Rising Unemployment - The Biggest Challenge before India - VISION

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Tuesday, February 23, 2021

Rising Unemployment - The Biggest Challenge before India

 What is the issue?

  • One of the top Twitter trends recently was “#modi_rojgar_do”, that essentially asks PM Modi to provide more employment.
  • In this backdrop, here is a look at the extent of the unemployment problem in India.

What is the unemployment scenario?

  • Just before the Covid crisis at the end of 2019-20 financial year, India had around 403.5 million employed people.
  • There were around 35 million (or 3.5 crore) openly unemployed people in the country.
  • To this existing pool, each year India adds roughly 10 million (or 1 crore) new job seekers.
  • But over the past year, several million have lost their jobs.
  • As a result, as of January 2021, India had only about 400 million employed.
  • But many seem to have regained employment as the economy has started recovering.

What is the concern then?

  • At another level, the 400 million number also underscores the stagnancy in India’s employment levels.
  • Data also show that the total number of employed people in India had been steadily coming down.
  • It was 407.3 million in 2016-17 and then fell to 405.9 million in 2017-18, and to 400.9 million at the end of 2018-19.
  • In other words, even with India’s economy growing before the Covid crisis, the employment situation was getting worse.
  • That is why the total number of openly unemployed people became 35 million.
  • Given that over the past 12 months, the total number of employed people has fallen, the total number of unemployed people will be anywhere between 40 to 45 million today.
    • Even this 45 million estimate only captures the openly unemployed people i.e. those who are seeking work and not finding it.
    • The actual problem of unemployment is even bigger.

Why is unemployment a more serious issue?

  • LFPR - Given India’s population growth, each year there are close to 20 million (or 2 crore) people who enter the working-age population of 15 to 59 years.
  • But not everyone seeks a job.
  • If more and more of India’s youth decides not to seek job, India’s labour force participation rate (LFPR) falls.
  • India has an LFPR of just about 40%.
  • In other words, in India just 40% of the 20 million joining the working-age group each year actually come forward looking for a job.
    • Among women, this participation ratio is even lower.
  • In most developed countries, it is around 60%.
  • If 60% of all joining the working-age group looked for a job then India would have added almost 15 million each year to the pool of openly unemployed people.
  • Growth and employment - Typically, fast economic growth takes care of unemployment worries.
  • However, in India, one cannot assume this to be the case.
  • In other words, just fast economic growth will not automatically resolve India’s unemployment problem.
  • This is because, even when India’s GDP has grown rapidly in the past, it produced only a very small number of well-paying jobs.
  • In the ten years from 1999-2000 to 2009-10, India’s total workforce increased by 63 million.
  • Of these 44 million joined the unorganised sector, 22 million became informal workers in the organised sector.
  • Also, the number of formal workers in the organised sector fell by 3 million.

How does the future look?

  • In the coming financial year, India’s GDP growth will show a sharp rebound, given a massive base effect.
  • This offers some hope.
  • However, that does not change the lop-sided manner in which India grows.
    • The GDP can continue to go up as more and more companies become more productive by replacing labour with capital (machinery).
    • But this will only deepen India’s unemployment problem.
  • There is another reason that may aggravate the problem at least in the short to medium term.
  • The Union Budget for 2021-22 suggests that the government would not be the prime mover in the economy.
  • The principle of “minimum government” essentially undercuts the government’s role in directly creating new jobs.
  • While on paper this makes sense, the timing is questionable. That’s because –
    • the Indian economy is quite weak
    • the private sector has already shown its preference by choosing to cut jobs and boost its profits
  • The private sector is likely to hold back from recruiting in big numbers in the next couple of years, waiting for Indians to regain their purchasing power.
  • But, in the meantime, the unemployed will continue to swell up by the millions each passing month.
  • All this remind that it is the rising unemployment, and not GDP growth, that is the biggest challenge before India now.


Source: The Indian Express