India is the world’s fastest-growing major economy. It is also home to world’s second largest labour force after China with the most unemployed in the world. More than half of India’s 1.2 billion population is under the age of twenty-five. The predominantly youthful voters cheered Prime Minister Modi to a historic electoral victory in 2014. After more than 4 years, little change has come to their lives. This poorly educated and mostly unskilled workforce seems restless and vengeful.
To be fair, if Prime Minister Modi could not fix India’s job crisis, he did not create it either. High unemployment and sluggish employment growth have been a historical reality of the Indian labour market. The jobless growth since the 1990s only made it worse. More than half of India’s population still depends on agriculture for employment. OECD Economic Survey last year found that over 30% of the Indian youth aged 15–29 are neither employed nor in education or training (NEETs). India’s economic growth in the last two decades has failed to create opportunities for ‘gainful employment’.
The current challenge has its source in the 1990s when India faced the twin impacts of market reforms and an introduction of caste based reservation system. As public sector retreated every passing year, private sector failed to match the demand of ever-expanding labour force. More than 90% of the Indian labour market remains informal undermining socio-economic mobility. Just around 2.3% of the workforce has undergone formal skills training (75% in Germany ad and 30% in China). Majority of university graduate are unemployable and lack basic work skills leading to serious skills imbalance between demand and supply in the labour market. Unemployability is the bigger problem in India than unemployment itself.
India’s labour market further worsened under the Congress-led UPA government that won power in 2004. The GDP growth failed to trickle down in the lower segments of the economy. Amid India’s jobless growth, nearly 20 million Indian women lost work between 2004–12. As farmers converted in to farm labour and construction workers, struggling university graduates were left with limited options. The growing skills-job mismatch meant that millions of job-hunters are forced to take jobs that do not match their qualifications. At the same time, widespread skill gap and technological illiteracy makes it difficult for firms to find people with the desired skills.
A significant portion of the jobs created in the services sector has been in traditional low value-added services. Devoid of professional guidance, many youths turn to non-regular jobs like private tuitions or mushrooming call center scam industry.
India’s job crisis is not only an unemployment issue. Majority of jobs are of poor quality with deplorable working conditions and low wages devoid of any social security or retirement cover. This had a direct implication on the growing working poverty. Wages falling short of covering rent and basic consumption has impacted millions of migrant workers.
Another overlooked issue is the lack of public safety in most Indian cities that deter many women from joining the workforce. As of now, India’s massive unemployment is carefully hidden by petty self-employment that employs nearly half of India’s labour force.
Prime Minister Modi came to power with a promise to create millions of new jobs and doubling of farmers’ income in an economy already suffering under increasing ‘contractualization’ of the workforce. Ambitious schemes like ‘Skill India’ fell victim to country’s bureaucratic red-tapism. The slowing exports have restricted the job growth in non-farm far below the labour market need. This is bad news for more than 10 million youth entering the workforce every year. Growth in non-farm employment has been precarious jobs in construction, trade and hotels, transport (thanks to e-commerce growth) and the tourism sector. While many sectors remain overmanned, underemployment and low productivity continues to undermine the Indian economy.
Facing elections next year, Modi government has decided to go for decorative measures like the announcement of mass hiring in government run railways and statistical maneuvering of EPFO (Employees’ Provident Fund Organisation) data. A recent study published by the Prime Minister’s Economic Advisory Council claiming creation of over 12 million in 2017 has been criticised for painting a rosy employment picture. India’s finance minister has put his bets on the “wave of self-employment” alongside the construction and manufacturing sector.
The manufacturing sector has long been suffering from the slow creation of jobs. There is no denying that manufacturing and low-tech services can lead to industrial job creation in a nation blessed with a huge domestic market with a growing number of middle-income households. It was this realisation that motivated Prime Minister Modi to launch “Make in India” in 2014 with a goal to transform India into a “global manufacturing hub” on the lines of China and East-Asia.
Meanwhile, thousands of formal jobs positions in hospitals, law enforcement and schools remain vacant. This is an aftermath of the recent pay revision in government salary meaning 8% of India’s GDP is now spent on the salaries of government employees.
Fixing India’s job crisis is impossible unless the government decides to increase investment in public services, education, and health. Together these sectors can compensate for the bulk of job demand in India. For an economy dominated by a disproportionate share of microenterprises, India needs to revive its regional polytechnics while developing a robust academia-industry-government network.
The challenge of fixing India’s job crisis is an undoable task for any government in one term. But it is essential that the task is taken upon. India’s private sector has done well in battling the unemployment challenge so far and improving ease of doing business is a step in the right direction. The focus on rural electrification is bound to have a ripple-effect in improving the digital competency of the future labour force.
Modi government impetus on innovation and shifting more workers from informal manufacturing to high-productivity formal sector manufacturing a welcome move. There is no single strategy to fix the job crisis in a large and poor economy like India. Only a careful blend of consumption, investment and export-led growth model can lead to the twin objectives of employment-intensive growth and poverty reduction.
But for India’s young and burgeoning workforce, the current situation remains bleak. Will they hold patience and put their trust on Narendra Modi next year? Predicting this is more difficult than predicting their future.