The Faultline Called Unemployment

Born in a farming family in rural Bihar, Uttam Kumar dreamt of getting a job, living in a city and improving the quality of life for his family. He studied civil engineering in Bhopal with whatever little money his impoverished father could raise for him. Despite the degree and three years of searching, he finds himself without a job.

According to the India Employment Report 2024, jointly released by the International Labour Organization (ILO) and the Institute of Human Development (IHD), the share of youths in the total unemployed population in 2022 was nearly 83%. Educated youth—with secondary-level or higher education—accounted for 65.7% of this population, up from 54.2% in 2000.  Herein lies the irony.

Between 2014 and 2022, the Indian economy grew at a compound annual growth rate (CAGR) of 5.6%. A group of 14 other major developing economies saw an average CAGR of 3.8% during the same period. However, the youth of the country, who form the largest base of the population, seem to have been largely left out in this growth story. The report identifies those in the age bracket of 15 to 29 years as youth.

Chief economic adviser (CEA) to the government of India V. Anantha Nageswaran said it is incorrect to think that government can solve all social and economic problems such as unemployment. “In the normal world, it is the commercial sector that needs to do the hiring,” he said after the report was released.

However, it might not be easy for the government to get away with evasive statements, considering that some of its major policy decisions have been held responsible for the worsening employment statistics.

Advantage Corporates

In November 2016, the government announced demonetisation of high-value currency notes. Overnight, Rs 500 and Rs 1,000 notes ceased to be legal tender, leading to a widespread disruption in the economy. In the following weeks and months, many businesses, particularly the smaller ones that relied heavily on cash transactions, were forced to shut down.

Another blow was the goods and services tax (GST) in July 2017. It was touted as a significant reform that streamlined India’s complex tax structure by replacing a multitude of indirect taxes with a single and unified tax regime. An August 2018 study conducted by the Reserve Bank of India (RBI), however, observed that the implementation of GST resulted in higher compliance costs and increased operating expenses for small businesses.

India’s gross domestic product (GDP) growth rate, which stood at 7.1% in 2017–18, fell to a five-year low of 6.8% in 2018–19 and further to 4% in 2019–20. This slowdown in growth was then followed by a heavy contraction of 5.8% in 2020–21 amid the Covid-19 pandemic. By the time the economy began to recover, demonetisation and GST had laid the foundation of a more formal and digitised economy. The country witnessed a growth rate of over 7% for three consecutive years. But this growth has come without jobs.

The informal or small-scale sector, according to the National Sample Survey Office (NSSO), accounts for approximately 40% of India’s GDP and employs three out of four Indian labourers. However, as many as 24,839 micro, small and medium enterprises (MSMEs) were closed between July 1, 2020, and July 18, 2023, according to the ministry of MSMEs. 

Pronab Sen, former chief statistician of India, explains the reason behind this jobless growth, relating to the MSME sector. “Typically, the corporate [sector] tends to employ far less people and far more capital than the MSMEs. What has happened over the past several years is that the MSME sector has gotten periodically hit,” he says.

Demonetisation and Covid-induced lockdown affected the MSME sector much more negatively than big industries, he observes. “So, for any given growth rate, we now have a situation where the bulk of the growth is coming from the corporate sector, which means the employment that has been generated would have been more if it was otherwise,” he says, adding that it will be difficult to tackle unemployment without MSMEs.

Meanwhile, the bet on large-scale industries has not led to the amount of investment that was anticipated. On the contrary, there has been a huge fall in private investment in India from 27.5% of the GDP in 2010–11 to about 20% in 2020–21.

Data Speaks

Insufficient credible employment data ahead of Lok Sabha elections in 2019 made it challenging to assess the achievements of the BJP government in the area of job creation. The NSSO Periodic Labour Force Survey (PLFS), conducted between July 2017 and June 2018, disclosed that India’s unemployment rate during the period had surged to 6.1%, marking its highest level since 1972–73. The report indicated a higher unemployment rate in urban areas, standing at 7.8% in contrast to 5.3% in rural regions of the country. The Centre debunked its findings, citing concerns around the methodology.

The payroll data provided by the Employees’ Provident Fund Organisation (EPFO), and regarded by the government as evidence of formal job creation in India, also failed to substantiate the claims of significant job growth. As per the prime minister’s pre-election pledge, approximately 8.4 lakh jobs should have been generated each month. The EPFO payroll data from September 2017 to February 2019 indicated an average monthly creation of just 4.9 lakh jobs, that too without considering the possibility of duplication within the data.

