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Explained: India and its unemployment crisis

Since the mid-2000s, India’s youth have referred to themselves as the “Nowhere Generation” – the ones who are stuck between the need to work for sustenance and the lack of options to help them.

It has been over two decades since this term was coined but the situation seems to get worse with every year with rising “berozgari” or unemployment.

Picture Credit: Australia India Institute

On the 1st of February, India’s Finance Minister announced the budget for 2022 and promised to create six million jobs over the next five years. However, the “Nowhere Generation” doesn’t seem to have much faith in this statement as pulling this off will not be an easy feat. In the past few years, in spite of being Asia’s third-largest economy, the country’s unemployment rate exceeded most of the emerging economies and left its youth to fend for themselves.

Picture Credit: Quartz India

The extent of joblessness in India

The problem of unemployment has seen a substantial rise since the mid-2000s completely overturning the projection of India’s high growth. India reached a 45-year high in unemployment in 2017-2018 with a 6.1% unemployment. According to the Centre for Monitoring Indian Economy (CMIE), an independent think-tank for labour market in India, in December 2021 unemployment crept up to 8%. 2020 and a majority of 2021 saw more than 7% unemployment across the country.

Credit: Shivangi Sen
Data: Centre for Monitoring Indian Economy (CMIE)

When the BJP government came to power 8 years ago, Prime Minister Modi promised 20 million jobs every year to boost the economy but has been able to provide only 4.3 million jobs a year. 

To understand the difficulty in reducing unemployment in India, it is important to understand the main reasons behind its rise. 

Growth has been staggered

When PM Modi came to power, he vowed a GDP target of a $5 trillion (£3.6 trillion) economy by 2025. This is nearly impossible right now. Pre-covid estimates for the GDP projected $2.6 trillion (£1.9 trillion) under good conditions. Once Covid hit, it took $200-300 billion away from this estimate too.

Along with Covid, rising inflation fueled by rising global oil prices has also turned out to be a matter of concern. 

Credit: Shivangi Sen
Data: Centre for Monitoring Indian Economy (CMIE)

However, other factors are also at play. When Mr. Modi took office, India’s GDP was at a high of 7-8% which had fallen to 3.1% by the time the fourth quarter of 2019 came. According to economists, the government’s poor policy-making paid little head to the middle-class and small businesses, resulting in a sharp decline in jobs. The disastrous currency ban in 2016 managed to wipe out 80% of cash in circulation and a hasty roll-out of the Goods and Services Tax in 2019 are the two major culprits. 

Mahesh Vyas, CEO of CMIE, stated that India has suffered from too many economic shocks in quick succession, all leading to an increase in unemployment.

2020 and Covid pandemic

India’s workforce is divided into two sections – the formal sector (20%) and the informal sector (80%). According to CMIE, a month into the first lockdown in 2020, almost 121 million Indians were already out of work. This was because the central government gave only a four-day warning before shutting down the entire nation, forcing several businesses into bankruptcy by the end of the first month of the lockdown. 

The formal sector – the urban salaried class – has been hit the hardest. CMIE data shows that 19 million salaried formal sector jobs have been lost since the lockdown. For the first time in India’s history, its 100 million strong middle class was hanging by a thread. One-thirds of the middle class was pushed into poverty by the start of 2021. An estimate by the International Labour Organization and the Asian Development Bank shows more than 4 million Indians below the age of 25 have lost their jobs. Companies adopted the approach of keeping experienced workers while sacrificing the youth. 

Credit: Shivangi Sen
Data: Centre for Monitoring Indian Economy (CMIE)

This has led to the creation of an army of unemployed. The temporary hiring freeze by companies has also ensured that the graduating batches of 2021 and 2022 will go on to be a part of this army.

Labour participation rate

There has always been more supply than demand when it comes to jobs. The Labour participation rate (LPR) rose to 40.7% during the lockdown showing that almost half of the eligible population was wanting to work but didn’t get to, a majority of them being 18-30-year-olds. CMIE reports show that the labour force (people looking for jobs) stood at 427 million in December 2021. A study by economist Vinoj Abraham in 2017, showed that there was an absolute dry-up of employment / existing jobs for the first time in the country. There were vacancies available for 1000 jobs which had almost 5000 applicants, most of them over-qualified for it. Last year the country saw engineers and Ph.D. students apply for jobs at a clerical level due to a lack of options in their fields.

Manufacturing sector employment halved

Mr. Modi’s ambitious project “Make In India” was aimed at developing the manufacturing sector and creating 100 million jobs by 2022. Its main goal was to turn India into a hub for manufacturing and attract global investments. However, this is yet to be achieved.

Credit: Shivangi Sen
Data: Centre for Monitoring Indian Economy (CMIE)

The goal of accounting for 25% of the GDP in manufacturing has remained stagnant at 15% and in fact jobs in the manufacturing sector have gone down by 50%. India has in fact lost a considerable market share to smaller countries like Bangladesh due to their labour-intensive industries, an approach that India failed to adopt. This approach would’ve not only helped with the issue of youth unemployment but also helped develop the economy.  

India’s joblessness is a matter of concern because even though the country is inching toward economic growth, it is not being able to repair the huge damage that it is causing in the lives of the young generation. The gap between the aspirations of the “Nowhere Generation” and what is actually available in the market is too huge for the government to be able to cover it in five years. India’s younger workforce is nowhere near proper employment even though they are desperately ready for it.