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Why is our economy failing to create jobs?

As per the World Bank, the share of manufacturing in India’s GDP has been on a steep decline and fallen from 15.6% in 2015 to 13.7% in 2019.

Published: 22nd September 2020 07:36 AM  |   Last Updated: 22nd September 2020 10:40 AM   |  A+A-

jobs, employment, vacancy

For representational purposes

The announcement of the quarterly or annual GDP growth numbers is a feast for the economists, but the common man is always stuck with the age-old question: What does it mean for him/her? While in the stable pre-Covid scenario, it wouldn’t have meant anything starkly different, it does now. Earlier, there was a hope of revival and any downturn came as a shock. This period is different as it comes on top of a struggling Indian economy and a policy paralysis for the last few years.

All indicators that have come out paint the same picture—the great fall of our economy. Annual GDP growth for this fiscal (FY21) is expected to hit negative double digits. The gravity of this economic inactivity in terms of jobs now provides a glaring picture for everyone. Close to 94 lakh people have withdrawn Rs  35,445 crore from their EPF accounts in the last four months, up 33% from last year. This clearly indicates massive job losses or salary cuts. As per CMIE reports, salaried jobs grew by a meagre 1.6% in 2017-18, which registered a negligible growth of 0.1% in 2018-19. It has gone downhill ever since. The number of salaried jobs contracted by 1.8% in 2019-20. So, even before Covid kicked in, we were struggling to create salaried jobs. So far, during April-August 2020, we have lost close to 2.1 crore salaried jobs. The bigger question is: Why is our economy failing to create jobs for our youngsters? Is this a common problem across the bigger economies?

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Every global economy is different in its composition. So, looking at numbers relatively might not make a lot of sense. But if we focus on the five-year trend between 2014-19, it does tell us a story—the policies by all other major economies like the US, UK, Germany and Japan seem to have been bearing fruit. As per the International Labor Organization, there has been a consistent downtrend in their unemployment percentage between 2014-19. The US and UK, which were at an unemployment rate of around 6.2% and 6.1% in 2014, have seen numbers come down to 3.7% and 3.9% respectively in 2019. India is the only exception.

I tried analysing the triggers for it. Firstly, the Gross Fixed Capital Formation (as % of GDP) for India, that in layman terms indicates net investment, had been on a constant decline between 2014-19 (except 2018), falling from 30.1% to 27.4%. Developing countries generally invest heavily in fixed assets to increase aggregate demand and prepare capacities to meet future demands. A downward trend in Gross Fixed Capital Formation means that companies have not been adding capacities for the last few years, leading to no new resource requirements or the trimming of existing workforce.

Secondly, our economic growth has witnessed a downturn for the last four years, which indicates a slow demand. When consumption and demand are low and households adopt a tight fist in investing, the industrial activity slows further. If it continues for a long period, as it has in our case, organisations are left with no other alternative but to shed some of their workforce or no longer add more people.

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Thirdly, India’s reliance on employment in the agricultural sector is still very high. This sector absorbs close to 42% of the total workforce. As per the World Bank, the share of manufacturing in India’s GDP has been on a steep decline and fallen from 15.6% in 2015 to 13.7% in 2019. Manufacturing as a sector has a good potential to create more jobs with its growth. With it struggling, creating more jobs seems a far-fetched dream.

What next? What should be done to create more jobs?
Firstly, the priority of the government four months ago was to help businesses stay afloat through opening new credit lines and debt restructuring. Right now, it should be to create stable demand. Industries are operating at capacities below 70%. When demand picks up, the industrial activity will pick up, which in turn would lead to more jobs. Reducing and rationalising GST slabs for some of the commodities like two-wheelers from 28% to 18% will help push sales and create demand.

Secondly, infrastructure spending by the Centre needs to go up. As compared to the Rs  9.47 lakh crore expenditure by the Centre between April and July 2019, this year it has only increased to Rs  10.54 lakh, that too mostly towards salaries and other regular expenses. The spend needs to go up to create more jobs and push the money in the hands of the people so that consumption picks up.

Thirdly, surplus monsoons can only take you so far—rural jobs have started falling again. Around 60% of the rural income comes from non-farm sectors. Pushing MNREGA deeper and increasing the scope can be a possible solution. Connecting our cities and villages is very important. Non-farm employment opportunities in the villages should be focused either by encouraging private investment or pushing public spending.

Gourav Vallabh 

Professor of Finance and National Spokesperson, Congress 

(Views are personal)
(gourav.vallabh@gmail.com)



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  • Eran

    all know the reason
    19 days ago reply
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