Why India’s World-Beating Growth Isn’t Creating Jobs
By Aryan Shah 12R
The IMF forecasts India’s economy will expand 6.1 percent this year - one of the fastest rates of any major economy - and 6.8 percent in 2024. Beyond the strong figures, however, lies the grim reality of its rising unemployment. The nation of 1.4 billion is unable to create enough jobs for its expanding population, an issue Prime Minister Narendra Modi has promised to prioritise.
Unemployment in February was 7.45 percent, up from 5 percent just five years ago, according to data from the Centre for Monitoring Indian Economy (CMIE). The re-entry of nearly 20 million workers into the job market after the pandemic has aggravated the problem.The labour force participation rate has dropped below 40%, from 46% six years ago, according to the CMIE. By comparison, the rate in the UK has been about 63%.
Who is it most affecting?
Women and the young. The share of women employed dropped to 19% in 2020 from 26% in 2010. The CMIE estimated that female labour force participation fell to 9% by 2022 - a similar figure also found in war-torn Yemen. Especially after the pandemic, less women have entered the workforce and many are finding it more difficult to do so.
Young people are also finding it extremely difficult to find work. Unemployment in the 20-24 age group was 44.9% in October, according to the CMIE. That compares with about 18% of the 16-24 category in China.
Why is it so bad?
Pronab Sen, an economist and former chief adviser to India’s Planning Commission said, “On the one hand, you see young people not getting jobs; on the other hand, you have companies complaining they can’t get skilled people.” This quote encompasses one of the main reasons behind this growing problem: India’s poor system of education and job-training.
Due to a poor system of education and job training, employers often view local degrees and certifications as worthless. In a survey conducted, less than half of the college graduates entering the workforce in India have the skills they need or the ability to pick them up in the workplace, according to employers. This often means that businesses are more likely to hire older workers, who have the necessary and desirable skills. This leaves discouraged job seekers deciding to join family members in menial tasks or subsistence production, where their skills are unable to be utilised.
According to a report by the Centre for Sustainable Employment at Azim Premji University, unemployment among the well-educated is thrice the national average. This high rate of unemployment among the educated is both due to the lack of sufficient jobs and poor schooling, as confirmed by Pronab Sen. This poor system of education and job training has only created a workforce of which just 5% are formally skilled, compared to 75% in Germany, an economy India is set to overtake by 2027.
This is a major cause for concern for the future of India’s economy. Currently, half the population is under 30, a feature which is advantageous to India’s current growth, but soon it will start ageing and at the current trend there will be more people older than 59 than in the working-age bracket by 2040. There is therefore a risk that the population will age before the country develops and becomes wealthy enough to support everyone.
The structure of the Indian economy is often seen as a major contributing factor to India’s high unemployment. Amit Bosele, professor of economics at Azim Premji University had said, “A lot of the growth in India is driven by finance, insurance, real estate, business process outsourcing, telecoms and IT. These are the high-growth sectors, but they are not job creators.” To add to this, hiring in export-dependent manufacturing sectors like engineering, textile and software has slowed as companies face a decline in overseas demand. This can only be reflected in the falling exports of manufactured goods, down 12.2% year-on-year in December.
What is the government doing?
In June of last year, the government announced plans to fill and create one million jobs by the end of 2023 across all governmental departments. This rozgar mela, employment drive, began in October whereby Prime Minister Modi handed over 75,000 appointment letters, meant to showcase his government’s commitment to “skilling India’s youth for a brighter future”. Opposition figures have described these plans as “a cruel joke on unemployed youths” and the McKinsey Global Institute estimates 90 million new nonfarm jobs are needed by 2030. As Rahul Gandhi, a leading opposition member of the Congress Party, puts it, “I don’t believe that a country like India can employ all its people with services.”
In order to meet these demands for job creation, India’s government must support manufacturing as a path to employing young people and seize the opportunity of being the alternative as more companies are looking to redirect supply chains and sales away from reliance on Chinese suppliers and consumers. Yet many foreign companies are deterred by several issues such as creaking infrastructure and bureaucratic red tape on top of inadequate labour quality. India’s government has however aimed to address these issues.
Hundreds of planned transport and energy infrastructure projects have been announced in the past few years, including the 1350 kilometre Mumbai-Delhi Expressway, which will aim to improve India’s logistics efficiency. India’s government and states, such as Karnataka, are loosening labour laws and pledging billions of dollars in incentives to attract investors as part of the Modi government’s ‘Make in India’ drive. These and many more initiatives have allowed India's ease of doing business rank to increase from 142 in 2014 to 63 by 2019, where it stands today. In 2020, for example, it announced a 500 billion-rupee (£4.9 billion) plan to attract manufacturers of mobile phones and related components. Apple Inc. was among the takers, and exports of India-made iPhones almost doubled in the 2022-23 fiscal year, to $2.5 billion. Yet that is still a miniscule fraction of the phones made in China and despite all these efforts to increase manufacturing output, it still remains growing slower than other sectors.
As manufacturing output slows, it is unlikely to soon emerge as a leading generator of jobs. It is clear that foreign companies are still on the fence about investing in India, something which Modi’s government must aim to address in the face of the upcoming election.
To address the skills issues India has aimed to draw more people into vocational training and apprenticeships and has set up a National Mission for Skills, which has trained 10,700,000 young people as of yet. A shortened military programme was also introduced as a way to get people back into the labour market faster and with more discipline.
India has a long way to go before it can make strides in solving this issue but improvements must be made otherwise severe ramifications will be seen, not just for the country’s economic growth, but also for the country’s people.