In Charts: India’s employment challenge explained

The government’s Periodic Labour Force Survey is the only official jobs data published in India.

India’s unemployment challenge is one of the key headwinds facing the economic recovery following the coronavirus outbreak but has been a long time in the making, according to the India economist at Societe Generale.

“A triumvirate of structural, cyclical and policy implementation challenges have played a role in this especially undesirable outcome for a populous country as young as India is,” Kunal Kumar Kundu said in a special note for investors. “The problem has become manifest since 2006, at which time the agriculture sector reached peak employment.”

The construction sector, India’s second-largest employer after agriculture, has also been under stress for the last few years as the regulatory regime has tightened.

Formalisation of India’s economy has also resulted in immense stress on the informal sector that provides employment to a vast majority of the country’s workforce, the economist added.

Then came the coronavirus.

“Micro, small & medium companies, a large number of which operate in the informal sector, faced their biggest existential crisis. In fact, the pandemic has spelt disaster even for the MSMEs operating in the formal sector,” Kundu said.

Data suggests that India has entered a period of job-loss growth after an earlier period of job-less growth, as total employment remains below the pre-pandemic level, he added.

There is also the issue of discouraged workers.

India has the largest share of such workers in the world as a consequence of the prolonged period of low to no employment generation, the economist said.

People of working age (15-64 years) who are actively looking for a job are considered part of the workforce and the proportion of this cohort of the total population in the working age group forms the labour force participation rate. Those who are not actively looking for jobs are considered discouraged workers and not part of the workforce.

The labour force participation rate, at around 42 percent, indicates that close to 60 percent of the population remains out of the workforce.

A high unemployment rate despite a low participation rate is ominous as it could have serious repercussions for India’s ability to reap the demographic dividend, the economist added.

“The main reason that the average skill level of the Indian workforce is skewed toward the lower end of the scale is that public spending on health and education remains quite low and limits India’s ability to move workers up the scale even as the economy formalises faster,” Kundu said.

The policy response to the jobs' challenge should include boosting spending on health and education by reallocating funds away from populist spending plans. The Centre’s continued focus on infrastructure bodes well for creating more jobs but more needs to be done to relieve the stress on micro, small and medium enterprises, he added.