Challenges of Inclusive Growth
and Employment in South Asia
ALAKH N. SHARMA
A presentation at the workshop organized by SACEPS, 5th December,2016, New Delhi.
This presentation draws from the forthcoming South Asia Labour Employment Report
being prepared under the auspices of South Asia Research Network on Employment
and Social Protection (SARNET), located at IHD and supported by ILO, IDRC and ESCAP
INSTITUTE FOR HUMAN DEVELOPMENT
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1. Growth Performance of South Asian Economies
• Several macro economic reforms initiated by various
countries of South Asia, starting from 1970s which got
intensified since 1990s.
• The major objective of the reforms has been macro
economic stability which could also accelerate growth.
• The region experienced a reasonably good growth since
1980s, albeit rates have varied considerably particularly in
recent period.
• Growth rates have been from over 4 per cent in Nepal and
Pakistan to 7.5% in India (over 8% in Bhutan between 2000 14); the South Asian countries also experienced considerable
increase in per capita GDP since 1990s, with India,
Bangladesh and Sri Lanka doing rather remarkably good .
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Real Rate of Growth of GDP per capita (5 years average)
Country
1991-95 1996-2000
2001-05
2006-10
2011-14
Bangladesh
2.2
2.7
3.3
4.8
5.0
India
3.1
4.2
5.0
6.8
5.2
Nepal
2.5
2.6
1.9
3.4
3.2
Pakistan
1.9
0.8
2.9
1.3
1.8
Sri Lanka
4.1
4.0
3.4
5.3
7.3
Source: World Bank, World Development Indicators, 2014
www.wdi.worldbank.org/table1.1 (accessed on 16 august 2016)
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1. Growth Performance of South Asia Contd.
• High growth has led to considerable reduction in incidence
of poverty (with Sri Lanka having now a very low
incidence).
• Have been marked improvement in human development
as well.
• The value of Human Development Index in South Asia as a
whole increased from 0.437 in 1990 to 0.599 in 2014.
• Similar increase in various aspects of human development
indicators such as life expectancy, mortality rates and adult
literacy rate.
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2. The Current Development Challenges
• Notwithstanding good performance in GDP and improvements in
human development indicators, region still has a very high
incidence of poverty, accounting for more than 40% of the world
poor.
• Evidences also show that growth has been uneven across groups,
geographical locations, gender, etc.
• There has been increase in income and labour market inequalities
as well in several of the countries of the region.
• Conditions of employment have not improved considerably and
thus the growth has not been inclusive.
• Consequently, the vulnerability of livelihood opportunities remains
very high in the region.
• Important to note that there are considerable variations in the
region with Sri Lanka being an outlier in several aspects.
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3. Some Key Features of Labour Market in South Asia
• Low overall LFPR—around 54% (aged 15+years)
• Dismally low LFPR of women (Pakistan -24%,
India 27%, Bangladesh -36%, Sri Lanka 34%)
• Low open unemployment rate (Bangladesh 5.8%,
India 4.0%, Nepal 2.0%, Pakistan 8.9%, Sri Lanka
7.0%).
• But widespread underemployment (Bangladesh
20%, India 11.7%, Pakistan 15.4%, but low Rates
in Sri Lanka).
• Underemployment among females very high
(Bangladesh 34%, India 29%, Pakistan 40%).
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3. Key Features of LM Contd
• High share of informal sector employment in total
employment (ranging from 62.7% in Sri Lanka to 92% in
Nepal); South Asia among the top in the world
• Around 55% of workers are self-employed, again among
highest in the world.
• Very low level of education and skill, dismally low levels
of professional and vocational skills.
• Highly segmented labour market based on gender,
location, education/skill endowment etc.
• Low coverage of social protection, limited largely to
formal sector.
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4. Growth, Employment and Structural Transformation
• Growth path in South Asia has been unlike the historical
experiences of industrialized and newly industrialized
countries where manufacturing was the leading sector.
• Shares of agriculture in employment range from over 70%
in nepal to close to 50% in Bangladesh and India and 33% in
Sri Lanka and GDP shares range from 36% in Nepal to 1718% in Bangladesh and India and 13% in Sri Lanka.
• Shares of employment in services range from 15% in Nepal,
27% in India, 34-35% in Bangladesh to over 40% in Sri Lanka
but output shares are much higher (close to 50% in Nepal
to 55 to 58 – 60% in India and Sri Lanka).
• Clearly unbalanced pattern of growth leading to inequality
as well as unsustainability of growth path.
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5. Is South Asia Gradually Experiencing a Structural
Change?
