The story of India’s jobless growth: What needs to be done?

By Rohin Nautiyal

Jobless growth is defined as a phenomenon where the economy of a country grows but its unemployment rate remains stubbornly high. India has been witnessing this paradoxical pattern of economic growth where the economy has been on a sustained growth path. However, there has not been a commensurate increase in the level of job creation.

A peculiar pattern in the Indian economic growth

In most economic growth theories, jobs and employment go hand in hand. If there is economic growth it is expected to lead to an increase in employment and if there is an employment increase there would be economic growth, as suggested in the famous Okun’s Law of economics. However, according to the census data, India’s unemployment rate grew from 6.8 percent in 2001 to 9.8 percent in 2011.

India’s pattern of economic growth has not followed the traditional path in the development process, i.e from the primary sector to the manufacturing sector and then the tertiary sector (services sector). It directly entered the third stage of growth from the first stage (agriculture). The slow growth of manufacturing is one of the main reasons for the jobless growth.

Disproportionate creation of jobs

The manufacturing sector is generally perceived to be labour intensive. This is the pattern of economic growth which has been the basis for the rise of countries such as China which, in turn, has led to export sector oriented industrial growth. However, the labour intensive manufacturing sector did not become the engine of growth in India. This is because most of the growth was led by the services sector which currently employs merely 30 percent of the population.

Since the manufacturing sector was not developed, India remained an import oriented economy and the exports never flourished. This led to cheap capital goods from abroad flooding the Indian market. Also, a majority of the people were still employed in the agriculture sector which employs a total of almost 45 percent of the population with less than 15 percent contribution to the GDP. The jobs which got created outside of the primary sector were in low wage and low productivity sectors such as trade, hotels and restaurants which contribute very less to the GDP.

Other factors contributing to jobless growth

This stagnation in job creation is further compounded by excess rigidity in labour markets and rigid labour regulations due to which employers are not able to create jobs. Lack of infrastructure development is another impediment to the process of job creation as the infrastructure sector creates jobs due to its high employment generation potential.

Finally, the most important factor which needs critical evaluation is the overall flawed education system which does not equip an individual to be job ready. People do not have the requisite skills and knowledge to survive in this world–a world where the new age ideas of artificial intelligence and machine learning are doing the rounds. The government has to be held accountable for this backwardness as it has emphasized on a system of education that promotes rote learning rather than knowing concepts holistically.

Enhancing productivity through government schemes

There are various solutions that are advocated for moving towards an employment friendly regime. The focus should also be on creating quality employment rather than filling it with quantity. One such example is the apparel sector which has the potential of providing employment to around 45 million people, according to the Apparel Export Promotion Council estimates.

Sectors such as agriculture that employ the majority of India’s population, need to be holistically developed through enhanced development of productivity to stop the mass migration of people out of the vocation. There should be an enhanced role of the MSME (Ministry of Micro, Small and Medium enterprises) as this sector contributes up to nearly 40 percent to India’s manufacturing output and employs around 14 crore people. The launching of MUDRA bank to provide credit to the small entrepreneurs is a step in the right direction. Government schemes such as Make in India, Skill India and digital India have been initiated to increase the employment and skill set of the population. The Make in India scheme is especially designed to turn India into an attractive global manufacturing hub while transforming the economy.

The lacunae with data collection

Another important issue which needs to be addressed is the data sources on employment and unemployment. At present, only the NSSO (National Sample Survey Office) is a credible data source on this even though the data is not recorded periodically. Also, a majority of the workforce is in the informal sector or is self-employed which this data does not capture. Hence, any statistical analysis and estimation without capturing the whole data will give a false analysis of the scenario.

To conclude, it is a desirable goal to raise economic growth and lead the country along a greater growth path to prosperity but an employment oriented growth strategy is the need of the hour. This is especially for a country like India, where a vast majority of the population still resides below the poverty line and benefits of growth have not been able to reach a large section of the population.

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