Mismatch between India’s GDP growth and employment growth

Source: The post mismatch between India’s GDP growth and employment growth has been created, based on the article “How to deal with the country’s growth-employment paradox” published in “Live Mint” on 30th August 2024

UPSC Syllabus Topic: GS Paper 3 – Indian Economy – Employment

Context: The article discusses India’s economic growth and the mismatch between GDP growth and employment growth. It suggests policies to encourage labor-intensive sectors by adjusting the wage-rental ratio and addressing labor market rigidities to improve employment opportunities.

For detailed information on India’s Economic Growth and challenges read this article here

What is the current state of India’s economic growth and employment?

1. India’s GDP grew by 6.5-7% annually between 2011-12 and 2022-23, but employment only increased by 1.9% per year.
2. Unemployment rose from around 10 million in 2011-12 to over 19 million in 2022-23.
3. Low wages persist, with regular employees earning about ₹1,000 per month and casual laborers ₹4,500.
4. Labor-intensive sectors, like construction and textiles, employ around 240 million people.

What are the structural challenges in India’s labor market?

How Can We Make Economic Growth More Labor-Intensive?

1. Adjust Wage-Rental Ratio: Lowering this ratio can make labor-intensive sectors like construction and textiles more profitable, encouraging investment. For example, these sectors already employ around 240 million people.
2. Employment-Linked Incentives: Implement a robust employment-linked incentive (ELI) scheme, like the Production-Linked Incentive (PLI), to promote job creation in labor-intensive sectors.
3. Address Labor Market Rigidities: Simplify labor laws and reduce the compliance burden, which currently hinders employment growth, by drawing on comparative evidence from different states.
4. Adjusting exchange rates to make imports more expensive and exports cheaper, though this could lead to accusations of currency manipulation.

What are the Challenges with Wages and Capital Costs?

1. Low Wage Levels: The wages in India are extremely low, with regular employees earning about ₹1,000 monthly, casual laborers earning ₹4,500 monthly, and self-employed individuals making around ₹7,000 monthly in 2022-23. These figures highlight the overall depressed wage scenario across various employment forms.
2. Controlled Capital Costs: Capital costs are indirectly controlled by the government’s dominant borrowing and lending practices. For instance, the yield on 10-year government securities has remained stable at 7-7.5%, and the real interest cost of capital is around 2%, which is relatively low and sometimes negative, not reflecting the true scarcity of capital.

Question for practice:

Discuss the policies and measures that can be implemented to make India’s economic growth more labor-intensive, considering the current challenges in wage levels and capital costs.