The latest round of the Survey of Professional Forecasters on Macroeconomic Indicators published by the Reserve Bank of India expects the Indian economy to grow by 6.9% in 2022-23 and by 6% in 2023-24. In global comparison, these expected growth figures are pretty good. Nonetheless, we have a problem on the jobs front, with economic growth not creating enough of them for India’s youth.
The latest round of the Survey of Professional Forecasters on Macroeconomic Indicators published by the Reserve Bank of India expects the Indian economy to grow by 6.9% in 2022-23 and by 6% in 2023-24. In global comparison, these expected growth figures are pretty good. Nonetheless, we have a problem on the jobs front, with economic growth not creating enough of them for India’s youth.
As per the Centre for Monitoring Indian Economy (CMIE), the labour force participation rate (LFPR) as of November stood at 39.6%. LFPR is the ratio of the labour force to the population aged 15 years or more, where the labour force comprises persons who are 15 or more and are either employed or are unemployed and actively looking for a job. Hence, this means that for every 1,000 individuals in the population aged 15 or more, 396 are either employed or unemployed and looking for a job.
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As per the Centre for Monitoring Indian Economy (CMIE), the labour force participation rate (LFPR) as of November stood at 39.6%. LFPR is the ratio of the labour force to the population aged 15 years or more, where the labour force comprises persons who are 15 or more and are either employed or are unemployed and actively looking for a job. Hence, this means that for every 1,000 individuals in the population aged 15 or more, 396 are either employed or unemployed and looking for a job.
The LFPR was at 42.9% in January 2020, before covid broke. This data is available from January 2016 onwards and the LFPR back then was 47.7%.
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As per the latest Periodic Labour Force Survey (PLFS), the urban LFPR for the period July to September had stood at 47.9%. It was at 48.1% for January to March 2020, before covid struck. Interestingly, when it comes to quarterly data, the PLFS estimates only urban figures.
Now let’s consider the modelled estimate published by the International Labour Organization. As per this, India’s LFPR in 2021 was 46%, while that of China was 68%. Let’s refine this comparison a bit more. Data from the World Bank tells us that India’s current per capita income stands at $1,961.4 (in constant 2015 US$). Now what was China’s LFPR when it had a similar per-capita income? China’s per capita income was around $1,910 in 1998 and $2,038 in 1999. Its LFPR in those years was 77%. Clearly, economic growth was more equally distributed in China back then.
Or let’s take the case of Indonesia. It currently has a LFPR of 68%. Its per capita income was $1,968 in 2002. Its LFPR at that point of time had stood at 66%.
Hence, India’s LFPR is much lower than that of other countries when they were at India’s income level. Why? India’s youth (those aged up to 29 years) spend a long time preparing for government exams. In that process, they are not counted as unemployed and are not a part of the labour force. Further, many simply give up looking for a job after not finding one and they are not counted in the labour force either.
Now let’s look at the annual PLFS data, with the latest available being for the period July 2020 to June 2021. As per this, the LFPR for the period 2020-21 had stood at 54.9% having improved from 50.2% in 2018-19. Clearly, the PLFS data suggests that things are improving on the employment front.
But there is a simple explanation for this jump. The proportion of workforce under agriculture has gone up from 42.5% in 2018-19 to 46.5% in 2020-21. History tells us that as a country makes economic progress, it moves its workforce away from agriculture into more productive jobs. In India’s case, probably because of the covid pandemic and increasing formalization of the economy, the opposite seems to have happened over those years.
Further, there is huge disguised unemployment in agriculture. On the face of it, people seemed employed, but agricultural production would not suffer even if some of these employed people stopped working.
Clearly, not enough jobs are being created for India’s youth. In the past two decades, there has been a lot of talk around India’s huge demographic window of opportunity, its “youth bulge," or individuals in the age bracket of 15-29.
As a government report titled Youth in India points out: “The total youth population increased from 222.7 Million in 1991 to 333.4 Million in 2011 and is projected to reach 371.4 Million by 2021." At a simple level, the expectation was that as the youth entered the workforce and found jobs, they would earn and spend money, and the multiplier effects would pull millions of Indians out of poverty.
The trouble is that India’s youth bulge may already have peaked and has possibly started to shrink. The number of youth in India is expected to contract to 367.4 million by 2026, 356.6 million by 2031 and 345.5 million by 2036. In states like Kerala and Tamil Nadu, the proportion of youth in the population may have already peaked a while back.
Hence, if India needs to become a middle-income country, jobs need to be created for the youth entering the workforce over the next decade and a half, when even though shrinking, the number of youth will still be sizable.
The government has made some attempts through its production-linked incentive scheme, but given that this scheme is focused on capital-intensive industries, its ability to create a huge number of jobs remains limited.
Jobs are created in any country as small businesses become bigger, something that hasn’t happened enough in India. That’s the main problem area that government policies need to attack with vigour. In the end, it is worth remembering that while a youth bulge might theoretically be needed to drive economic growth in a country, practically if there aren’t enough jobs to go around, the bulge doesn’t really pay off.
Vivek Kaul is the author of Bad Money.
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