Persistent problem

India is not creating enough jobs

Recurrent protests against changes in the government’s recruitment policy or delays in appointment reflect the state of employment creation in the country. The ongoing violent protests against the change in the recruitment policy for armed forces, which have led to a massive loss of public and private property, are yet another example in this context. The Union government’s announcement to hire one million people — essentially to assuage critics — also suggests that the economy is not creating enough jobs to absorb India’s increasing workforce. This has been once again established through hard numbers by the latest Periodic Labour Force Survey (PLFS) annual report. Clearly, hiring a large number of people in the government is unlikely to address the underlying problem.

Although the annual report, which covered the period between July 2020 and June 2021, shows that the unemployment rate declined and the workforce participation increased, it is important to look beyond the headline numbers. According to the report, the unemployment rate (in usual status, which captures long-term unemployment) declined to 4.2 per cent compared to 4.8 per cent during the previous year, and 5.8 per cent in 2018-19. Since this was the period when the economy was recovering from a stringent lockdown, the labour force participation rate increased to 41.6 per cent compared with the level of 40.1 per cent in the previous year. The female workforce participation rate, which has been a significant drag on labour force participation, also improved during this period.

However, this improvement was not particularly on account of improved employment opportunities. As some commentators have argued, more people joined the workforce due to the decline in household income. This is also evident in the quality of employment. During the period under review, the percentage of people employed in the agriculture sector increased to 46.5 per cent as against 45.6 per cent in the previous year. This is significantly higher than the 42.5 per cent in 2018-19. Consequently, the proportion of labour employed in the manufacturing sector declined. This is the exact opposite of the kind of shift India’s labour market needs. Sustained higher growth with an increase in productivity can be attained only by moving the labour force out of agriculture. Overall, while the share of self-employed people increased, the proportion of workers earning wages declined. Among the workers earning wages and salaries, the percentage of employees not getting any social security benefit declined marginally to 53.8 per cent compared to the previous year but was significantly higher than the 49.6 per cent in 2017-18.

The latest quarterly PLFS report for January-March 2022, which was also released last week and has limited information compared to the annual report, did not show any material change in labour force participation with the recovery in economic activity. As the Indian policy establishment focuses on strengthening the economic recovery in a worsening global environment, the most pressing challenge will continue to be employment creation for an expanding workforce. While the government is promoting select industries in the manufacturing sector through an incentive scheme, it would not be able to create jobs at the scale required. Nearly half of India’s labour force is engaged in agriculture and can move only to low-skill manufacturing. India’s labour force participation is also significantly low and would be a drag on growth in the medium to long run.