Opinion | India's job challenge - How to stop demographic boon from turning into bane

By Moneycontrol Contributor

Jayan Jose Thomas

As is well known, India’s economic growth is likely to receive a boost from ‘demographic dividend’, or from an expansion of the country’s working-age population. At the same time, however, creating jobs for the young who newly enter the labour market is going to be a challenge for policymakers. There are several dimensions to the job challenge that India faces.

First is on account of the structural transformation of the workforce. Agriculture still accounts for close to a half of India’s total workforce, which numbered 472 million in 2011-12. This is going to change. According to an analysis based on the employment and unemployment surveys of the National Sample Survey Organization (NSSO), the size of the workforce engaged in agriculture declined in India in 2011-12 relative to 2004-05. The shift away from agriculture is due to both the ‘push’ from the low levels of productivity in that sector and the ‘pull’ of new opportunities outside.

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Therefore, new jobs will have to be generated in the non-agricultural sectors, that is, in industry and services, at a rate fast enough to also absorb those who leave farming. We have estimated that between 2004-05 and 2011-12, persons who could have potentially joined the non-agricultural workforce grew at the rate of 14.7 million a year in India. At the same time, the actual rate at which employment was created in industry and services in India during the above period was only 6.5 million per year -- or at less than half of the potential rate.

Secondly, there is a gender aspect to the employment challenge in India. The mismatch between the potential and actual growth of employment is much higher among females. Lack of decent jobs appears to be an important reason for the declining rates of female participation in the economy.

Thirdly, there is a growingly important regional dimension to India’s employment problem. Much of the increase in the numbers of young job seekers is going to come from some of the poorest regions of India, mainly the northern and eastern states, including Uttar Pradesh and Bihar.

Between 2001 and 2011, the northern and eastern states combined accounted for 52 percent of the increase in working-age (15-59 years) population but only 35 percent of the increase in domestic incomes in the country.

On the other hand, the southern and western states combined had shares of 32 percent and 54 percent respectively of the increases in working-age population and incomes in the country.

These imbalances may intensify over the coming decades unless incomes rise and job opportunities grow at much faster rates in states such as Uttar Pradesh and Bihar. Internal migration of workers from relatively poor to relatively rich states is emerging as a key feature in India’s labour market.

Finally, it is important to note that most of the results presented in this article so far relate to the period until 2011-12. In fact, the years from the mid-2000s until 2011-12 was an exceptionally good phase for the Indian economy, marked by fast growth of investment and incomes, and particularly rural incomes. What has happened to employment creation in the Indian economy during the years after 2011-12?

Unfortunately, NSSO, the premier official statistical agency in India, has not released the results of any employment survey after its 2011-12 round. There are, however, reasons to believe that employment situation in the country may have worsened after 2011-12, a period characterized by slowdown in investment. The growth of agricultural and rural incomes has markedly decelerated during the post-2011 years.

While there had been only two years of deficient monsoon rainfall during the period from 2004 to 2012, there were four such years between 2012-13 and 2017-18. The construction sector, which had accounted for half of all new non-agricultural jobs created during 2004-12, has shrunk in growth during recent times.

Micro and small enterprises have been hit the most due to demonetization and in the aftermath of the introduction of GST. All of these have deepened the employment challenge for India.

Reviving rural incomes and energizing the productive forces in the countryside, especially farmers and small enterprises, will be the key to resolving the employment challenge that India faces.

(The author teaches economics at the Indian Institute of Technology Delhi. Views are personal.)