• In the last two decades or so, some acceleration in the
sectoral distribution of employment in South Asia.
• Employment in agriculture has declined, to the extent
of 10% during two decades which has been absorbed
largely by industry (8%) and to small extent by services
(1.8%)
• However, a major share of employment in industry is
constituted increasingly by construction in some
countries (India 90 %)and manufacturing shares range
from as low as over 6% in Nepal to 17% in Sri Lanka.
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Change in Sectoral Distribution in Last Two Decades in South Asia
Country /Year
Bangladesh (1995-96 to 2010)
India (1993 to 2011-12)
Nepal (1991 to 2008)
Pakistan (1996 to 2010-11)
Sri Lanka (1997 to 2011)
South Asia
Distribution (%)
Agriculture Industry Services
-1.3
4.5
-3.2
-11.5
9.3
2.2
-7.3
6.7
0.6
-2.6
2.8
-0.3
-3.2
2.1
1.0
-9.8
8.0
1.8
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5. Is South Asia Gradually Experiencing a Structural Change?
Contd.
• Non-farm employment in rural areas rising in many
parts of the region due to demographic pressure,
migration, urban growth etc.
• There are some emerging sectors such as garment in
Bangladesh, tourism in Nepal, ICT in India, etc, which
have higher labour productivity.
• Can these sectors are capable of pulling up the rest of
the low productive sectors?
• Evidences show that output growth has been more by
capital deepening and increase in labour productivity
and less by growth in productive employment.
• Thus, the roles of a few small sectors as lead sectors in
structural transformation seems to be limited.
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6. Issues and Future Challenges
• Contrary to general belief, projections show that in
next 15 years there will be slowing down of labour
force growth and increase in the average age of
the labour force in South Asia.
Years
2015
2020
2025
2030
Mean age of labour
38.1
38.6
39.2
39.9
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•
Thus, the phase of a growing youth bulge seems to be over and the
proportion of labour force in the older age groups likely to increase.
Share of 2010 Labour Force in 2030
Country
Bangladesh
India
Nepal
Pakistan
Sri Lanka
South Asia
•
•
•
Percentage
57.1
52.4
49.0
49.0
60.3
52.5
Female labour force will grow at a faster rate than males and will be more
pronounced in India.
The skill composition of current workforce in South Asia dominated by
low and other medium skills and elementary occupations (more than 90%
of the workers aged 15+ years)
This will be a major challenge in future as more than half of the workforce
will be aged 30-64 and bulk of them (except in Sri Lanka) will be illiterate
or poorly educated with little capacity to undergo training and acquire
modern skills.
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• As many pre-existing skills may become irrelevant
and a substantial proportion of the existing
workforce may be incapable of being transferred
to new uses, this will be a major challenge.
• However, about half of the workforce would be
new entrants and a minimum required level of
good general education, along with formal
training in relevant skills would be needed.
• The need to upgrade skills applies not only to
young people but also to the current generation
of workers. This is more difficult and innovative
methods need to be adopted.
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8. Challenges of Addressing Informality Inequality and
Creating Productive Employment
• Segmentation of labour market between formal and informal
sectors one of the most acute in the region (technological change
outsourcing, differences in educational endowments, inappropriate
labour market institutions, etc).
• Wide heterogeneity but formal employment largely vulnerable and
unprotected.
• Poverty declining and likely to be small in next 10-15 years, but
increasing trend in inequality across locations (rural/urban),
occupations and formal-informal divide.
• Also exclusion of some more vulnerable and deprived sections, left
out by the market and growth process.
• In future aspiration for getting quality employment will increase
manifold with rising education.
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9. Inclusive Labour Market, Productive Employment
and Social Protection
•
•
•
•
•
•
Facilitating structural transformation:
- shift from agriculture to industry and services, particularly labour
intensive manufacturing
- policies for inclusive urban growth and migration
- movement of women from unpaid family labour to paid work
- large creation of infrastructure including public housing
- investment in agriculture and allied sectors
Appropriate macroeconomic and trade policies and active labour market policies for
accelerating growth of productive employment
Potentials of gains from trade, but increasingly scope of export – led growth becoming limited
and domestic demand driven growth strategy needed
Measures for increasing formalisation of labour market: reforming labour market institutions
(TUs, labour laws, etc.), financial inclusion, development of small firms, etc.
Good quality school education and integrating vocational education with secondary and
intermediate college education will play an important role.
A minimum level of social protection not only necessary for addressing widespread vulnerability
but also for sustainability of growth as well as facilitating structural transformation of the South
Asian economies (7 to 8% of GDP needed on social protection but also need of better
institutions).
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