Narendra Modi doesn’t have an answer for India’s jobless growth

Praying for jobs.
Praying for jobs.
Image: Reuters/Rick Stevens
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India is the world’s fastest-growing major economy. But there’s a jobs crisis brewing.

Over 280 million people are estimated to enter the country’s job market by 2050, making India home to the largest working-age population in Asia-Pacific. Naturally, this means there is a need for millions of new jobs.

Yet, the latest job figures (pdf) from India’s Labour Bureau show that employment growth in the first nine months of 2015—for eight labour-intensive sectors—fell to the lowest level since 2009. The country added 155,000 jobs during the period, compared to some 300,000 in the corresponding months in 2014.

Employment generation was also a top electoral promise made by Narendra Modi’s prime ministerial campaign in 2014. “The country has been dragged through 10 years of jobless growth by the Congress-led UPA government,” the Bharatiya Janata Party’s (BJP) 2014 election manifesto said (pdf).

Nonetheless, even Modi doesn’t quite seem to have a solution to fix India’s employment mess.

On June 27, in a television interview to the Times Now news channel, Modi was asked to explain this situation. This was his reply:

The first thing is that there are 800 million people below the age of 35 in our country. We have to accept that the demand for jobs is very high. But where will they get employment? Investment will come in. It will be used in the infrastructure sector, manufacturing and services sector. Now, like the initiative we have taken, we have started the Mudra Yojana. More than three crore people in the country comprise washermen, barbers, milkman, newspaper vendors, cart vendors. We have given them nearly 1.25 lakh crore rupees without any guarantee.

Now why have these people taken the money? To expand their work. When he expands his work, if he is currently employing one person, now he has to employ two people. If there were two employed earlier, now there are three. Now just think, when three crore of these small businesses have got access to finance, they must have expanded their work.

Modi’s answer may seem like an estimation because it is probably one. There is a distinct lack of data about India’s unorganised sectors, which employs 90% (pdf) of the country’s labour force. India also lacks a timely and consistent metric to measure unemployment, like in the US or the UK.

That was something Modi also alluded to.

“Now, all this (job growth in the unorganised sector) is not in the labour department’s registration. Three crore people have expanded their work,” he said in the interview.

Unorganised sector

At the same time, the Modi government’s policy interventions seem primarily focused on the unorganised sector. For instance, the Mudra Yojana—a loan scheme for small businesses and micro-enterprises—that Modi spoke of, would have little effect on the organised labour force.

The other policy changes that Modi referred to have been made in India’s retail sector:

We took another small decision. The big malls in the country run 365 days a year, but the smaller shops have to close on holidays. We announced in the budget that even a small shopkeeper can operate his shop till late night and that too on all seven days of the week. If the malls don’t have restrictions, then why should the small shopkeepers have restrictions. So now if a shopkeeper operates his shop till late and on all seven days, if he earlier employed one person, he will have to employ two people. So won’t the employment increase?

These, too, may not make a huge difference, because more than 95% of India’s retail industry is unorganised.

Meanwhile, expansion in India’s formal workforce is stalling. There are several reasons for this: falling exports, weak manufacturing, lack of momentum in infrastructure, and listless private investment, among others.

Modi must fix this situation. ”If job creation is not given priority, India faces the risk of stagnation just like in the developed world, albeit with a difference: there it is at a high per capita GDP level, which is not the case in India,” Madan Sabnavis, chief economist at CARE Ratings, wrote for Quartz in April.