ExplainSpeaking: Will Rozgar Mela solve India’s unemployment crisis?

Over the years, ExplainSpeaking has regularly focussed on the employment/ unemployment issue and tackled several aspects of it. It is not possible to repeat all the past work in every single article but here is a quick summary (with embedded links to earlier ExplainSpeaking editions for anyone who wants to know in detail) before we move on to directly answer the questions above.

Unemployment in India: A quick recap of the past five years

Just before the 2019 general election, it was reported that the official survey for unemployment (Periodic Labour Force Survey) for 2017-18 showed that unemployment had hit a 45-year high. The government rubbished the PLFS findings and continued to refute them until it was reelected. After reelection in 2019, it accepted the PLFS findings.

Soon, academics found that between 2012 and 2018, the total employment fell for the first time in India’s history — by as much as 9 million (or 90 lakhs) in 6 years. Worse, it was found that not only had youth unemployment shot up starkly but also that it rose with education attainment.

In early 2020, India, like the rest of the world was hit by the Covid pandemic and predictably this worsened unemployment further. Since then we have repeatedly explained why rising unemployment, not GDP growth, is the biggest challenge for India.

An unfortunate aspect of the way the unemployment crisis has been unfolding is the worsening impact it has had on the role women in India’s economy. In April 2021 we explained why India is no country for working women and earlier this year we explained how India’s workforce is becoming increasingly male dominated.

Some have argued that the unemployment situation has improved since the Covid pandemic. Indeed, it would look so if one is not careful. Here’s July 2021 piece that explained the curious case of India’s falling unemployment rate based on PLFS data.

In October 2021, we used the IMF data to explain why recovery in employment may lag economic growth.

In December 2021, we explained how and why Indian policymakers may be underestimating the unemployment challenge.

An April 2022 piece gave a detailed understanding of the state of (un)employment in India.

By August 2022, unemployment had hit a 12 month high. And by October 2022, even the RSS had started sounding an alarm on unemployment and poverty. This was also the time when the government started its current series of Rozgar Mela.

Over the past few weeks, ExplainSpeaking has illustrated the rise of self employment (think of taxi drivers and astrologers etc.) as well as the alarming trend of how India is becoming a young country but with an ageing workforce.

Rozgar Mela: Will they solve the unemployment crisis?

The short answer is no. Here’s why:

1. Because the total jobs in question are akin to a drop in the ocean. Even if all 10 lakh vacancies are filled, they are nothing in comparison to the total estimated jobs that India needs to create. According to Radhicka Kapoor, senior visiting fellow at the Indian Council for Research on International Economic Relations (ICRIER), India needs to create anywhere between 20 million (2 crore) to 200 million (20 crore) new jobs.
2. Because these are pre-existing vacancies, not new job creation.
3. Because the size of public employment ( read all types of government jobs) in India was already quite low. According to a 2019 calculation by academics C. P. Chandrasekhar and Jayati Ghosh, public employees per 1000 population in India (16) was starkly lower than comparable economies such as China (57), United States (87), Brazil (111), and far lower than some of the nordic countries such as Norway (159) and Sweden (138).

Is unemployment an old problem or a new crisis?

Some argue that people are making too much of unemployment and that India always had widespread unemployment. Others argue that the unemployment was never this high and that the current crisis has taken shape over the past decade or so.

Where does the truth lie?

To understand the issue one would benefit by reflecting on the following passage written by K N Raj of the Delhi School of Economics in his celebrated 1959 paper titled “Employment and Unemployment in the Indian Economy: Problems of Classification, Measurement, and Policy”:

“Problems of employment in India are complex both in form and content…Broadly speaking, three problems are usually identified in this context.

First is the problem of partial unemployment in the economy, i. e., idleness enforced by circumstances on a large part of the available working population for some part of the year, month, or day; this is best described as open underemployment.

Secondly, there is the problem of very low productivity, i. e., productivity being so low in the case of some of those who are nominally engaged in work (and believe themselves to be fully or partially employed) that, if judged by the criterion of their net contribution to the social output, they would seem to be in effect unemployed; this is often referred to as the disguised unemployment in the economy.

And thirdly, there is the full, continuous, and open unemployment of a part of the available working force; this kind of unemployment, insofar as it exists, bears much the same characteristics as unemployment in developed, industrial economies.”

Now, if one looks at only the third (last) category mentioned above — open unemployment — then it is true that India has never had such a bad state of unemployment in the past. In an episode of The Express Economist last year, Kapoor showed that historically, India only had an open unemployment rate of 2%-3%. In 2017-18, this rate hit 6.1%.

But one must be careful in reading the 2% unemployment data of the yesteryears because open unemployment rates going all the way back to the 1970s did not capture the first two types of unemployment problems: under-employment and disguised unemployment, respectively.

“In developing countries such as ours, where there are no safety nets, people cannot afford to be unemployed and, as such, they often are under-employed or employed in low productivity work,” said Kapoor. What the 2% or 3% rate — which is quite like the unemployment rate one would expect to see in developed countries — hid was the trend where bulk of the population was “self-employed” or employed in “casual” work.

