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Sunday, March 07, 2021

ExplainSpeaking: Why rising unemployment, not GDP growth, is the biggest challenge for India

Typically, fast economic growth takes care of unemployment worries. However, in India’s case, one cannot assume that.

Written by Udit Misra , Edited by Explained Desk | New Delhi |
Updated: February 24, 2021 12:59:22 pm
Job seekers at the Delhi Job Mela in New Delhi (Express Photo by Tashi Tobgyal)

One of the top Twitter trends over the past few hours has been “#modi_rojgar_do”. The hashtag essentially asks Prime Minister Narendra Modi to provide more employment. Over 2 million tweets have already been posted using this hashtag. By the looks of those who are already tweeting using this hashtag, it is likely to remain prominent over the coming days this week.

There were two more Twitter trends worth noting. One was “#ब्राह्मणवाद_जहर_है “(“Brahmanism is poison”) and the other was “#आरक्षण_ज़हर_हैं” (or “Reservations are poison”). On the face of it, both these hashtags are talking about casteism (caste hierarchy) and caste-based reservations in jobs, but essentially they too are about the same underlying issue — India’s massive unemployment problem.

In the past ExplainSpeaking has written “why unemployment could become a bigger headache for the govt

Let’s first understand the scale of the problem at hand.


Just before the Covid crisis at the end of 2019-20 financial year, India had (according to the data provided by Mahesh Vyas of Centre for Monitoring Indian Economy) around 403.5 million employed people and around 35 million (or 3.5 crore) openly unemployed people in the country. To this existing pool, each year India adds roughly 10 million (or 1 crore) new job seekers.

But over the past year, several million have lost their jobs. As a result, as of January 2021, India had only about 400 million employed. At one level this is good news because far more had lost jobs and many seem to have regained employment as the economy has started recovering. But at another level, the 400 million number also underscores the stagnancy in India’s employment levels.

If we look at Vyas/CMIE data, which is being compiled since 2016, the total number of employed people in India has been steadily coming down. It was 407.3 million in 2016-17 and then fell to 405.9 million in 2017-18, and to 400.9 million at the end of 2018-19.

In other words, even with India’s economy growing, albeit at a decelerating pace, before the Covid crisis, the employment situation was getting worse. That is why the total number of openly unemployed people became 35 million. If over the past 12 months, the total number of employed people has fallen then it stands to reason that the total number of unemployed people will be anywhere between 40 to 45 million today. It must also be kept in mind that each unemployed person is part of a larger family — implying millions of families suffering from the lack of employment opportunities.

Migrants returning to their home in Uttar Pradesh following loss of work in Haryana (Express photo by Vishal Srivastav)

And even this 45 million estimate only captures the openly unemployed people — that is those who are seeking work and not finding it. The actual problem of unemployment is even bigger.

Here’s how. Given India’s population growth, each year there are close to 20 million (or 2 crore) people who enter the working-age population of 15 to 59 years. But not everyone seeks a job. For instance, if law and order is poor or if cultural mores so dictate, young women may not feel empowered to seek work. Similarly, it is possible that several men give up looking for work after repeated failed attempts. If more and more of India’s youth decides to sit out, India’s labour force participation rate (LFPR) falls. And data suggests that this has been happening in India.

India has an LFPR of just about 40%. In other words, in India just 40% of the 20 million joining the working-age group each year actually come forward looking for a job. Among women, this participation ratio is even lower. In most developed countries, it is around 60%. If 60% of all joining the working-age group looked for a job then, under the circumstances, India would have added almost 15 million each year to the pool of openly unemployed people.

Typically, fast economic growth takes care of unemployment worries. However, in India’s case, one cannot assume that just fast economic growth will automatically resolve India’s unemployment problem. That’s because even when India’s GDP has grown rapidly in the past, the nature of this growth has been such that it produced a very small number of well-paying jobs.

Vijay Joshi, Emeritus Fellow of Merton College, Oxford, points out the lopsided nature of India’s growth in his book “India’s long road”.

“In the ten years from 1999-2000 to 209-10, India’s total workforce increased by 63 million. Of these 44 million joined the unorganised sector, 22 million became informal workers in the organised sector, and the number of formal workers in the organised sector fell by 3 million.”

Job seekers at the Delhi Job Mela in 2019 (Express Photo by Tashi Tobgyal)

At one level, the government can feel rather happy because in the coming financial year India’s GDP growth will show a sharp rebound — thanks to a massive base effect.

But none of that changes the lop-sided manner in which India grows. The GDP can continue to go up as more and more companies become more productive by replacing labour with capital (machinery) but that will only deepen India’s unemployment problem.

There is another reason that may aggravate the problem at least in the short to medium term. If the Union Budget for 2021-22 is anything to go by, it would appear that PM Modi has decided that the government will not be the prime mover in the economy. The mantra of “minimum government” essentially undercuts the government’s role in directly creating new jobs.

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While on paper this makes sense, the timing is questionable. That’s because the Indian economy is quite weak and the private sector has already shown its preference by choosing to cut jobs and boost its profits. It is quite possible, and rather understandable, that the private sector holds back from recruiting in big numbers in the next couple of years — waiting, as it were, for Indians to regain their purchasing power.

But, in the meantime, that counter of unemployed and disillusioned youth will continue to swell up by the millions each passing month.

Take care!

Udit

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