JOIN USClaims vs reality: India's bleak job picture
India’s GDP growth rate has been slowing consistently since 2016, thanks to consistent economic policy mistakes made by the Union government, starting with demonetisation. It hurt the non-farm unorganised sector MSMEs, as it hurt agriculture (third year running, after two years of drought in 2014 and 2015).
Between them, these sectors are responsible for over 80 per cent of India’s employment.
Poor planning and hurried implementation of the Goods and Services Tax (GST) in the mid-2017 also did the same.
Further, the falling absolute levels of merchandise exports in US dollar value each year (from 2013-14 to 2018-19), a first since 1991, destroyed jobs, including the unorganised sector, which accounts for 40 per cent of exports. The result was not just falling aggregate demand and GDP growth. The absolute number of unemployed also rose to 30 million, from 10 million in 2012. This was a 45-year high, two years before the Covid-19 outbreak.
Poor management by the Centre during the pandemic added almost 10 million unemployed to the 30 million in just two years.
The Modi government had promised the youth two crore new jobs annually. Asked about this in early 2019, when employment was at a 45-year high, the prime minister’s answers were typically dilatory and diversionary.
He claimed, as he did recently in Parliament, that jobs rose because Employee Provident Fund Organisation (EPFO) enrollments rose. One big limitation of EPFO-based payroll data is the absence of data on unique existing subscribers (or contributors). Employees keep leaving and rejoining new places of work. This is the main reason for large and continuous revisions in EPFO enrolment. The government cannot claim that these are additions to jobs; it can’t even claim an increase in formal jobs since it is impossible to estimate net annual additions.
Next, the PM claimed that Mudra loans to individuals created jobs. The government has relied upon Mudra Yojana to get banks to hand out loans to small borrowers. In 2018, when the economy was stagnating, Mudra was publicised as a job-generation scheme. Modi said in Parliament, “We gave loans to 13 crore (130 million) youngsters through the Mudra scheme.”
The reality is revealed by the government's own Periodic Labour Force Survey (PLFS) data. These loans are obviously given to self-employed people, which is a vulnerable form of informal employment. Between 2017 and 2020, the worker participation rate (i.e., share of working age actually working, especially for males) stagnated.
Most Mudra loans are for males, and the share of those self-employed among men fell. In other words, in absolute terms, the self-employed fell: so Mudra proved useless in creating jobs.
From 4.35 per cent of Mudra advances in 2016-17, bad loans shot up to 9.3 per cent in FY19, as political parties organised camps to canvass loans for their supporters. In 2019-20, Uttar Pradesh was the second-largest in sanctions, while Bihar was well ahead of Gujarat and neck and neck with Maharashtra.
Finally, a third claim by the PM runs as follows. In response to a question about India’s job crisis, Modi asked his interviewer: "If a man selling pakoras outside (your) TV office takes home Rs 200 at the end of the day, is that not employment?" (January 2018)
The PM believes that earning Rs 6,000 a month for a family of five should suffice. If we project the official poverty line of India to 2019-20, the income for a family of five would be Rs 7,340. That would still mean "selling pakoras" yields earnings 18 per cent below the urban poverty line income, and even less than the lower rural poverty line (monthly spending).
The Union Budget proposes to create six million jobs over the next five years, presumably through a combination of the capital expenditure undertaken by it last year and in FY23 and the Performance-Linked Incentive Scheme initiated in 2021.
The following should demonstrate how seriously the government underestimates the job challenge: Some 5-6 million youth join the labour force looking for work each year. Second, there are already about 40 million openly unemployed, who have reasonable levels of education. Third, there was already surplus labour in agriculture in early 2020.
Covid factor
To the 200 million, another 32 million were added as that number reverse-migrated to villages to escape from Covid. This reversed a trend in place for 15 years.
Starting in 2004, for the first time since independence, non-farm job growth had pulled enough workers out of agriculture to reduce the absolute number of farm workers. Finally, there are the underemployed, who don’t find enough work (40 hours a week), although they are willing and looking for work.
The Centre, when criticised for ignoring or being ignorant of the monumental challenge responds: "Unemployment existed before we came, has always existed, and why did the previous regimes not solve it?"
Fair enough. But this government inherited only 10 million unemployed; the number is now 40 million. It inherited only 2.1 per cent unemployed; why was it 6.1 per cent in 2018?
The previous government was creating 7.5 million new non-farm jobs and reduced the absolute number of workers dependent on agriculture — a defining characteristic of structural change India must go through.
The employment rate (or share of the working population in the total population, which is constantly rising) has fallen from nearly 43 per cent in 2016 (already low by global standards) to 37 per cent in just four years. And despite the much-touted ‘Make in India’, why have manufacturing jobs — another feature of structural change in a developing economy — fallen by nearly half, from 51 to 27 million, in a matter of four years?
Ripple effect
The ripple effects of growing unemployment are multiple. First, absolute poverty had increased for the first time by at least 15 million between 2014 and 2020; more became poorer since Covid. Second, this depresses private consumption (56 per cent of GDP), which reduces aggregate demand for all goods.
Governments can take actions to create jobs. First, fill vacant posts of teachers in government schools/universities, for doctors and nurses, for police and judges. Second, immediately initiate an urban employment guarantee programme in small cities.
Third, allocate more funds to state governments for capital expenditure, so they can create local infrastructure, which is more labour-intensive than the Centre’s capital expenditure on national infrastructure.
Fourth, the Centre needs to come up with a horizontal strategy for labour-intensive manufacturing, focused on MSMEs, to supplement its Performance-linked Incentives for capital-intensive ones. Finally, more and effective spending on cluster development for India’s 6,500 clusters will support jobs in MSMEs.
(Santosh Mehrotra is Research Fellow, IZA Institute of Labour Economics, Bonn, and former Director General of Planning Commission’s research institute; Tuhinsubhra Giri is a JNU Phd)
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