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Why India’s World-Beating Growth Isn’t Creating Jobs

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Few major economies have been growing as fast as India’s. Beyond the relatively strong figures, though, lies the grim reality of rising unemployment. The nation of 1.4 billion people isn’t creating enough jobs for its expanding population, a problem that Prime Minister Narendra Modi has promised to prioritize. That’s proved tough, though, especially as the private sector has balked at making major new investments, deterred by dim business conditions. Tensions boiled over last June when angry youth facing bleak job prospects blocked rail traffic and highways in many states for days, even setting some trains on fire.

1. How bad is the jobs situation?

The unemployment rate has been hovering around 7% or 8%, up from about 5% five years ago, according to the Centre for Monitoring Indian Economy, a private research firm that produces data that is more timely than official statistics. (A drop in September to 6.4% was attributed to extra hiring around India’s holiday season, an annual phenomenon. It was back at 7.8% in October.) The rate has remained elevated even though the total workforce has shrunk: Millions of people dejected over weak job prospects have pulled out, a trend that was exacerbated by the pandemic. The labor force participation rate — which counts people who are working or looking for work — has dropped below 40%, from 46% six years ago, according to the CMIE. By comparison, the rate in the US has been about 62%.

2. Who’s most affected?

Women and the young. The share of women employed dropped to 19% in 2020 from 26% in 2010, according to the World Bank. As Covid-19 spread, a bad situation turned worse: The CMIE estimated that female labor force participation fell to 9% by 2022 — putting India in the same league as war-torn Yemen. Rosa Abraham, an economics professor at Azim Premji University in Bengaluru, who tracked more than 20,000 people before and after India’s first pandemic lockdown, found that women were much more likely to lose their jobs than men and far less likely to go back after restrictions were lifted. Meanwhile, urban unemployment in the 20-24 age group of both sexes was 42% in October, according to CMIE estimates. That compares with about 18% for the 16-24 category in China.

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3. What’s behind those numbers? 

A big part of the problem is India’s poor system of education and job-training, which means local degrees and certificates are often considered worthless by employers. In large-scale surveys, employers have said that fewer than half the college graduates entering the workforce in India have the skills they need or the ability to pick them up in the workplace. Unable to get hired, many discouraged job seekers decide instead to continue their studies, join family members in farming or just stay home, surviving on family rental income, pensions received by elderly household members or government transfers. Many women end up doing unpaid work at home: housekeeping, cooking and taking care of elderly relatives and kids.

4. Why is this a cause for concern?

India currently has the advantage of youth — half the population is under 30 — but it will start aging in coming decades. At the current trend there will be more people older than 59 than in the working-age bracket by 2040. The risk is that the population gets old before the country develops and becomes rich enough to support everyone. There’s also the potential for social unrest, as illustrated by the train protests that erupted in 2022 over a new military recruitment plan that offered shorter contracts — four years instead of 15 — and fewer benefits. (Despite the backlash, the air force alone said it had received nearly 750,000 applications, the most by far it has seen in any recruitment cycle.) Much of the recent economic growth was fueled by pandemic-related government spending, which has waned just as rising inflation and the threat of global recession have posed new challenges. With national elections due by May 2024, Modi’s opponents have started talking about a labor market crisis, and some of his allies have joined the chorus.

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5. What’s the government doing?

It announced plans in June to hire a million people by the end of 2023 to fill vacancies in government departments, and began handing out employment letters in October. But that’s a drop in the bucket: The McKinsey Global Institute estimates 90 million new nonfarm jobs are needed by 2030. Private-sector companies — including technology and outsourcing enterprises and gig-economy startups like the food-delivery service Zomato Ltd. — have helped add jobs, but not at a quick-enough pace. Many global companies are on the fence about India, deterred by chronic problems such as creaking infrastructure and bureaucratic red tape on top of inadequate labor quality. To address the skills issue, India has sought to lure more people into vocational training and apprenticeship programs, in part by creating a pathway from menial jobs to higher education. The shortened military program was sold as a way to get people back into the labor pool faster, and better disciplined. India also sought to entice manufacturers to invest, partly by pitching itself as a less politically charged alternative to China. In 2020 it announced a 500 billion-rupee ($6.1 billion) plan to attract manufacturers of mobile phones and related components with financial incentives and clusters of ready-to-use facilities. Apple Inc. was among the takers, and exports of India-made iPhones are expected to almost double in the 2022-23 fiscal year, to $2.5 billion. That’s still a tiny fraction of the phones made in China. 

6. Why not use government data?

The government in April cited what it called “authentic data” from the Statistics Ministry showing the labor market recovering. But economists have described those figures as outdated and inadequate. For starters, they come with a lag of one year: Official data for the year ending June 30, 2021, was only released in June 2022. And it showed the unemployment rate fell to 4.2% that year, down from an official 4.8% — despite harsh Covid lockdowns and an economic slowdown. Markets and academicians prefer to rely on the survey-based unemployment data from CMIE as it’s more timely and correlates better with ground realities. The government has started some new efforts to get data directly from businesses, and is working on more surveys aimed at the so-called informal sector, such as migrant laborers and domestic workers, which covers 75% of the workforce.

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More stories like this are available on bloomberg.com

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