Rising Unemployment - The Biggest Challenge before India
iasparliament
February 22, 2021
What is the issue?
One of the top Twitter trends recently was “#modi_rojgar_do”, that essentially asks PM Modi to provide more employment.
In this backdrop, here is a look at the extent of the unemployment problem in India.
What is the unemployment scenario?
Just before the Covid crisis at the end of 2019-20 financial year, India had around 403.5 million employed people.
There were 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.
But many seem to have regained employment as the economy has started recovering.
What is the concern then?
At another level, the 400 million number also underscores the stagnancy in India’s employment levels.
Data also show that the total number of employed people in India had 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 before the Covid crisis, the employment situation was getting worse.
That is why the total number of openly unemployed people became 35 million.
Given that over the past 12 months, the total number of employed people has fallen, the total number of unemployed people will be anywhere between 40 to 45 million today.
Even this 45 million estimate only captures the openly unemployed people i.e. those who are seeking work and not finding it.
The actual problem of unemployment is even bigger.
Why is unemployment a more serious issue?
LFPR - 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.
If more and more of India’s youth decides not to seek job, India’s labour force participation rate (LFPR) falls.
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 India would have added almost 15 million each year to the pool of openly unemployed people.
Growth and employment - Typically, fast economic growth takes care of unemployment worries.
However, in India, one cannot assume this to be the case.
In other words, just fast economic growth will not automatically resolve India’s unemployment problem.
This is because, even when India’s GDP has grown rapidly in the past, it produced only a very small number of well-paying jobs.
In the ten years from 1999-2000 to 2009-10, 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.
Also, the number of formal workers in the organised sector fell by 3 million.
How does the future look?
In the coming financial year, India’s GDP growth will show a sharp rebound, given a massive base effect.
This offers some hope.
However, that does not change 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 this will only deepen India’s unemployment problem.
There is another reason that may aggravate the problem at least in the short to medium term.
The Union Budget for 2021-22 suggests that the government would not be the prime mover in the economy.
The principle of “minimum government” essentially undercuts the government’s role in directly creating new jobs.
While on paper this makes sense, the timing is questionable. That’s because –
the Indian economy is quite weak
the private sector has already shown its preference by choosing to cut jobs and boost its profits
The private sector is likely to hold back from recruiting in big numbers in the next couple of years, waiting for Indians to regain their purchasing power.
But, in the meantime, the unemployed will continue to swell up by the millions each passing month.
All this remind that it is the rising unemployment, and not GDP growth, that is the biggest challenge before India now.
