Students attend a coaching class training them to secure government jobs, in Prayagraj, India, on June 21, 2024. — Reuters
ON July 16, about 25,000 job-seekers thronged a venue at Mumbai airport to apply for 2,216 vacancies at Air India, for which walk-in interviews were to be conducted.
This sort of incident has been common in India in recent years, where there have been hundreds, and sometimes thousands, of applicants for every vacancy in a range of occupations, especially public services such as the police and the railways.
What is striking is that this is happening in the world’s fastest-growing major economy. India’s gross domestic product (GDP) growth in the last fiscal year ended March 31, 2024, was a stunning 8.2%.
The International Monetary Fund forecasts growth in the current fiscal year at 7% – again, among the best in the world.
Yet this impressive expansion has failed to create mass jobs.
India’s unemployment numbers are grim. The Centre for Monitoring the Indian Economy, an independent think-tank, estimated overall unemployment in June 2024 at 9.2%. Among women, it was 18.5% and for youth, it was a shocking 45%.
In opinion polls during the run-up to India’s recent general election, unemployment was the top concern cited by voters, together with what they called “mehengai”, a Hindi word for unaffordability.
They were not referring to the inflation rate, which is moderate around 5% (although 7.5% for food). They were saying that they could not afford essential items on their incomes, which again highlights the fact that they lacked decent-paying jobs.
Unemployment
The government helps the poor through food subsidies, gas, electricity and water connections, but not, apparently, with jobs.
After the ruling Bharatiya Janata Party (BJP) received an unexpected drubbing in the elections, in which it lost its parliamentary majority but was able to continue ruling with the help of allies, the government has at last woken up to the national job crisis.
In its latest budget, unveiled on July 23, measures to promote jobs were one of the highlights – the other being lavish financial support for the states of Bihar and Andhra Pradesh, which are ruled by the allies that helped the BJP cobble together a majority coalition.
Finance Minister Nirmala Sitharaman announced a series of “employment-linked incentives” with a total outlay of two trillion rupees, covering five schemes. These include temporary subsidies for wages, apprenticeships, skilling, as well as for employer and staff contributions to the national Employees’ Provident Fund.
She also announced help for micro, small and medium enterprises – collectively India’s biggest employers – which will help them sustain their operations.
These schemes have merit in that they reduce the costs of hiring workers and give companies more financial breathing space.
The emphasis on skilling in the workplace also helps, since almost half of India’s college graduates are “unemployable”, according to the latest Economic Survey of India, because they lack the skills employers need.
But sustaining any expansion of hiring beyond the sunset provisions of the subsidies will depend on expansion of companies’ sales.
That comes down to raising consumption spending, which is still low: Private consumption is growing around 4% – almost half of GDP growth, which is an anomaly.
It is also lop-sided. Premium products are selling far better than basic goods. For example, sales of sport-utility vehicles exceed those of small cars. This partly reflects India’s economic inequality, which is among the highest in the world.
Inequality issue
In a recent study, the World Inequality Lab, a Paris-based global research centre on the topic led by economist Thomas Piketty, found that inequality in India today is among the highest in the world and even worse than during the British Raj a century ago, with the richest 1% of the population controlling 40% of the wealth and the top 10% controlling 65%.
Given that the rich have a lower marginal propensity to consume – that is, they consume a lower proportion of any increases in income than the poor – the outcome is that overall consumption growth is less than overall income growth and is biased towards high-value products.
The government has largely ignored inequality in its policies, preferring to focus on achieving high growth.
In a recent talk at the Cambridge Union, Sanjeev Sanyal, a member of the economic advisory council to India’s Prime Minister, stressed the importance of compounded high growth rates which accelerate the expansion of GDP so that every additional trillion dollars of GDP takes less and less time to achieve.
He dismissed concerns about India’s Billionaire Raj, asserting that if India has about 16% of the world’s population, it should have 16% of the world’s billionaires.
That would be fine if India had 16% of the world’s GDP or was among the top 16% in terms of per capita income.
Being left behind
But if India has only 4% of the world’s GDP and is ranked 137th in per capita incomes – which is the reality – and yet has 16% of the world’s billionaires, it means the vast majority of the population is being left behind.
As the country’s jobs crisis illustrates, high growth alone is not enough – it does not automatically trickle down – and tackling inequality is critical to boosting consumption.
In terms of kick-starting jobs growth, the latest budget attempts to do this. But its measures are still largely focused on the supply side, easing the process of hiring.
Sustaining hiring will need incomes to grow not just at the top but also at the middle and bottom of the income scale. In other words, broad-based demand needs to grow as well.
There are some provisions in the budget for this. With new tax slabs and an increase in allowable deductions, salaried employees that make up most of India’s middle class are each expected to benefit by around 17,500 rupees a year.
Subsidies under the employment-linked incentives will lead to additional income, at least temporarily.
There is also a 1.5 trillion rupee allocation to the farm sector, which will lead to some job and income creation, as well as a 43% increase over the previous year to a scheme which guarantees 100 days of work a year to some workers – the ultimate fallback option for the rural poor.
But incomes in agriculture – which has 45% of India’s workforce, the numbers having swelled since the Covid-19 pandemic – are lagging far behind those in other sectors of the economy.
Chief economic adviser V. Anantha-Nageswaran has called for a national discussion on the farm sector with a view to re-orienting policies.
Job creation in manufacturing is also a challenge. Although the sector contributes 17% of GDP, it employs only 11.4% of the workforce.
Part of the reason is that incentives for the sector in the form of tax breaks and subsidies – which are called production-linked incentives (PLIs) – are heavily skewed towards more capital-intensive industries such as electronics, pharmaceuticals, car-making and renewable energy technologies.
Labour-intensive sectors such as leather, footwear, toys and furniture – in which India would have a natural advantage because of its low labour costs – get little help by comparison.
Restrictive labour laws
India’s restrictive labour laws, which discourage companies from hiring large numbers of workers, also constrain the expansion of labour-intensive industries.
In many of these industries, not just China but even Bangladesh and Vietnam have raced far ahead of India. PLIs directed at such industries could do more for job creation than many of the capital-intensive activities that India is encouraging.
Besides, with manufacturing now driven by supply chains, India would benefit by signing up to plurilateral trade agreements such as the Regional Comprehensive Economic Partnership, through which it would better connect with Asian supply chains in a range of industries and boost its exports.
So, while India has belatedly started to emphasise job creation rather than just economic growth, it still has a lot of unfinished business when it comes to reducing inequality, boosting consumption, revitalising agriculture and reshaping its policies towards manufacturing – all of which will help address its jobs crisis. — The Straits Times/ANN
Vikram Khanna is an associate editor at The Straits Times, Singapore. The views expressed here are the writer’s own.
