Shivanand Pandit
Although India has consistently been the fastest-growing large economy in recent years, it struggles with inadequate job creation, especially for educated youth. While this may be part of the global trend of ‘jobless growth’ due to advancements in capital- and skill-intensive technologies, India cannot afford to overlook this issue. The problem is likely to intensify with the increasing uncertainty brought by the adoption of artificial intelligence across various skill levels.
According to the Economic Survey 2024, India’s workforce was estimated to be nearly 565 million in 2022-23. Of this workforce, more than 45% is employed in agriculture, 11.4% in manufacturing, 28.9% in services, and 13% in construction. The official unemployment rate during this period was just 3.2%. However, this figure does not accurately reflect the situation on the ground, given the high number of underemployed individuals and the fact that many job seekers continue to work on farms, in the unorganised retail sector, or as casual labourers. A person is classified as employed if they engaged in any economic activity for at least 30 days in the preceding year.Out of the total workforce, approximately 57% were self-employed, earning an average monthly income of ₹13,347.
Nearly one in five workers (18.3%), predominantly women, are unpaid labourers in household enterprises and do not receive any wages. The urban unemployment rate for the quarter ending March 2024 was 6.7%, while youth unemployment was 10% in 2022-23. The proportion of people in regular salaried employment has declined from 22.8% in 2017-18 to 20.9% five years later, despite policy efforts to formalize the workforce. Many salaried workers lack access to contracts and social security benefits typically associated with formal employment. The government points to the Employees Provident Fund Organisation (EPFO) enrolment as proof of formalization, with 73 millioncontributing subscribers. However, the EPFO has a total of 300 million accounts, including inactive accounts and multiple accounts held by individuals.
The Economic Survey 2024 begins its chapter on employment with the assertion: “Employment is the vital connection between economic growth and prosperity, with both its quantity and quality determining how effectively economic output improves the quality of life for the population.” However, this “vital connection” between the growth of economic output, as indicated by official GDP estimates, and the creation of gainful employment, particularly decent jobs in the formal sector, has become increasingly fragile.The Survey uses official data to confirm the phenomenon of jobless growth. Between 2013-14 and 2021-22, factory jobs in manufacturing increased by only 3.2 million, with Tamil Nadu, Gujarat, and Maharashtra alone representing 40% of the total factory sector employment in India. Additionally, from 2015-16 to 2022-23, there was a decrease of 1.645 million in total employment within unincorporated non-agricultural establishments in both manufacturing and services.Given this context, the Survey estimates that the economy needs to create an average of nearly 7.85 million non-farm jobs annually until 2030 to meet the demands of the growing workforce.
According to the Centre for Monitoring the Indian Economy (CMIE), India’s unemployment rate rose sharply to 9.2% in June 2024, up from 7% in May 2024. Delving deeper into the statistics reveals that the youth are disproportionately affected, with 83% of the unemployed population being under 34, as highlighted in the India Employment Report 2024 by the International Labour Organization (ILO) and the Institute of Human Development (IHD). The situation is particularly severe for young people. CMIE reports that the unemployment rate for those aged 20-24 surged to an alarming 44.49% in early 2024. Additionally, nearly 16% of urban youth aged 15-29 were jobless during 2022-23, primarily due to inadequate skills and a lack of quality job opportunities. Rohit Jawa, managing director of Hindustan Unilever (HUL), attributed the company’s modest 3% growth in consumer product sales over the past financial year to low employment levels, stagnant wages, and rising food inflation in rural India.
Budget’s initiative to spur job creation
In the Union Budget 2024, India’s Finance Minister has introduced several ‘employment-linked incentive’ schemes to tackle the issue of job creation. The first of these schemes aims to support the hiring of first-time employees by covering their first month’s wage, up to a maximum of ₹15,000. The eligibility salary limit for this scheme is set at ₹1 lakh per month, and it is anticipated to benefit one crore individuals.The second scheme is a wage subsidy designed for first-time employees, focusing specifically on the manufacturing sector. It provides wage subsidies to both employees and employers for four years, with a maximum incentive of 24% of a monthly wage up to ₹25,000.
The third scheme benefits employers who hire new workers, even if they are not first-time employees. It offers a reimbursement of ₹3,000 per month towards the EPFO employer contribution for two years. All three schemes require employees to be registered with the EPFO.The fourth scheme aims to upgrade Industrial Training Institutes and enhance skilling initiatives, expected to benefit 2 million students. This scheme, which has gained attention due to its similarities to a proposal in the Congress manifesto, focuses on on-the-job training. It ambitiously plans to provide internships for 10 million young people in India’s top companies, offering a monthly allowance of ₹5,000 for one year. The companies will bear the training costs and 10% of the allowance.
