Non-Farm Jobs Have Grown At Half The Required Rate: Economist Santosh Mehrotra

In defense of the last 12 years of growth, government economists would like India and its youth to believe that any increase in “employment”, as defined by India’s statistical agency, the National Statistics Office (NSO), should be seen as evidence of the absence of “jobless growth”.

It is indeed an obvious truism that, in any developing economy with a rising proportion of the population in the working-age group, economic growth will be associated with an increase in employment.

It is no one’s case that jobs since 2015 have not grown. They have. However, as I will demonstrate in this piece, based on our latest book, India Out of Work: Rethinking India’s Growth Story, they have grown in the non-farm sector—which is where they must grow in a country with surplus labour in agriculture—at half the rate at which jobs are needed (6mn as opposed to 12mn per year).

Second, they have grown most of all in agriculture, where they must not grow in any developing economy. Both these “miracles” have been achieved by the current government during its term.

Jobs Outside Farms

For perspective, during 2004–05 and 2011–12, India was creating 7.5mn new non-agricultural jobs every year—a total of 52 mn new jobs over seven years. That is why youth unemployment (6%) and the overall unemployment rate (2%) were low.

However, youth unemployment tripled to 18% by 2017–18, while graduate unemployment rose from 18% in 2012 to 36% in 2017–18, a level from which it has barely fallen.

That non-farm job growth had earlier enabled 5mn workers to exit agriculture each year. The share of workers in agriculture had been falling since 1973–74, but the absolute number had continued to increase.

For the first time in India’s history, the absolute number of workers in agriculture fell after 2004–05—rapidly until 2014, and more slowly thereafter until 2019.

Much more important, however, is that non-farm job creation during 2004–14 led to a tightening of the rural labour market, raising open-market wages in real terms. This process was supplemented by the introduction of MGNREGA and rising minimum support prices for rice and wheat. As a ratchet effect, urban wages also rose in real terms, despite rising inflation.

The period from 2004 to 2014 saw a record rise in real wages—the exact opposite of what has happened from 2013 to 2025.

As a result of non-farm job creation, poverty reduction accelerated sharply during 2004–15. Gross domestic product (GDP) grew at 8% a year between 2004 and 2014, while, for the first time in India’s history, the absolute number of poor fell—by around 20mn a year between 2004–05 and 2011–12, according to the Tendulkar Committee, which was set up in December 2005 to review the methodology for poverty estimation and submitted the report in December 2009.

Before this, the absolute number of poor had never fallen since 1973–74, except marginally between 1993–94 and 2004–05, when it declined by barely 18mn, according to the Lakdawala expert group, which was established in 1993 and proposed a poverty line based on household per capita consumption expenditure.

Manufacturing in Distress

The contrast with the past 12 years is telling. Firstly, the number of non-agricultural jobs being created fell from 7.5mn per year to 2.9mn per year between 2013 and 2019. This situation worsened after the Covid pandemic, although it has improved as the post-2023 recovery has been strong, including in non-farm jobs.

Total manufacturing jobs fell in absolute terms after 2013, especially in unorganised manufacturing, while organised manufacturing partly increased its market share.

This happened despite “Make in India”. It is worth noting that the manufacturing sector’s contribution to gross value added fell from a 25-year average of 16–17% until 2015 to 13% in the second quarter of 2026–27.

Manufacturing jobs, especially in labour-intensive manufacturing—five sectors account for 50% of India’s total manufacturing jobs—fell, although they have risen above their 2012 level only in the last two years.

So huge have been the policy-induced shocks to the economy, and especially to the micro, small and medium enterprises (MSME) sector across construction, manufacturing and services, that GDP growth was already slowing before the pandemic, thanks to demonetisation and a poorly designed and badly implemented goods and services tax.

Open unemployment rose sharply from 2.2% in 2012 to 6.1% in 2017–18, the highest in 45 years as per data from the National Sample Survey Office, which was merged with the Central Statistical Office to form the National Statistical Office.

Poor fiscal and monetary policy management compounded the Covid health crisis: India’s economy contracted in 2020–21 by nearly twice as much as the world economy, which contracted by 3%.

Worse, the post-Covid K-shaped recovery has meant that unorganised manufacturing and services have shrunk further, while the organised sector continues to gain market share. This is the fundamental reason for rising inequality, apart from the increasing concentration of industry ownership, enabled by what has been described as crony capitalism, supposedly in the name of promoting “national champions”.

Back to Farms

As unemployment rose and non-farm job growth slowed, young people—now better educated than before—entering the labour force could not find work even after looking for a year or two. Hence, they dropped out of the labour force and became “discouraged workers”.

The Not in Education, Employment or Training or NEET share of youth rose sharply to 25% of the labour force in 2017–18. The total number more than doubled to 120mn and has fallen only slowly as many rejoined agriculture.

Millions returned to agriculture, so that 80mn workers were added to agriculture between 2019 and 2024, from 200mn to 280mn.

This raised the share of farm workers in an already overburdened farm sector, which produced only 17% of India’s GDP, from 42% in 2019 to 46% in 2024—a rise of 20% in India’s farm workforce.

Men and women who had earlier been leaving agriculture rejoined it for lack of alternatives. This was an unprecedented development in India’s and the world’s economic history—all due to poor economic management.

For all these reasons, it might be easier to understand the anger of the young, who have finally demonstrated their angst on the streets—not just Gen Z, not just students, but Gen Alpha as well, as they know that the education system is not preparing them for the world of work.

Santosh Mehrotra is visiting professor, Higher School of Economics, Moscow, and a former professor of economics, JNU