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India needs to grow almost twice as fast as it currently is to ensure enough jobs are created for the increasing number of youths looking for employment while also ensuring the problem of underemployment – the situation where a person performs a job without making full use of their time or skills – is addressed, according to Morgan Stanley.
“…our scenario analysis suggests that an average GDP growth rate of 7.4 per cent will be needed to ensure a stable unemployment rate, assuming participation rates stay constant,” Morgan Stanley economists led by Chief Asia Economist Chetan Ahya said in a note dated Monday. “If we allow for a gradual rise in participation rate to 63 per cent, an average GDP growth rate of 9.3 per cent is needed to ensure a stable unemployment rate. We also believe an even higher average GDP growth rate of 12.2 per cent is needed to start addressing the underemployment challenge.”
The Reserve Bank of India (RBI) expects the GDP to grow by 6.5 per cent in the current fiscal, although it may raise its forecast on Wednesday due to growth in April-June jumping to a five-quarter high of 7.8 per cent. GDP growth has averaged 6.1 per cent over the last 10 years.
High youth unemployment
Despite India being the fastest growing large economy in the world, its unemployment rate – especially among the youth – is high. As per the statistics ministry’s latest Periodic Labour Force Survey (PLFS) report, while the all-India unemployment rate fell to a joint five-month low of 5.1 per cent in August, joblessness among those in the 15-29 years age bracket was nearly three times as high at 14.6 per cent.
The underlying numbers were more sobering, with the unemployment rate for urban females aged 15-29 rising to 25.7 per cent in August, more than 10 percentage points higher than the figure for young urban males, which declined to 15.6 per cent from 17.1 per cent the previous month. This helped drag down the overall urban youth unemployment rate to 18 per cent from 19 per cent.
The picture was similar in rural India: the female youth unemployment rate rose to 14.3 per cent, although that for males declined to 12.6 per cent. Both numbers stood at 13 per cent in July.
“India’s median age stands at 28.4 and its youth unemployment rate is the highest in the region… Thus, solving its overall jobs challenge will be key to solving its youth unemployment challenge,” Morgan Stanley said in its note. “Over the past two years, employment creation has been subdued and remains weak even after the recent modest improvement… In our base case, India’s GDP will grow at an average of 6.5 per cent over the coming decade, one of the fastest-growing economies globally. But this pace of growth will not be enough to generate enough jobs,” the investment bank further said, adding that the domestic workforce is expected to rise by at least 8.4 crore in the coming decade even if one assumes that participation rates don’t rise from current levels.
An Asian challenge
India is not the only country facing a jobs problem, with recent protests in various countries highlighting the youth unemployment challenge. However, the Asian youth unemployment rate of 16 per cent is well above the 10.5 per cent seen in the US, Morgan Stanley said, adding that a fall in headline unemployment rates had not led to lower joblessness among the younger segment of the labour force.
“For the three most populous economies in Asia – China, India, and Indonesia – the challenge of youth unemployment appears to be even more pressing,” Morgan Stanley said.
The problem is set to get tougher as artificial intelligence (AI) is increasingly adopted and policymakers will need to push ahead on reforms to boost investment in India and Indonesia and address labour mismatches in China. “If risks to social stability emerge, policymakers will have to take up redistributive efforts,” Morgan Stanley warned.
While India’s policymakers have been undertaking reforms to promote growth, Morgan Stanley said a “bigger push” was needed to boost jobs, especially in the industrial and export sectors. “Studies have shown that every job created by manufacturing exports creates two other jobs in related sectors like transportation and logistics. In this sense, India has significant scope to increase its market share in exports because it is still just at 1.8 per cent, well below its weight in terms of working age population and GDP.”