The government has announced the upgrading of 1,000 Industrial Training Institutes with a total investment of ₹60,000 crore over five years. Half of this expenditure will be covered by the Union government, with the remainder funded by State governments and CSR contributions.Additionally, a 12-month ‘Prime Minister’s Internship’ program has been launched, offering a monthly allowance of ₹5,000 and a one-time assistance of ₹6,000. This program is available to youth aged 21 to 24. Moreover, the government has unveiled a ₹2 lakh crore ‘Prime Minister’s Package for Employment and Skilling’ over five years, aiming to benefit 41 million youth. This initiative is designed to address the need for 7.85 million to 8.1 million annual non-farm jobs in the coming decade.
Need asystematicapproach
Although these incentive schemes may generate jobs in the short term, these positions are unlikely to persist beyond the subsidy period. In the medium term, widespread job losses could exacerbate the problem. Additionally, incentive programs tied to EPFO enrolment may become channels for misappropriating public funds through payroll manipulation and wage misreporting.If the government can allocate ₹2 lakh crore for creating employment opportunities, why isn’t it directly generating jobs by expanding MGNREGA to urban areas and increasing its entitlement beyond 100 days? Additionally, why not boost capital expenditure by profit-making Central Public Sector Enterprises in labour-intensive sectors of the economy?
The main flaw in this supply-side incentive-based strategy is the assumption that the non-agriculture sector can already accommodate approximately 8 million new employees each year. It suggests that wage subsidies and skill development alone will encourage businesses, both small and large, to increase payroll employment, without considering market conditions and profitability.The issue partly stems from the government’s steadfast belief in the accuracy of the official GDP estimates, which many have questioned. The latest provisional estimates of India’s GDP indicate real growth in 2023-24 at 8.2%, with nominal growth estimated at 9.6%, implying an annual inflation rate of only 1.4%. However, the combined Consumer Price Index shows retail inflation at 5.4%. This significant discrepancy, resulting from the disproportionate weight given to a poorly estimated wholesale price index, is just one of the many problems with India’s official GDP estimates.
The main issue is that the economy is not expanding as rapidly as official GDP estimates indicate. The Survey highlights the lack of dynamism in private consumption and investment. In recent years, economic growth has been primarily driven by fiscal stimulus, leading to a significant increase in the public debt-to-GDP ratio. Both the Survey and Budget assume that reducing the fiscal deficit and offering supply-side incentives will trigger a virtuous investment cycle driven by private corporations.The substantial corporate tax reduction in 2019 did little to boost capital expenditure within the non-financial private corporate sector. The current Budget’s similar approach of incentivizing private sector employment through wage subsidies and skill development to address the unemployment crisis demonstrates a rigid mindset disconnected from actual conditions.
The effectiveness of the government’s job generation schemes largely hinges on the involvement of private employers. However, it remains uncertain if they will cooperate. Historically, private companies in India have been hesitant to invest new capital and reluctant to initiate expansion. Given this well-known tendency, it is surprising that budget proposals are so heavily reliant on an unpredictable private sector.In addition to new entrants into the workforce, there is a significant movement of people leaving sectors such as agriculture, petty trade, unorganized retail, and domestic service. To address this shift, it’s crucial to create formal jobs at a pace that matches the increasing supply of labour. However, this need is not being met, as reflected in the slight decrease in the proportion of salaried workers over the past five years.
As a final point, to effectively create jobs, the focus of the government should shift away from the top 500 capital-intensive companies and towards the MSME (micro, small, and medium enterprises) sector, which is more labour-intensive. Employment growth is anticipated with the revival of the MSME sector. This will be facilitated through a new credit guarantee scheme, alongside urging banks to adopt lending models that do not rely on collateral.Job creation should also be prioritised in small towns. Enhancing wages and injecting funds into MSMEs can generate a significant multiplier effect. To boost demand through increased consumption, it is crucial to consider raising wages in the MGNREGA rural jobs scheme and establishing a similar employment guarantee program for urban workers.Our education system, including internet access and the quality of teaching, needs a thorough reform, particularly in rural areas starting from primary schools. We are graduating a large number of students annually who lack practical skills and the mindset to adapt and acquire new skills. Addressing this issue only at the entry point of the factory is insufficient; we need a more comprehensive approach that addresses these shortcomings quickly in the educational process.
The writer is a tax specialist, financial adviser, guest faculty and public speaker based in Goa. He can be reached at [email protected] or 9822983420
