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Approach : 

  1. India’s unemployment scenario.
  2. State of India’s GDP.
  3. India’s workforce profile.
  4. What may be done ?

Indian economy needs a major structural transformation towards a trajectory of high long term growth of both output & employment.

State of India’s unemployment: Despite large-scale withdrawal of the young from the labour force, still they account for the bulk of the unemployed. Of the 28 million unemployed (2019-20), young workers (15 – 29 age) accounted for 24 million. Thus the problem of Indian unemployment is largely a problem of unemployed youth. India’s unemployment rate was 6.1%, highest since 45 years. According to McKinsey Global report, 90 million jobs must be created between 2023 – 2030 to close the backlog of youth unemployment, before the ‘demographic dividend’ window starts diminishing. India’s employment elasticity (growth in employment relative to growth in GDP) is not only low compared to Asian countries, it is declining too from 0.38 (1991 – 2000) to 0.11 (2010 – 2018). This implies, an annual employment growth of 1.5% will require an annual GDP growth of over 13%.

State of India’s GDP: After peaking at 3.8% (2016-17), growth declined to a low of 3.7% (2019-20). Struck by the pandemic, the economy contracted by (-) 6.6% in 2020-21. The growth spike in 2021-22 was mainly driven by base effect. For 2022-23, the forecast stands at 5.2%, much lower than required.

The growth potential of the economy has eroded due to high mortality of businesses, especially micro & small enterprises, and supply chain disruptions. Also, growth may be affected following the global disruptions caused by Russia-Ukraine war. Thus, the challenge of high unemployment cannot be tackled through GDP growth alone without a radical structural transformation.

India’ workforce profile: 90% are employed in unskilled or low skilled jobs. Despite relatively high level of education, many unemployed graduates are non-employable (unemployment rate – 35-40% among graduates). The workforce share is 6% higher in industrial sector attributed mainly to growing employment in construction sector; while it is 15% lower in services sector attributed to unsuitability in high value-added services. Thus, the transfer of labour out of agriculture has been very slow & workers have mostly moved to low-skill or unskilled jobs.

India needs a structural transformation to achieve fast GDP expansion along with robust job creation. Given the low skill profile of the workforce & differential labour absorption in different sectors, different policy approaches is necessary to tackle unemployment in the medium & long term. This is also important given the limited State capacity.

Focus is needed on few strategic sectors which are highly labour intensive and other sectors must be pulled through forward & backward linkages. In the medium-term, focus should be on low-skill services. In the long term, good quality education and skilling linked to learning outcomes should be developed for large-scale expansion of high value jobs.

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