On India’s Employment Situation – India’s most abundant resource remains tragically underutilized

News:  In a world of ageing affluent societies, with big mismatches of labour demand and supply across the developed and developing world, India can convert its largest and youngest labour force into an advantage.

The American economy is actually overheating despite Omicron. Its labour market is not only hot, but it is also going through what has been dubbed “the great resignation”. Since April, on average, more than 4 million people have quit their jobs every month in the US. There are about 10 million unfilled vacancies across various sectors.

But the situation in India’s labour market is quite the opposite. Despite an expanding workforce, the pace of job creation is woefully inadequate.

What are the issues in India’s labour market?

Declining Labour force participation(LPR) in India

According to the monthly survey of the Centre for Monitoring Indian Economy(CMIE), the LPR is down to 40%. This means 60% of able-bodied adults between 18 and 60 years of age are not even looking for work.

The LPR for women is barely 21%, and down to single digits in states like Uttar Pradesh and Bihar.

India’s LPR is lower even compared to its neighbors, with Bangladesh at 53%, Pakistan at 48%, and Nepal at 74%.

Poor pace of Job creation: overall job growth during the past few years has been low, given the demands of the country’s demographic bulge.

Demand for MGNREGA has increased:  This is another indicator of distress in India’s labor market. During the last fiscal year, demand for these state-assured jobs was up by 42%, with work provided to 112 million people.

India’s major exports, like software, can employ only a few million people with high skills, compared to nearly 500 million, looking for jobs.

There has been a stagnation in rural wages.

India’s urban unemployment rate is increasing: it has reached 9.3% in the first quarter of 2021, as per data from the Periodic Labour Force Survey of the National Statistical Office.

The government also has around 2 million unfilled vacancies at various levels. But these jobs are not opening up anytime soon on account of fiscal constraints.

All this means that income will be distributed in a skewed manner, a problem confirmed by increasing inequality, as was reported by the recent World Inequality Report.

What needs to be done?

First, need to focus on labor-intensive exports and capitalize on the current boom in Western economies like America.

Second, need to focus on growth led by labor-intensive exports. Even though industrial jobs are vulnerable to being eliminated by automation, there is a sufficient window still open for job creation that will support livelihoods. Bangladesh’s relentless focus on apparel exports has proved the risk of automation wrong, now it has per capita income more than India’s.

Third, the real drivers of job growth outside agriculture such as construction, textiles and apparel, footwear, tourism, retail, and increasingly logistics need to be focused to improve job creation.

Source: This post is based on the article “India’s most abundant resource remains tragically underutilized” published in Livemint on 30^th Dec 2021.