Assessing the state of (un)employment in India

Latest data from the Centre for Monitoring Indian Economy (CMIE) shows that India’s labour force participation rate (LFPR) has fallen to just 40% from an already low 47% in 2016.

• Pre-Covid-19 Era: Even before COVID-19, the unemployment rate touched a peak in 2017-18 at 6.1%. 
• Post- Covid-19 Era: Meanwhile, the rural unemployment rate rose to 8.35% in February 2022 after mild fluctuations around 5-7% since June 2021.

What is Labour Force Participation Rate (LFPR)?

• According to the CMIE, the labour force consists of persons aged 15 years or older, who are either employed or unemployed and actively looking for a job.
• LFPR represents the “demand” for jobs in an economy.

Understanding Unemployment 

• Unemployment occurs when a person who is actively searching for employment is unable to find work.
• The most frequent measure of unemployment is the unemployment rate (UER), which is the number of unemployed people divided by the number of people in the labour force.
  

LFPR Trend

• In India, the LFPR is not only lower than in the rest of the world but also falling.
• Global average of LFPR is around 60%. In India, it has been sliding over the last 10 years and has shrunk from 47% in 2016 to just 40% as of December 2021.
• As per the Centre for Monitoring Indian Economy, the average urban unemployment rate remained higher at 9.04% in 2021 and above 7% in January-February 2022.
• Recent trend suggests that not only that more than half of India’s population in the working-age group is deciding to sit out of the job market, but also that this proportion of people is increasing.
  

What factors are responsible for high unemployment rate?

• Boost in labour supply: Size of labour supply in India is getting a boost from the rapid expansion of the working age population.
• Rising job aspirations: The nature of labour supply is changing too, with increasing enrolment of young adults for education and their rising job aspirations.
• Reduced workforce in agriculture: Workforce engaged in agriculture has been declining in India from 258 million in 2005 to 197 million in 2018. The decline has been partly due to stagnant public investment from 1990s and also driven by the pull of new opportunities in towns and cities.
• Manufacturing sector: Size of manufacturing workforce in India declined by one million from 2012-2018. Micro and small firms received severe setbacks due to increase competition and rising cost.
• Poor skilling of youth: According to Periodic Labour force survey 2018 the pervasive joblessness was due to poor training of youth as only 7% of the people surveyed declared any formal or informal training.
• Pandemic: Increase in the country's unemployment rate can be mainly attributed to COVID at present. Many people lost their jobs and lockdowns led migrants to flee from urban centers to rural areas.
• Prevalence of unorganised sector: Absence of a good gauge of jobs in India because India is predominantly an unorganized-sector led economy that does not generate stable jobs.
• Inadequate growth of infrastructure: Inadequate growth of infrastructure and low investments in the manufacturing sector which led to decrease in employment in the secondary sector.
• Lack of women empowerment: Regressive social norms that deter women from taking or continuing employment.

What are the impacts of unemployment in India?

• Poverty: Unemployment can give rise to the problem of poverty and deter the living conditions of the people.
• Extra burden on government: The government suffers an extra borrowing burden and rise in fiscal development because unemployment causes a decrease in the production and less consumption of goods and services by the people.
• Less focus on capital: Government spending is mainly diverted towards revenue expenditure leading to decrease in spending for capital expenditure.
• Rise in antisocial elements: Unemployed persons can easily be enticed by antisocial elements. This makes them lose faith in the democratic values of the country.
• Increase in crime: People unemployed for a long time may indulge in illegal and wrong activities for earning money which increases crime in the country.
• Rise in socio-economic cost: Unemployment affects the economy of the country as the workforce that could have been gainfully employed to generate resources actually gets dependent on the remaining working population, thus escalating socio-economic costs for the state.

How to create employment?

• Increase in infrastructure spending:Infrastructure spending by the Centre needs to go up. 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.
• Non-farm employment opportunities:Rural jobs have started falling again. Non-farm employment opportunities in the villages should be focused either by encouraging private investment or pushing public spending.
• Increase investment:A large part of the solution to this lack of adequate jobs is in increasing investments.
• Focus on demand size: The investment climate needs to be business-friendly and government interventions must shift away from supply-side support to spurring demand.
• Impetus to manufacturing sector: Urgent need to create more jobs in manufacturing sector by changing labour laws, giving special assistance to labour-intensive sector and employment-linked production incentives
• Bridging the digital divide:Additionally, special efforts need to be made to ensure minimal disruption in continued education and to bridge the digital divide.
• Strengthening rural jobs scheme:MGNREGA and rural jobs schemes have to be strengthened and their capacity increased, but only a portion of the workforce might be accommodated in it.

Given the situation, urgent action is needed in multiple fronts including investment in human capital, increase expenditure on MGNREGA, revival of productive sectors and programmes to stimulate small entrepreneurship.