In his budget speech, the finance minister rightly highlighted the need to create several million new jobs in the manufacturing sector — the “Achilles heel” of the Indian economy — over the coming years. India adds one million people to its working-age population every month. That’s right, every month. Not everyone looks for a job, though. Labour force participation is around 58 per cent — this means, of every 10 lakh persons between the age of 15 and 59, only 5.8 lakh will actually seek a job every month. The others would mostly be studying or working at home. Even with such low labour force participation, our calculations show that the number of job seekers would have risen by a whopping 51 million during the seven fiscal years leading up to 2018-19. In the global context, India will have to create 16.6 per cent of the additional jobs that are needed each year across the world. It’s a staggering number and challenge.
Creating adequate employment opportunities for new entrants in the job market, especially in the non-agricultural sector, will be a stiff task for policymakers as growth slows down. Successful employment generation is, of course, vital for equitable growth. If India is unable to generate the required number of new jobs, its much-vaunted demographic dividend will morph into its bugbear.
A recent CRISIL study estimates that the non-agricultural sector (industry and services), which now accounts for 86 per cent of the GDP, will add only 38 million jobs between 2011-12 and 2018-19 — a quarter less than the 52 million jobs that were added during the preceding seven-year period. With not enough opportunities outside the agricultural sector to absorb the 51 million new job seekers, an additional 13 million people will be forced to either depend on low-productivity farms for work or remain unemployed. That’s the opposite of what happened between 2004-05 and 2011-12 — during this period, 37 million people migrated out of agricultural employment.
As the economy develops, surplus labour needs to shift out of agriculture into more productive sectors, which will raise the per-person farm income and benefit the economy. The inability to do so will increase disguised unemployment and limit productivity improvement.
India’s growth prospects as well as its ability to translate growth into employment have been curbed in recent years. The economy grew at 4.5 per cent during the last fiscal year, and is unlikely to do much better in the current one. What is clear is that India will have to live with diminished growth expectations for the coming years. We expect the economy to expand at a lower average growth rate of 6 per cent during the seven fiscals up to 2018-19 compared with 8.5 per cent between 2004-05 and 2011-12. The 250 basis point decline continued…