India employment report: The economic bombshell just before elections

Today, everybody is aware that unemployment is a high-decibel poll issue in the unfolding Lok Sabha poll campaign. The contending parties accuse each other of not giving adequate importance to addressing unemployment.

With the Opposition alleging that Prime Minister Narendra Modi had miserably failed to keep his 2014 promise of creating 2 crore jobs per year, the ruling party is on the back foot in its promises on the employment front.

The Congress, on the other hand, passes off the promise for a legislation for an “apprenticeship guarantee programme” as an employment programme. The regional parties are also joining the chorus.

Employment report sparks debate

In this surcharged atmosphere, the India Employment Report 2024, brought out by a credible UN agency like the International Labour Organisation (ILO) jointly with the Institute of Human Development, is bound to have a high impact.

No matter whether these agencies planned to time the release of the report coinciding with the commencement of the election campaign or not, the report, with the main focus on youth employment (and unemployment), released on March 26, did land up as a political bombshell.

Citing the report, the very next day, Rahul Gandhi charged: “BJP means unemployment, Congress means employment revolution”. Other Congress leaders like Mallikarjun Kharge and P Chidambaram and Opposition leaders like MK Stalin too invoked the report to attack the government.

Startling details

Here’s a summary of the main findings of the report:

The report says that a whopping 83 per cent of the youth population in India is unemployed while 65.7 per cent of the educated youth in India are unemployed.

No matter what the absolute numbers are, the high ratio figures are stunningly sensational no doubt.

Youth unemployment

The youth employment in India is not growing. The worker-population ratio among youth in urban India at 34.9 per cent in the second quarter of 2022 shows only a little increase from the pre-pandemic level of 32.5 per cent in the fourth quarter of 2019.

This marginal increase in the youth workforce, of course, has not caused a major dent on youth unemployment which has stabilised at around 15 per cent in 2021 and 2022.

Unemployment is especially higher among the educated youth. Compared to youth who cannot read and write (who comprise 3.4 per cent of the youth workforce), in 2022, the unemployment rate among youths was six times greater among youth with a secondary or higher level of education (at 18.4 per cent) and nine times greater among graduates (at 29.1 per cent).

This means nearly 30 per cent of the youth graduates are unemployed.

Stagnant jobs generation

This has created a paradoxical scenario where the higher the education, the lower is the probability of employment. This high youth unemployment scenario is in the backdrop of stagnation in the overall employment.

The authors of this report have developed an employment situation index based on seven labour market indicators and the index shows a steady improvement in the employment scenario from 2005 to 2019, which was halted and reversed in 2019.

Why this is so?

First of all, the main reason for this post-2019 decline in employment is that the non-farm sectors are not generating much employment. Whatever increase is there in non-farm employment is mainly accounted for by the service sector and construction.

The share of manufacturing employment remains stagnant at 12-14 per cent. The agricultural employment that swelled during the pandemic-led reverse migration has not yet thinned down to earlier levels.

Secondly, the production process has become increasingly capital-intensive and labour-saving due to mechanisation. Fewer workers were employed in the growth years between 2000 and 2019 compared to the high-growth phase of the 1990s.

Women and self-employment

As publicised widely in the media recently, the workforce participation of women has indeed increased from shockingly low levels.

But, the increase is mainly in the category of low-income self-employment. Regular employment for them has declined after 2018 as per the report.

Earnings of workers

Overall, wages have remained low. As much as 62 per cent of the unskilled casual agriculture workers and 70 per cent of such workers in the construction sector at the all-India level did not receive the prescribed daily minimum wages in 2022. Self-employed real earnings also declined after 2019.

Skill mismatch

Although the skill-intensity of employment in industry and services increased during 2000 and 2019, this increase was contrary to the labour market needs of the country. Even among the educated youth who are employed, many of them are overqualified for the jobs.

This means they are underemployed and hence get lesser incomes. For instance, two-fifths of the highly technically qualified youth are engaged in blue-collar jobs.

Gig employment

The only sector other than construction that witnessed rapid expansion in recent years is gig employment like delivery workers and Ola-Uber drivers.

The report says: “There has been a rapid introduction of digitally mediated gig and platform work, which are algorithmically controlled by the platforms and have brought about new features in control of the labour process. Increasingly, platform and gig work have been expanding, but it is, to a large extent, the extension of informal work, with hardly any social security provisions.”

