Job creation remains India’s top economic challenge, per experts polled by Reuters. How can the government resolve this?
Jun 20, 2024, 09:36 IST
India may be the world’s fastest-growing major economy, but dealing with its chronic unemployment will be the government’s steepest uphill battle over the next five years, according to a recent Reuters poll of experts.
The Indian economy, considered the third largest in Asia, clocked an impressive growth rate of over 8% last fiscal year, driven by government-led capital expenditure. However, India is yet to generate enough employment for its youthful population of 1.4 billion.
In the latest national elections concluding in early June, Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) lost the parliamentary majority it had held for the past decade. The primary culprits? A shortage of well-paying jobs, alongside rising inequality and relentless inflation, particularly in food prices.
A staggering 91% of development economists and policy experts surveyed by Reuters—49 out of 54—identified unemployment as the most pressing economic challenge for the government’s new term.
“In India, we have a very peculiar problem—supposedly very high aggregate growth rates and no increase in employment. Modi came to power offering aspirational youth jobs and a better life, but it's gotten significantly worse since then,” said Jayati Ghosh, professor at the University of Massachusetts Amherst.
“You have to have a job-specific strategy ... You have to dramatically increase public employment in basic social services, health, education, nutrition, sanitation.”
Acknowledging the role of unemployment in the election results, the BJP stated that the best that can be done, is being done. Yet, many economists question the government's capacity to generate jobs or to measure its success in this area accurately.
Over the last ten years, the BJP government has made substantial investments in India's infrastructure. But the anticipated surge in business spending is yet to materialise with the same vigour and scale.
Gross fixed capital formation, a key indicator of private investment, has increased at a compound annual rate of about 8% since 2014—noticeably lagging behind the 14% growth rate seen in the previous decade.
“The government needs to identify impediments to private investment, remove policy hurdles and obstacles holding back a revival ... and let the private sector do its job with minimum government hindrance,” said Rajeswari Sengupta, associate professor of economics at the Indira Gandhi Institute of Development Research in Mumbai.
One of the most significant challenges in tackling unemployment is the absence of a universally accepted unemployment rate in India. Given the nearly 1 billion individuals eligible to work, accurately measuring joblessness is complex. The majority of India’s workforce being in the informal sector adds to the issue. Without a common baseline, assessing success will continue to remain difficult.
The latest government statistics report a jobless rate of just 3.2% for the 2022/23 fiscal year, significantly lower than the already low unemployment rates in the United States. However, the Center for Monitoring Indian Economy (CMIE), a private think tank, indicates a 7% unemployment rate as of May 2024, up from about 6% before the pandemic.
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The Indian economy, considered the third largest in Asia, clocked an impressive growth rate of over 8% last fiscal year, driven by government-led capital expenditure. However, India is yet to generate enough employment for its youthful population of 1.4 billion.
In the latest national elections concluding in early June, Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) lost the parliamentary majority it had held for the past decade. The primary culprits? A shortage of well-paying jobs, alongside rising inequality and relentless inflation, particularly in food prices.
A staggering 91% of development economists and policy experts surveyed by Reuters—49 out of 54—identified unemployment as the most pressing economic challenge for the government’s new term.
“In India, we have a very peculiar problem—supposedly very high aggregate growth rates and no increase in employment. Modi came to power offering aspirational youth jobs and a better life, but it's gotten significantly worse since then,” said Jayati Ghosh, professor at the University of Massachusetts Amherst.
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Acknowledging the role of unemployment in the election results, the BJP stated that the best that can be done, is being done. Yet, many economists question the government's capacity to generate jobs or to measure its success in this area accurately.
What should the government do to help create jobs?
Over the last ten years, the BJP government has made substantial investments in India's infrastructure. But the anticipated surge in business spending is yet to materialise with the same vigour and scale.
Gross fixed capital formation, a key indicator of private investment, has increased at a compound annual rate of about 8% since 2014—noticeably lagging behind the 14% growth rate seen in the previous decade.
“The government needs to identify impediments to private investment, remove policy hurdles and obstacles holding back a revival ... and let the private sector do its job with minimum government hindrance,” said Rajeswari Sengupta, associate professor of economics at the Indira Gandhi Institute of Development Research in Mumbai.
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The policy experts and economists that were surveyed stressed that stimulating private investment is crucial for job creation. Additional recommendations include improving educational standards, overhauling tax systems, and enhancing cooperation between central and state governments.One of the most significant challenges in tackling unemployment is the absence of a universally accepted unemployment rate in India. Given the nearly 1 billion individuals eligible to work, accurately measuring joblessness is complex. The majority of India’s workforce being in the informal sector adds to the issue. Without a common baseline, assessing success will continue to remain difficult.
The latest government statistics report a jobless rate of just 3.2% for the 2022/23 fiscal year, significantly lower than the already low unemployment rates in the United States. However, the Center for Monitoring Indian Economy (CMIE), a private think tank, indicates a 7% unemployment rate as of May 2024, up from about 6% before the pandemic.