Credible research shows that India needs to create 115 million jobs between 2024-2030 of which it will need to create 16.5 million jobs annually till 2030. For this, long-term structural changes and an inclusive, sustainable and jobs-friendly GDP growth of 8-9% is required.
Overall Context
India has a current workforce of close to 580 million people, 85% of whom are in the unorganized sector. More than 50% of its population was under 25 years of age and more than 65% were under the age of 35 in 2022 (World Population Prospects). 1.5 million Indian engineers graduate every year while there were 10.76 million college graduates in 2022, an increase of 1.67 million year-on-year. At least 5 million graduates are unemployed at any given time.
Credible research shows that India needs to create 115 million jobs between 2024-2030 of which it will need to create 16.5 million jobs annually till 2030 (up from 12.4 million in the last decade).
10.4 million of these annual jobs will need to be in the formal sector. This is up from the 112 million jobs that were estimated to be created in the last decade, of which only 10% or 11.2 million (or 1.12 million people annually) were in the formal sector. (Ruchi Bhatia, Bloomberg, May 20, 2024).
Furthermore, Mckinsey and Company estimate that 9 million non-farm jobs will need to be created annually during this period as against only 2.9 million annual jobs created annually between 2013-19 (Dr. Santosh Mehrotra, University of Bath).
India’s labour force particiption rate (LFPR) is only 58% at best (some estimate it at under 50%), much lower than the global average of 65% and its Asian peers (eg. China’s is 76%). Moreover, the labour force participation rate of women in India has been declining since 2005, with only 25% of working age women joining the labour force currently according to the World Bank. By contrast, the US LFPR for women is currently 67%, in China it is 71% and in Vietnam it was 70% a decade ago.
India’s Biggest Economic Challenges in the Next Decade
It is now widely accepted that the big electoral losses of the BJP and the NDA coalition in India’s recent Lok Sabha elections whose results were announced on June 4, 2024 were significantly caused by the unprecedented degrees of unemployment, under-employment, ill-suited employment (eg. PhDs and college graduates applying for jobs as peons and construction workers), precarious informal and self-employment (much of it unpaid especially for women in agriculture), and high levels of unemployability which currently exist in India. This is in addition to, among other critical social issues, religious divisiveness, fast increasing inequality, even growing poverty especially post-Covid 19, as well as high food inflation and many other difficult bread and butter issues which ordinary citizens have to deal with on a daily basis.
The challenges just mentioned, together with the urgent need to increase the annual economic growth rate from the current largely jobless and non-inclusive 6% per cent per annum to an inclusive, sustainable and decent jobs friendly 8-9% per annum for at least the next decade to enable India reap the benefits of its unique, once in a life-time demographic dividend opportunity, represent two of the most formidable medium and long-term economic challenges that India currently faces.
These challenges, however, cannot be met without the Government addressing long-term structural challenges which, while they did not begin a decade ago when Prime Minister Modi came to power, have been considerably exacerbated in this last decade. While Covid was responsible for some of this exacerbation, much of it preceded the pandemic and can be traced to the ruling BJP government’s policies over the last decade.
For example, India’s highest level of unemployment of 6.1% in 45 years was in 2017-18, well before Covid-19. The fastest increase in employment in recent times was between 2017-18 and 2022-23 but of the 80 million people who were employed during this period, 60 million were employed in agriculture reversing the process of necessary structural change away form agriculture which had been underway between 2004-19 when the agricultural workforce fell. As a result, the percentage of the workforce in agriculture (which produces only 15% of India’s GDP) went up from 42-45% between 2020-23. There was also an 8% per annum increase in women returning to unpaid care, home related and livestock rearing work in agriculture during this period. While in absolute numbers there were 99.8 million workers earning daily wages of only Rs 100 (a little over USD 1 per day) in agriculture between 2010-2018, this number actually increased to 127.1 million by 2022 (at 2012 constant prices)!