PLI’s Tall Promises

Amid the pandemic-induced chaos in the global supply chains, the Central government in 2020 introduced the production-linked incentive (PLI) scheme under its Make in India programme. The plan was to hit three birds with one stone—boost the manufacturing sector, become self-reliant and generate employment.

The scheme incentivises local manufacturing across 14 key sectors and aims to provide jobs to millions of India’s poor. However, out of the anticipated 60 lakh new jobs projected over a span of seven years, only about eight lakh jobs have been generated through PLI schemes between 2020 and the end of 2023–24.

According to S.P. Sharma, chief economist at PHD Chamber of Commerce and Industry, growth opportunities have not been similar for every sector. “Some sectors have not been able to take off, and their schemes are in need of a revision with inputs from industry and businesses,” 
he says.

One such laggard is the automotive sector which also happens to have the largest outlay and an expectation to create 7.5 lakh job opportunities. Unlike others, where incentives are tied to incremental sales with little value addition, the auto PLI scheme has a stringent target of 50% domestic value addition for applicants and relies heavily on a strong vendor base that usually consists of MSMEs. According to an official review of the scheme, it could attract only Rs 4,139 crore in investment till December against the proposed target of Rs 16,823 crore for 2023–24.

“Many applicants under the scheme [auto PLI] were rejected or [are] not certified yet, because parts of their value chain are sitting in China and Taiwan as they are unable to fine-tune their supply chain through local MSMEs,” says a source who wishes to remain anonymous.

Sharma points out that despite several initiatives by the government, such as Emergency Credit Line Guarantee Scheme, Credit Guarantee Scheme and Fund of Fund Scheme to support MSMEs, there is still a lot of room for improvement. “Credit access is improving but not at the pace required for the MSME sector. In the coming times, we expect them to get more chance to contribute to the trajectory of the Indian economy,” he adds.

The ambitious Skill India mission too struggled to find jobs for its certified trainees when many small businesses in the country shut down. Pradhan Mantri Kaushal Vikas Yojana (PMKVY), which is Skill India’s flagship programme, is a case in point. Out of 1.2 crore candidates assessed under the programme, 1.1 crore were certified. Of these, only 24.5 lakh individuals, or 22.2%, were able to secure jobs. Since its introduction in 2015, the scheme has barely made any progress. Where placement rates for PMKVY 1.0 and PMKVY 2.0 were 18.4% and 23.4%, it was just 10.1% for PMKVY 3.0. Despite these numbers, the programme continues to receive funding, with PMKVY 4.0 set to commence this year with an approximate budget of Rs 1,200 crore.

Bibek Debroy, chairman of the Economic Advisory Council to the prime minister, argues that it is incorrect to say that jobs are not being created. “Growing at 7%, are we creating eight million jobs a year, is that my claim? No. But, to say that we are creating zero jobs is also not correct. I think we are creating four to five million jobs a year, but we should be creating about eight [million],” he says. He points out that employment elasticity has been declining not since 2014 but 1999–2000. “It is a fact that not enough jobs are being created. But I should also say this that I do not think it is an all-India issue because you will find states in India where people are saying 'we do not get people'. You will find states where people are clamouring for a few jobs in the railways,” he adds.

Fodder for Opposition

The BJP hopes to secure over 400 seats in the 2024 Lok Sabha elections—its slogan this time is Ab ki baar 400 paar (This time, 400 plus). The Opposition, on the other hand, is furiously attacking the government over the current unemployment crisis in the country. “The biggest issue in these Lok Sabha elections is unemployment, imposed by the BJP. Our youth are struggling to find jobs, and we are staring at a demographic nightmare,” Congress president Mallikarjun Kharge said in a post on X.

The Congress party, desperate for some change in its political fortunes, has focused its electoral campaign on better future for the Indian youth. The party’s election manifesto promises to support all scales of enterprises in their job creation efforts. This includes introducing incentive schemes tied to employment for companies, aimed at creation of stable and high-quality jobs.

BJP under Narendra Modi is looking to pull off a hat trick in 2024, and has laid out its achievements story well, but the mark of 400 might elude it unless it can pull an ace from up its sleeve to convince young voters like Kumar—there are approximately 1.8 crore first-time voters and 19.7 crore aged between 20 and 29 years—that it can give them a job in its third term. For Modi to achieve his dream of developed India by 2047, he will have to find a way to tap into India’s demographic dividend before it proves to be his nemesis.