of the conference is, unquestionably, an issue of the utmost urgency for indian policymakers. although, in my current role, i am more focused on issues of macroeconomic stability and short - term growth and inflation prospects, today ’ s theme is one on which i wrote and commented on frequently in my past positions and which i feel very passionate about. so, i am pleased that cii is giving me this opportunity to take a small diversion from my current concerns and re - visit some old, but equally important, ones. in what follows, i propose to view the issue of rapid and sustainable growth from three perspectives, based on a simple principle. the principle is that rapid, sustained and inclusive growth will take place when large numbers of people move from low - productivity jobs to highproductivity ones. every single historical instance of this being achieved, cutting across time periods, regions, socio - political contexts and any other differentiator one might think of, validates this principle. as for the three perspectives, i will first briefly tread over the by now well - known ground of long - term demographic projections. this is necessary to highlight just how massive the scale of the challenge is. i will then go over some numbers on employment and productivity, with the purpose of demonstrating just how significant the impact of the right kind of employment transitions on inclusive growth can be. finally, i will offer some suggestions on the elements of a strategy that will facilitate the required transitions. the people imperative let ’ s look ahead over the next 20 years using the latest demographic projections made by the united nations ( chart 1 ). between 2010 and 2020, india will add about 120 million people in the working age segment, or 28 per cent of the global increase, while it will only add about

second in the context of the possibility of india becoming “ factory to the world ”, at the level of the organized manufacturing sector, which will be key to realizing that aspiration. the story at the aggregate level is told by charts 2, 3 and 4. chart 2 depicts a relatively slow transition in the labour force, using the household employment data from 55th ( 1999 – 00 ) and 61st ( 2004 – 05 ) rounds of the national sample survey as points of comparison. over the five - year period, the labour force increased from 397 million to 456 million. 18 million of the increment was absorbed by agriculture, 13 million by industry and 28 million by services ( including construction ). the fact that two - thirds of the incremental number of workers were absorbed by sectors other than agriculture is a welcome sign from the productivity perspective, as i will demonstrate a little later on. however, the more worrying aspect of the slow transition is that the share of the total workforce employed in agriculture only declined from 60 per cent in 1999 – 00 to 57 per cent five years later. the share of industry increased from 12 per cent to 13 per cent and the share of services went up from 28 per cent to 30 per cent. as is well known, this pattern is almost the mirror image of the distribution of gdp across the three sectors. chart 3 displays the transition in these shares over the same period. agriculture, already the smallest sector, lost some of its share, while services gained share in gdp somewhat more than they gained share in the labour force. in the overall context of my theme, the relative stagnation in the share of industry in both gdp and the labour force is of particular concern. let me now translate these two sets of numbers into broad productivity indices. chart 4 displays the ratio of average gdp per worker, a rough indicator of labour productivity, in industry and services to that in agriculture. the ratio for industry rose marginally from 4. 1 in 1999 – 00 to 4. 2 in 2004 – 05. the ratio for services rose somewhat more, from 4. 8 in 1999 – 00 to 5. 5 in 2004 – 05. however, regardless of the magnitude of increase and the differential across the two sectors, the stark fact is that average labour productivity outside agriculture is about 5 times that in agriculture. this has very significant implications for inclusive growth. simple arithmetic says that every worker who moves from agriculture to other sectors will increase his / her net contribution to gdp by four