By contrast, only 60 million people were employed in manufacturing in 2012 and this number actually fell to 56 million between 2017-18 and 2019-2020, recovering to its 2012 level only after Covid.
62% of respondents across India who participated in the Center for the Study of Developing Societies (CSDS) April 2024 surveys indicated that it was more difficult to get a job in 2024 compared to only 33% who had said this in 2019 with respect to the earlier period. This is despite the Government’s claim about “surges in employment.”
This so-called “surge” is partly an example of data interpretation. The Government, ignoring the International Labour Organization’s (ILOs) universally accepted definition, appears to have decided to include unpaid informal labour in their employment numbers, thereby inflating them, especially for women and youth, the most badly affected categories.
On the contrary, there are now very large numbers of unemployed youth (over 40% in the 20-24 age group) while a very significant number of adults are neither studying nor in the job market. Many workers, disproportinately women, are not even looking for jobs. These high figures may well be understated because of increasing data suppression, obfuscation or manipulation of the kind mentioned above. There have also been breaches of data protocols and data release regulations.
The overall unfavourable political economy of the country has also resulted in a continuing drain of brain, innovation and money. As many as 2.5 million Indians migrate overseas annually. This is the highest annual number of migrants in the world and was the leading source of migrants to OECD countries in 2021 and 2022, according to the latest reliable data. In 2022, India also had a net outflow of 7500 high net-worth individuals (HNWIs) with an investible USD 1 million or more. This was second in the world only to China.
While these numbers do not have much political impact in a country of more than 1.4 billion people, they have a negative demographic dividend, citizen quality, innovation and intellectual impact far exceeding the actual numbers. Dr. Raghuram Rajan, a previous Governor of the Reserve Bank of India, speaking at a conference in Washington DC on 17 April, highlighted the large number of young Indian innovators going overseas, mainly to Singapore and the Silican Valley, USA, to set up businesses. He also said ‘I think we are in the midst of it (demographic dividend), but the problem is we are not reaping the benefits’ and that India’s 6 per cent GDP growth is much below where China and South Korea were when they reaped their demographic dividend.
Indeed, all of the above trends contribute to ‘new’ India’s once in a lifetime demographic dividend being unnecessarily squandered.
So What should be Done?
So what can and should be done urgently given that the demographic dividend window will close by 2040?
Given the structural nature of these challenges, India will need to have both clear short, medium and long term strategies and holistic strategies and policies that comprehensively address the whole political economy of the country, but especially its education, science and technology, banking and finance, agriculture, manufacturing and industrial sectors and labour market.
History the world over has demonstrated that a country cannot generate sufficient decent jobs without a robust manufacturing sector, centered in its micro and especially in its small and medium enterprises (MSMEs). Large capitalized industry and physical infrastructure projects generate relatively little employment. In fact, most non-farm employment outside the corporate sector in India is in MSMEs which are mostly unregistered enterprises in the unorganized sector which account for 85% of India’s total enterprises. MSMEs are also likely to be more environmentally friendly, particularly important at this stage when climate change challenges have become existential issues for India and the world.
Despite this, India has not had a good history of supporting this sector sufficiently. In fact, quite the opposite happened between 2016-20 from which this sector is still to recover. Three major policies especially disadvantaged this sector in a big way during that period resulting in multiple simultaneous shocks to it. First, it was crippled after the Modi government’s abrupt policy of November 2016 which demonetized 86% of India’s currency. Second, MSMEs were then further negatively impacted by the inadequately and untested design and implemented Goods and Services Tax (GST) in July 2017. Third, they were further devastated by one of the world’s strictest Covid lockdowns at only four hours notice in March 2020.
A top priority for both the medium and long-term is to provide MSMEs with all the support they need starting but not stopping with access to credit. The Government’s MSME Udhyam registration scheme launched in July 2020 falls far short of what is needed since it only represents registration on a portal and does not deal with the systemic challenges addressing this sector such as access to adequate and affordable credit for all MSME sectors, access to markets, technology adoption, skills development and support for regulatory compliance, to name the most important. India cannot have inclusive growth without the healthy development of its MSME sector, especially its small and medium enterprises.
