Home / Opinion / Columns /  India’s most potent resource remains tragically underutilized

The New Year is upon us and Omicron is ominously clouding the horizon, dampening consumer sentiment and making India’s economic recovery fragile. The growth outlook depends on a symbiotic and psychological relationship between consumer sentiment and business confidence. If consumers are spending with gusto, it means they don’t have income or job anxiety. That can happen only when businesses are hiring with great enthusiasm. But businesses will do that only once they see signs of a demand revival, which in turn depends on consumer sentiment. To break this somewhat self-fulfilling cycle of pessimism, you need a big-bang shake-out stimulus, or some other sentiment booster.

Economists alone cannot figure out what that could be, beyond monetary and fiscal boosters. Maybe a cricket win? Festivals and weddings? Or a vaccine breakthrough?

Thankfully, Omicron is less of a dampener for at least four reasons: Its potency and fatality rate, at least so far, is quite low; healthcare infrastructure is much better prepared than during the summer’s vicious second wave; the country’s vaccination status keeps improving; and finally, the pandemic is bound to fade into an endemic at some point and people just want to get back to the routines of their normal economic lives. The American economy is actually overheating despite Omicron. Its labour market is not only hot, it is going through what has been dubbed “the great resignation". Since April, on average, more than 4 million people have quit their jobs every month in the US. There are about 10 million unfilled vacancies across various sectors and joining bonuses are being offered even for mundane jobs.

But the situation in India’s labour market is quite the opposite. Despite an expanding workforce, the pace of job creation is woefully inadequate. The country’s labour population ratio (LPR) has dropped to 42%, according to the International Labour Organization. Even the monthly survey of the Centre for Monitoring Indian Economy shows the LPR down to 40%. This means 60% of able-bodied adults between 18 and 60 years of age are not even looking for work. The LPR for women is barely 21%, and down to single digits in states like Uttar Pradesh and Bihar. India’s LPR is lower even compared to its neighbours, with Bangladesh at 53%, Pakistan at 48% and Nepal at 74%.

Are these discouraged workers who have given up hope of even finding a job? This does not square with the frenzied mobs who show up at government recruitment centres even for modestly-paid Class 3 and Class 4 jobs. Undoubtedly, the pandemic and associated lockdowns have affected the informal and labour intensive sectors adversely, and the low LPR may be a lingering effect of that. But overall job growth during the past few years has been low, given the demands of the country’s demographic bulge. Another indicator of distress in India’s labour market is demand for work on sites of the National Rural Employment Guarantee Scheme (NREGS). It acts as a proxy for unemployment insurance. During the last fiscal year, ended 31 March, demand for these state-assured jobs was up by 42%, with work provided to 112 million people. Since April, this has gone up by another 20%. The budgetary spend on NREGS had to be expanded during the pandemic period to more than 1 trillion annually, reflecting how heavily dependent people are on it.

Even though NREGS provides a wage floor, rural wages have been stagnating. India’s urban unemployment rate has reached 9.3% in the first quarter of 2021, as per data from the Periodic Labour Force Survey of the National Statistical Office. Since economic growth this year will be close to 10% and probably 7% next year, employment growth is inadequate. This means that income will be distributed in a skewed manner, a problem confirmed by increasing inequality, as was reported by the recent World Inequality Report.

One way out of this is to focus on labour-intensive exports and capitalize on the current boom in Western economies like America’s. India’s most abundant resource, i.e. labour, is maddeningly underutilized. Of course, you can argue that India’s numero uno position as a recipient of inward remittances ($80 billion annually and rising) makes the country a de facto exporter of labour. These transfers come mainly from semi-skilled and unskilled emigrants to West Asia. Software exports are also labour intensive, but embody high skills and employ only a few million people. Amid the pandemic-induced boost to the digital economy, our information technology sector has been on a recruitment binge. New hires are expected to triple in 2022. But that is barely a drop in the ocean of nearly 500 million looking for meaningful work. The real drivers of job growth outside agriculture are construction (both infrastructure and real estate), textiles and apparel, footwear, tourism, retail and increasingly logistics. The government also has around 2 million unfilled vacancies at various levels. But these jobs are not opening up anytime soon on account of fiscal constraints.

Even though industrial jobs are vulnerable to being eliminated by automation, there is a sufficient window still open for job creation that will support livelihoods. Bangladesh’s relentless focus on apparel exports has disproved the exaggerated risk of automation, and its per capita income has raced ahead of India’s. It is just one more country in a long line of Asian success stories involving growth led by labour-intensive exports. In India, the loss of schooling for nearly two years will dent our stock and formation of human capital.

India’s real pandemic is one of unemployment and underemployment. In a world of ageing affluent societies with big mismatches of labour demand and supply across the developed and developing world, why can’t we convert its largest and youngest labour force into an advantage? The vaccine that India needs is the one that will break the persistence of jobless growth.

Ajit Ranade is a senior fellow, Takshashila Institution

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