India’s economy may be growing more than twice as fast as the rest of the world but the story on the jobs creation front is just the opposite. India’s economy will grow at 7% in the current fiscal year, according to the Organisation of Economic Cooperation and Development (OECD).
But India’s rate of employment has declined and job creation has not kept up with the growing working-age population.
It lags most other countries in creating quality jobs (see chart).
Over 30% of youth aged 15-29 in India are not in employment, education or training (NEETs). This is more than double the OECD average and almost three times that of China.
NEET is a relatively new concept.
According to the OECD, youth inactivity presents the share of young people (age 15-29) not in employment, education or training (NEET) as a percentage of the total number of young people in the corresponding age group.
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“NEETs include all youth left outside paid employment and formal education and training systems. They are NEET because there are not enough quality jobs being created in the system and because they have little incentives or face too high constraints to be in the education and training systems," said Isabelle Joumard, senior economist and head of the India desk, OECD.
Why does India fare poorly on this front? Several factors are responsible. Labour laws in India are complex and relatively strict. Employment protection legislation is restrictive, compared with other emerging economies and OECD countries, OECD said in its India Economic Survey 2017 report. “Thus, corporates in India tend to rely more on temporary contract labour, stay small or substitute labour for capital to avoid strict labour laws. Apart from that, corporate income tax has created a giant bias against labour-intensive activities," Joumard added.
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The current government is making efforts to correct the situation. It has reduced administrative requirements for complying with existing labour laws and increased transparency in routine interaction between firms and administrations, thereby making the labour regulations friendlier for job creation. More needs to be done to streamline labour laws and states have a role to play too, said Joumard.
The OECD 2017 survey also points out that for India, assessing labour market trends is made difficult by poor employment data, with information for total employment available only every five years. The last NSSO round was held in FY2011-12. More frequent data could help take policy actions in a timely manner. At 3.8% of GDP, public spending on education in India is lower than countries like Brazil and Malaysia. The focus of the government needs to shift to spending on enhancing the quality of education and vocational training. All these measures together could possibly improve India’s track record on job creation.