INDIA’S ECONOMIC EXPANSION ISN’T SOLVING THE JOB CRISIS ANYTIME SOON

We are charging ahead at Godspeed! But, not quick enough. 🏃‍♂️ While India’s GDP growth is impressive at 8.2% for FY24, outpacing most global economies, it isn’t enough for the 1.4 billion people’s unemployment problem we have at our hands right now. This seemingly robust growth rate masks underlying structural issues in the labour market that prevent 💼 widespread job creation at the much-needed pace.

THE JOBLESS GROWTH PHENOMENON

A fundamental disconnect exists between economic expansion and job creation, making "jobless growth" a defining characteristic of India's economic narrative.

As India charges ahead toward its goal of becoming a $5 trillion economy, the benefits of this expansion seem increasingly concentrated, failing to create the 👔 broad-based employment opportunities needed for its vast and expanding workforce. This concentration of economic gains among a smaller segment of the population risks 🫤 exacerbating income inequality and social tensions.

THE CURRENT EMPLOYMENT LANDSCAPE

The persistent gender gap in unemployment levels is deep-rooted in social and economic barriers such as a lack of 🤱 comprehensive care economy infrastructure.

In contrast to these data points, a Reserve Bank of India (RBI) report released on July 9, 2024, presents a more optimistic view:

This discrepancy in job creation estimates exemplifies the 😕 complexity of measuring employment in India's dynamic labour market and calls for careful interpretation of data.

While the data published by the RBI is encouraging, it raises questions about the quality and sustainability of the jobs created. It's crucial to understand the nature of these jobs - whether they are formal or informal, full-time or part-time, and in which sectors they are concentrated.

Despite increased public capex, which grew by 35.87% year-on-year 📈 in FY2023, the government's efforts have not successfully curbed India's youth unemployment rate, which remains above global levels. 💰️ Infrastructure spending alone is not enough to address the complex challenges of job creation in a rapidly evolving economy.

WHY ISN'T GDP GROWTH CREATING ENOUGH JOBS?

#1 Productivity vs. Employment

The core issue is that India's economic growth is not translating into proportional job creation. This is due to 🚜 increasing productivity, particularly in capital-intensive sectors. While productivity growth is crucial for long-term economic health, it can lead to short-term employment challenges.

#2 The Capital-labour Trade-off

India's manufacturing sector 🏭️ is becoming more capital-intensive, with the capital-to-labour ratio doubling from 2.8 to 5.6 over two decades, resulting in fewer jobs per unit of investment. This shift is part of a natural economic evolution, but it's outpacing the economy's ability to reallocate human capital.

#3 Skills Mismatch and Human Capital

About 53% of India's labour force has only basic education. 🔠 This represents a significant underinvestment in human capital, creating a mismatch between available skills and job market demands. Addressing this is crucial for sustainable economic growth.

#4 Sector Imbalances

Despite contributing 17-19% to the Gross Value Added (GVA), employment in the manufacturing sector has stagnated and even declined, especially in urban areas. Additionally, non-farm job creation rates have dropped sharply since 2013, leading to a surge in overall unemployment rates.

Meanwhile, the services sector contributes over 50% to GDP but isn't generating enough jobs. High-skilled jobs in sectors like IT 🧑‍💻 remain limited in their ability to employ large numbers. This imbalance highlights the need for a more diversified economic structure. However, the service sector shows higher employment elasticity for women and in rural areas, indicating potential for inclusive growth if properly harnessed.

#5 Demographic Dividend vs. Liability

India's young population 🧑‍🤝‍🧑🧑‍🤝‍🧑 with a median age of 28.4 years could be a significant asset. However, without proper job creation and skills development, it risks becoming a liability. The window for capitalizing on this demographic dividend – a large working-age population that can drive economic growth – is closing rapidly, with the share of young people forecast to decline to 23% by 2036 from 27% in 2021.

#6 Policy Effectiveness 

The government has initiated various schemes aimed at job creation:

• 🇮🇳 "Make in India" campaign

• 📊 Production Linked Incentive (PLI) scheme, expected to create 6 million jobs in 5 years starting from 2021-22

• Startup India Initiative has created over 9 lakh jobs as of January 2023

While these initiatives show promise, their limited impact so far suggests they may not be addressing the root causes of the jobless growth phenomenon.

Recent data indicates some positive signs, such as increases in manufacturing employment, particularly for young men. However, the persistence of structural challenges suggests a need for more comprehensive and targeted policy approaches.

LOOKING AHEAD

India's economic rise brings an urgent need to create quality jobs for its growing workforce. The real test of growth lies in turning GDP gains into actual employment, determining whether the young population will be an asset or a burden. While challenges persist, India's demographic dividend and economic potential provide opportunities for innovative solutions. The coming years will be crucial in determining whether India can leverage its economic growth to create a robust, inclusive job market for its vast and diverse workforce.