India needs 10-12 million new jobs every year to stop people from looking for jobs in trouble spots

The narrative of India being the ‘fastest growing large economy’ or the ‘fifth largest economy’ may sway the well-heeled, but why, for over a decade, is this ‘shining star’ on the global stage not generating jobs, while 800 million of its people are being fed with free cereals? The quest for livelihoods is taking Indians to Russia to fight the war in Ukraine and to Israel to work in war zones as construction workers. Indians are putting their lives at risk to illegally migrate to the United States through inhospitable terrains. This is an employment crisis, that the government is not willing to even recognize.

The government job is not the answer. The Centre and the state governments employ no more than 5% of the total workforce of India. Only the growth in private sector jobs can end the crisis. It is also the only way for economic growth to be inclusive.

When India was growing nearly 8% per annum over 2004-14 despite a global economic crisis in 2008, non-farm jobs grew by 7.5 million per annum. If India does not grow at 8% per annum at least, we can no way create the 10-12 million jobs needed now, and even more each year until its demographic dividend ends, i.e. before 2040. However, there is no projection putting India’s 2023-2030 growth rate at anywhere close to 8%. The OECD’s projection is 7%, while the IMF’s is 5.6%. India can achieve 8% growth again, but only if it generates jobs and wages, in turn generating effective demands from all sections of society, not just the middle class. In their absence, we will be stuck with the ‘freebies for the poor’ model of winning votes – not a fiscally sustainable growth path.

The employment situation worsened rapidly after 2013. Youth unemployment rose from 6% in 2012 to 18% in 2017-18 and was still at 14% in 2022-23. At 6.1%, the unemployment rate in 2017-18 was the highest in 45 years.

The growth during 2004-14 was accompanied by a hastening of structural changes in employment. Total manufacturing employment rose from 53 million in 2004 to 60 million in 2012. Farm workers in agriculture in absolute numbers had always increased until 2004–05 but began falling thereafter. So real wages for workers rose across the economy but stagnated between 2013 and 2023.

However, the number of new non-farm jobs fell from 75 lakh per annum between 2004 and 2012 to 29 lakh per annum between 2013 and 2019, according to the Periodic Labor Force Survey (PLFS) of the government. Total manufacturing jobs have fallen since 2015. The contribution of manufacturing to GDP, which was a constant 17% between 1992 and 2015, fell to 13% before returning to 17% in 2022–23. Total manufacturing jobs, after falling, despite “Make in India”, did not recover until 2022-23.

The jobs achievement pre-2015 has reversed since 2015 as annual GDP growth fell to 5.7% over 2015–23.

The MSMEs, which generate most non-farm jobs, were dealt a blow by the 2016 demonetization due to the disappearance of cash. The poorly designed and implemented Goods and Services Tax was yet another shock for them in 2017. Hence, the GDP growth slowed for almost three years and dropped to 4% before the Covid-19 pandemic.

To make matters worse, the world’s strictest Covid lockdown stopped all economic activities in India, including those of the MSMEs. Sixty million city workers were added to agriculture between 2020 and 2022-23 (PLFS), raising its share of employment from 42% to 46% – a reversal of the earlier structural transformation.

The Worker Participation Rate (WPR) rose after the pandemic, but only for regressive reasons. First, unproductive agriculture was made to bear a greater burden. The MGNREGA work demands since 2020 reached a historic high. Second, additional farm workers post-2019 were caused by a rise (of 50 million) between 2017-18 in ‘unpaid family labour’. Despite receiving no wages, they are still counted as workers, hence an optical rise in WPR, which was in fact a reflection of distress. Women have returned to the family farms, and it is being claimed as a rise in female work participation. The city street vendor, who sells pakoras, is now helped by his wife and/or children – both contributing to an apparent rise in WPR and a ‘fall’ in unemployment (to 5.3%). This is completely misleading. That is why, the CMIE surveys (using an internationally compliant definition and without counting unpaid family labour as employment) estimated the actual unemployment rate at 10% in October 2023.

Realising the demographic dividend in India means creating non-farm jobs for three population groups. First, India needs to pull millions out of agriculture to counter the reverse migrations since 2020–21. The second group is better-educated youth, especially girls since India improved enrolment rates. The final group is the openly unemployed.

Hence, India needs at least 10-12 million new jobs each year. For India to restore non-farm jobs and resume high GDP growth, it needs a manufacturing strategy.

However, the three groups will not be absorbed unless several different factors come together. First, construction activity must continue at its current brisk pace and accelerate further. Second, the labour-intensive manufacturing by the MSMEs needs a sustained fillip. But the government is focusing on large companies – ‘national champions’ – and is encouraging them through subsidies. For employment generation, these should have aimed at helping the MSMEs.

Third, serious employment can be generated in services exports. The IT services are of course an area where India excels. Airlines, railways, tourism, auto services, banking, insurance, pension – modern producer and consumer services provided good quality jobs in recent years. Public employment in health and education needs to expand rapidly. That is the only way that health and education services (including quality vocational skills expansion) will catch up to East Asian levels to attract more FDI.

(The writer is a Visiting Professor at the Centre for Development Studies, University of Bath.)