This is why the recent rise in self-employment is so worrying. Now we not only have high open unemployment rates but also rising self-employment, worsening youth unemployment ( often 2-3 times the overall unemployment rate) and rising unemployment with education levels. All of these also have a worsening gender aspect.

What has worsened the unemployment situation in India over the past decade or two is the fact that India has increasingly had a bulge in the youth population. This is exactly the cohort that faces the highest unemployment levels and it accounts for almost 80% of all unemployment in India. In the absence of fast job creation, a bulge in this age group has led to a crisis, especially in the past decade.

“The challenge of productive job creation is more pressing today than ever before, and its redressal calls for a radical reorientation of India’s growth strategy to make the growth process more employment-intensive and inclusive,” writes Kapoor in an insightful new book titled “A new reform paradigm”.

What explains the lack of fast job creation in the recent past?

India is repeatedly recognised globally and our politicians justifiably take credit for the attractive GDP growth rates. But GDP growth rates are not enough to tell the whole story. That’s because it is entirely possible for a country’s GDP to rise either with very little new job creation or even with actual job losses.

CHART 1 sourced from CMIE shows how growth rates of GDP employment have not always been aligned.

In other words, while GDP growth is a necessary condition for job creation, it is not the sufficient one. What determines job creation is the sectoral composition of GDP growth. If GDP goes up by Rs 100 crore because of greater productivity in India’s tech sector, it may not create as many jobs as a Rs 100 crore increase in GDP via the construction or manufacturing sector.

Simply put, India’s growth story — and this goes back several decades — has had a glaring omission: the rise of the domestic manufacturing sector.

“India’s idiosyncratic structural transformation marked by a shift straight from agriculture to service-led growth, leapfrogging the phase of manufacturing growth has generated relatively limited opportunities for well-paid employment or good jobs for those at the bottom of the education and skill ladder. It is precisely this group of less-educated workers who are engaged in low-paying, precarious and unstable work arrangements and have borne a disproportionate impact of the Covid-19 shock. We can expect the crisis to accentuate the pre-existing inequalities in India’s dualistic labour market,” writes Kapoor in her book.

What has made this situation worse is that instead of improving, India’s manufacturing has struggled even more since the start of the government’s Make in India initiative.

In May 2021, ExplainSpeaking elaborated why Indian manufacturing been losing jobs since 2016 and in July this year this piece explained why Indian manufacturing’s productivity growth has been falling.

What is at stake?

India’s continued weakness in manufacturing is not just an academic matter. Already, even those who are bullish on India’s prospects, have dialled down their expectations of GDP growth rate from 8%-9% to 5%-6%. If India’s current growth model struggled to create jobs at 8%, the outcome will be worse at 6%.

When Ruchir Sharma was asked about the unemployment crisis in the Express Adda on Monday, he stated the following:

“India’s growth model is such that much of the growth happens in the service sector, which typically isn’t as labour-intensive as manufacturing. Like in Korea, Taiwan and China, the manufacturing sector is what really drove growth higher and in India’s case manufacturing has been much slower,” he said.

In fact, he singled out youth unemployment as a distinct downside risk and characterised it as a fault line.

“You have a central case of 5%-6% GDP growth. What is the downside? Youth unemployment being very high. In China’s case youth unemployment is 20%. In India’s case we don’t know what numbers to trust but by some estimates it is also well into the double digits. So there is undoubtedly a fault line as far as India is concerned,” he said.

So, what is the solution to India’s unemployment woes?

The first thing to note is that new jobs are required at such a large scale that it is not possible for any government to provide direct employment. Moreover, it is not the job of the government to give jobs; its job is to create the enabling environment so that the economy itself creates more jobs.

Then one has to focus on the sectoral composition of GDP growth. It is now fairly clear that India needs to boost its manufacturing.

“High growth has to come from manufacturing. Service sector can never be that labour intensive. So the prescription is not mine but it is there from the East Asian experience. It all has to come from the manufacturing sector growing much quicker than what we have out here (in India),” said Sharma on Monday.

However, some might say that the government is already doing that through Make in India and the PLI (Production-linked Incentive) scheme.

But Kapoor, and many other economists who have long tracked employment issues, argue that the government needs to focus on labour-intensive manufacturing as well as small and medium enterprises. It has been pointed out that often PLI has focussed more on capital-intensive manufacturing.

In her book, Kapoor highlights three key elements of a strategy to move towards “labour-intensive industrialisation”.

“Firstly, a change in India’s industrial policy framework, which has typically laid greater emphasis on capital-intensive industries,” she writes

Secondly, she suggests a radical rethink of India’s labour regulatory regime, where the narrow agenda of labour flexibility has dominated the discourse. “For India to convert its comparative advantage in labour-intensive industries to a competitive advantage, it needs to recognise that labour is not a mere factor of production whose factor cost (read remuneration/ salary) has to be pushed down but human capital in which there is a need to be invested,” she underscores.

“Thirdly, a comprehensive cluster development policy which allows small and medium sized firms to enjoy collective efficiency,” she writes.

Is unemployment a big concern for India today? Share your views and queries at udit.misra@expressindia.com

Until next time,
Udit