Gig employment in no sphere can thus pass for quality employment.

Sharp regional unevenness

There are sharp variations in employment outcomes across states and regions. Bihar, Uttar Pradesh, Odisha, Madhya Pradesh, Jharkhand and Chhattisgarh recorded much poorer employment outcomes. They remained exactly in the same bottom slots in 2022 as in 2005.

Rate of migration would go up

The migration rate is expected to touch 40 per cent of the labour force by 2030 says the report. This is a really a high share. The nation witnessed the agony of migrant workers during the COVID pandemic. Will there be lighter shades of such a crisis if the economy runs into stagnation again?

These are the employment challenges faced by India as summarised by this India Employment Report 2024.

The report makes very elaborate recommendations including making production and growth more employment-intensive, encouraging sectors that are labour-intensive, greater focus on MSMEs, improving the quality of employment, addressing the needs of the migrants, overcoming labour market inequalities, making systems for skills training and labour market intervention more effective and bridging the deficits in knowledge on labour market patterns and youth employment.

What could help

The rating agency McKinsey has observed that annual GDP growth of 8.0 to 8.5 per cent would be required to create the 12 million gainful nonfarm jobs annually till 2030 compared to just six million created each year between fiscal year 2013 to 2018 to absorb bulk of the backlog of 90 million unemployed.

The estimated 7.8 per cent GDP growth rate for India in 2023-24, especially the 8.4 per cent growth in the October-December (third) quarter, has triggered speculation about India embarking upon a high-growth phase again similar to 1990s. BJP economist Arvid Panagaria has predicted a return to 8 per cent growth phase.

Rating agency Bloomberg has forecast at least 6 per cent growth for the next five years. ADB President Masatsugu Asakawa has observed that India is on a strong growth path depending primarily on domestic market even in unfavourable external environment where other major economies are facing a slowdown. He, however, attached two preconditions that private investments should go up and the focus should be on labour-intensive sectors.

While FDI (foreign direct investment) is showing some fresh vibrancy, especially when India is being perceived as an alternative investment destination to China, the domestic private investments are yet to recover adequately. Moreover, unlike China’s, will India’s growth trajectory be less carbon-intensive and more climate resilient?

Technology may turn villain: Expert

A high-growth phase can no doubt create a large number of jobs and considerably mitigate the unemployment crisis. But will the impending high-growth phase different from the high-growth trajectory of the 1990s? Will it be a phase of jobless growth?

Much depends on answers to these questions. To get answers to these questions, The Federal approached Prof Ravi Srivastava, one of the main authors of this report. He said: “Though there is speculation among rating agencies and media commentators about a possible high-growth phase, no agency has come out with any credible study that there would be a phase of high growth in employment.”

As the report itself highlights the labour displacement caused by digitalisation, in all probability, unlike the high-growth phase of the 1990s, if at all there is a sustained phase of high growth in the next few years, that may well turn out to be a jobless growth similar to the trends in some European countries. New technologies, far from being the facilitators, might turn out to be the villains.

‘Not education, but poor skillset the culprit’

Secondly, the report underlines the need for developing the right skills and appropriate education needed for sustained growth. However, the report itself highlights the incidence of high unemployment among the highly educated and highly skilled including the technically skilled.

So, how to reconcile these seemingly contradictory recommendations which are at odds with reality?

When asked this question, Srivastava clarified: “The report has not recommended educational and skill development in general terms. But the recommendation is for developing appropriate skills. Presently, highly educated the youth do not have the right skills needed for the existing job opportunities. It is not exactly skills mismatch even. The youth have very poor skills. The quality of education is very poor.”

“We have recommended improvement to the skills ecosystem as a whole. There has been no substantial improvement to it in the last 15 years or so. We have made recommendations both from the supply side as well as the demand side. But the major focus of the report is on the supply side – improving the supply of right skills to enable sustained growth.

"Overcoming the constraints on the demand side is also important. Unless the overall employment increases, there cannot be a sustained increase in the supply of skills as well. That is why we have advocated greater focus on manufacturing growth and also agricultural growth and services growth,” he said.

As Srivastava explains, appropriate skill development and high growth can mutually sustain each other. It remains to be seen whether Indian is really poised for such a harmonious development.