Jobs on fast lane: Auto sector growth proof of sound jobs growth
The transport sector alone has contributed almost 3.4 million jobs in FY18, with a further 2.8 million jobs created in the 9 months ended December 31, 2018
The ongoing debate around jobs in the economy has been extremely skewed with unsubstantiated statements being heralded in the media diminishing the true state of employment growth in the economy. In a recent development, a think tank that purports to work on data has laid claim to the fact that the total working population in India has, in fact, declined by 10 million in the last year. These numbers seem opportunistically quoted by CMIE two months ahead of schedule on preliminary estimates from a minuscule sample of 140,000 respondents from an already skimpy full sample size of 550,000 individuals that was to be initially released in February 2019. Obviously, the link with the forthcoming elections seems to be a major reason for a premature release!
To gain a clear perspective on the employment delta, we need to look at data to understand the sources from where jobs are being created and assess the changes in employment’s biggest contributors. The transportation sector is one of the largest job drivers in India. We have undertaken a study to assess the job creation by this sector on an annual basis over the past few years. We have considered data on the domestic sales of commercial vehicles (medium and heavy and light commercial vehicles), passenger vehicles (passenger cars, utility vehicle, and vans), three-wheelers, and tractors to estimate jobs being created in the economy. The data collected is from Society of Indian Automobile Manufacturers (SIAM) and the Tractor and Mechanization Association (TMA), the apex bodies for the automobile and farm mechanisation (for tractor sales) industries. These bodies consistently collect and disseminate data regularly on production, sales, and export trends collected from all the various automobile manufacturers in India.
Every vehicle that is purchased in India creates jobs. For example, the manufacturing of a commercial vehicle typically creates two jobs, an autorickshaw creates, on an average, 1.5 jobs as it is typically used in multiple shifts by different drivers. A taxi creates one job and further, since many people have drivers to run their car, we can assume an additional job being created for every four passenger vehicles sold. Tractors also create a minimum of one job per vehicle sold. We further discount from the total domestic sales, reasonable replacement rates of 20% in the passenger vehicle segment, 25% in the commercial vehicle segment, 10% for three-wheelers (due to longevity of use of about 10–15 years), and about 20% for tractors. This is done in order to consider merely the new jobs created from the sales of these vehicles and not their upgradation existing workers. It is probable that there is a lag between the sale and actual use, but that gets normalised over time. Analysts can make their own estimates of replacement to calculate new jobs.
It is to be noted that in calculating the jobs from this sector, we are not considering any ancillary jobs that are created, namely from repairs, servicing, the sale of spare parts, the direct or second-hand distribution and sales of the vehicles themselves, the scrapping of these vehicles, and the sale of insurance, financing, etc. These ancillary jobs would be quite significant in size by themselves. However, for this study, we only look at the direct job creation and, yet, the following numbers are clearly substantial.
The attached graphic provides data on the jobs created. In our study, we have taken the total annual sale of vehicles from April 1, 2014 to December 31, 2018. We can clearly see that just the transport sector alone has contributed almost 3.4 million jobs in FY17–18, with a further 2.8 million jobs created in the 9 months ended December 31, 2018 as well. During the NDA term, over 14 million jobs have been created in this sector. A sizable chunk of this workforce earns a healthy income of about Rs 20,000–25,000 a month. There is a clear and growing demand for these jobs. About 70% of all goods movement happens by vehicles in India with the railway share further decreasing. It is evident that, in an economy of the size of $2.6 trillion, which is growing at 7%+, huge number of jobs are being created. All we need to do is look at the job drivers and estimate the number of jobs.
Now, there could be critics and they are welcome to criticise and make their own estimations about the replacement rate and come out with their own numbers, but whatever be the final number, anybody who looks at this data can undeniably affirm that large-scale jobs have been created in transportation and in the economy. Further, formal jobs counted through the EPFO, ESI, NPS, and in the professional sector are also large. The theory of jobless growth propounded by analysts, who have not seen this data, is indeed bogus.
This article was co-authored by TV Mohandas Pai (Chairman Aarin Capital Patners) and Yash Baid (Head of Research, 3one4 Capital) and was first published on January 15, 2019 in the Financial Express. Read the original article here.
