One of the major challenges for the government in the new term would be to create suitable jobs. According to the latest PLFS (Periodic Labour Force Survey), the unemployment rate in the country is at a 45-year high, at 6.1%. Although a lot of debate has gone into the level of unemployment in the overall economy, there is no denying the fact that there is an urgent need to create more jobs to truly benefit from India’s demographic dividend.
India has around 65% of its population (about 910 million people) in the working age group of 15-65 years. According to a World Bank report, the country needs to create around 8 million jobs every year to maintain its employment rate. Apart from the large quantum of jobs that need to be created, another important aspect is the quality of jobs—and this needs to be focused upon. In fact, a large proportion of India’s workforce is employed in jobs with low productivity, resulting in dismal incomes.
Today, the agricultural sector contributes about 16% to the country’s GDP, but it employs 43% of India’s labour force. In fact, in the rural areas, the share of agriculture to workforce is at a high of 64%, while agriculture contributes only 39% to rural NDP (net domestic product). The wages of agricultural labourers and cultivators is much lower than that of non-agricultural workers even in the rural areas. According to a NITI Aayog report, the rural non-farm sector offers 2.8 times more productive employment that the farm sector. In the rural areas, there is a shift happening with the labour moving from the agricultural to the non-agricultural sector. However, a large chunk of this labour movement is from agriculture to the construction sector, which, again, has a low labour productivity (although it is higher than agriculture).
The push to agriculture allied sectors will be beneficial to absorb the labour moving out of the agricultural sector in the rural areas. Livestock and horticulture industry has a huge growth potential and also higher labour productivity. The government should give the required push to these sectors to alleviate rural distress.
Apart from agriculture allied sectors, there is also a need for the labour in the rural regions to move to the manufacturing and services sectors. Manufacturing today contributes 18% to rural NDP, but the share in employment is dismal, at 8%. It is apparent that the growth in the manufacturing sector is happening mainly through capital-intensive industries. However, for an inclusive economic growth, the government needs to increase its focus on labour-intensive industries such as textiles, leather, gems and jewellery, food products, etc. In fact, the push to these sectors will also help the country generate higher export revenues. In addition, the labour needs to be adequately skilled to help them get absorbed in the higher productivity industrial sector. The challenge for the manufacturing sector to absorb the labour force is going to increase further, especially as globally manufacturing moves towards automation and artificial intelligence.
India has leapfrogged the traditional growth model, with the services sector emerging as the engine of growth. However, the services sector has its limitation as far as labour absorption is concerned. The services sector contributes more than 50% to India’s GDP, but absorbs only one-third of the total workforce. This is mainly because some of the high productivity sectors such as financial services and real estate have low employment elasticity.
Another major issue with India’s labour market is the large number of people employed in the unorganised sector—the share of workers in the unorganised sector as of now is around 80%. In fact, according to a report by the International Labour Organisation (ILO), the share of informal workers in total employment in India is around 90% (unorganised sector plus contractual workers in the organised sector). The concerning aspect is that a large number of jobs in the unorganised sector have very low productivity and no job benefits and social security. There is a large wage differential amongst workers in the organised and unorganised sectors. Moving towards formalisation of the economy through the goods and services tax (GST) is a step in the right direction, but still there is a long way to go for most workers in the informal sector.
While good quality jobs are not growing substantially, the aspirations of the youth in India are rising with higher education. According to the latest PLFS report, unemployment amongst urban males with secondary and higher education is at a high of 9.2%, while that for rural males is even higher, at 10.5%. This leads us to question the very edifice of India’s education system. Is the education system skilling the people appropriately to facilitate their absorption in the labour force? According to the India Skills Report 2019 (by Wheebox, the online talent assessment company), the employability score of the country is at a low of 47%. This highlights the need to tune our education system to make it suitable for job requirements.
Another interesting observation from the PLFS report is that unemployment is higher in developed states. In fact, the unemployment rate is the highest in the states of Kerala, Punjab and Tamil Nadu, and lower in Chhattisgarh, Madhya Pradesh and West Bengal. It appears that in the more developed states, the levels of prosperity and aspirations are resulting in a mismatch in the jobs available and those desired. This, again, highlights the need to create more productive jobs and skill the labour appropriately for the job requirements.
Unemployment is not just a local problem; it’s a global issue, currently. High unemployment has resulted in many of the developed economies, such as the US, looking inwards and creating barriers to trade and movement of labour. In the developed countries, low cost of capital and the rising trend of automation pose a big challenge for employment generation. For a labour-abundant country like India, the problem is specifically humongous and needs to be tackled on an urgent basis.
The author is a corporate economist based in Mumbai