While support for this sector together with a comprehensive overhaul of India’s primary and secondary education system to make it more employer and vocation friendly are appropriate and necessary medium to long-term strategies to address the crises and challenges identified earlier in this article, making Apprenticeship a Right for youth under 25 years of age is an urgent and essential short and long-term strategy and policy. This will require providing such apprenticeships mandatory and a top short-term priority for all private and public sector employers, including MSMEs. While the necessary legislation, the Apprenticeship Act, has existed since 1961 to enable this and the launch of the first phase of a National Apprenticeship Promotion Scheme in 2016 reinforced the intent of that legislation, its implementation has not produce desired results because while central and state level public enterprises have fulfilled their obligations, the entire private corporate sector as well as MSMEs have largely ignored it. A 2022 ILO study concluded that while apprenticeships went up as a result of the 2016 Scheme, there were still only a little more than 0.5 million apprenticeships in a workforce of 580 million in India in 2022-23 (Periodic Labour Force Survey). This is miniscule compared with Germany which has a 46 million workforce with at least 6 million apprenticeships.
The Right to Apprenticeship cannot succeed if corporate private industry and MSMEs are not placed center stage and made to fulfil their obligations under the Scheme. For this to happen, central and state Governments need to have effective monitoring and enforcement mechanisms to ensure that the private and public corporate sector and MSME comply with what is expected of them and put in adequate resources into their apprenticeship programs which are designed well and implemented effectively.
There are well tested industry and employer demand led models such as the mature Germanic and Swiss ones which use the duality principle emphasizing simultaneous schooling and work experience. These schemes can be used as models with the content of India’s apprenticeship schemes adapted from them. Quality assurance systems will also need to be developed and implemented. These can be adapted and implemented relatively quickly in India on scale. They should serve as an antidote to India’s current supply driven education system which does not currently focus on vocational and employable skills, has no employer “connect,” and has no requirements for internships or apprenticeships. So it should not be surprising that the 2021 India Skills report stated that nearly half of India’s graduates are unemployable.
Going Forward
India’s economy today is viewed by some commentators as robust. It may continue to be viewed as such by default for a while, even at its current sub-optimal largely jobless and non-inclusive 6% per annum GDP growth because this growth rate is higher than many of its peers.
But it is important to reflect on why relatively little of the investment supposedly leaving China for other destinations is relocating to India so far. It seems clear that this is significantly because the ecosystem for such investment, especially the quality and employability of India’s graduates, is deficient or lacking. While the country cannot be totally ignored because of the relative size of its domestic market, Simon Tisdall, the Observer’s Foreign Affairs commentator recently wrote in The Guardian newspaper that the current foreign investment and broader interest in this ‘new’ India may be a short-term ‘affair’ rather than a long-term ‘marriage.’ (Tisdell, 2024). It is for India to prove Tisdell wrong. It will only be able to do this if it takes on the twin challenges of making its GDP growth rate both 2% higher than it currently is and much more inclusive on a sustainable basis than it has been in the last decade. India will also, on an urgent and sustainable basis, need to address the unemployability, decent formal jobs and broader unemployment, unpaid informal employment and ill-suited employment challenges that currently afflict so many of its engineers, college graduates, women and youth.
ABOUT THE AUTHOR
The author is Non-Resident Senior Fellow at the Boston University Global Development Policy Center. He also provides high level policy advice in India and globally and writes on national political economy and global and regional geo-political and geo-economic issues. Prior to his retirement from the United Nations in late 2021, he was its Head in Vietnam, Turkey and Malaysia between 2008-2021.
Earlier, he was UNDP Senior Adviser on Inclusive Globalization based in New York. Widely published, he has written six books, ten contributions to other books and more than 100 journals and other publications.
