Context

Recent data on the contraction of the economy raises concern on the employment situation in India. This sharp contraction has to be seen in the light of India having witnessed a wave of massive ‘reverse migration’ during the early phase of the lockdown, with millions of workers returning to their home States due to a loss of livelihoods.

Analysis

• In the current pandemic situation, the world has been caught ill-prepared to deal with a crisis of high magnitude.
• Government’s periodic labour force survey carried out in 2017-18 revealed that unemployment in the country reached an all-time high rate of 6.1%.
• At the heart of unemployment problem in India is the young, unemployed men aged from 15-29 which comprise 68% of all unemployed youths in the country.
• Adding to this are the ill-effects of the pandemic that have been essentially skewed against the youth (15-29 years) as they face a trilemma of unemployment, disruption in education, and struggling education system.

Which sectors are shrinking?

• The shrinking sectors that have been affected the most are:
  • construction (–50%)
  • trade, hotels and other services (–47%)
  • manufacturing (–39%)
  • mining (–23%)
• The above sectors are those that create the maximum new jobs in the economy.
• This sharp contraction has to be seen in the light of India having witnessed a wave of massive ‘reverse migration’ during the early phase of the lockdown, with millions of workers returning to their home States due to a loss of livelihoods.

Exposed vulnerability of employment

• The high and persistent incidence of vulnerable employment are a reflection of the nature of the structural transformation process, whereby capital and labour transfer from low to higher value-added sectors.
• India presents a curious case in this regard as capital and labour are moving from low value-added activities in a sector to another sector, but not to higher value-added activities.
• This leads to a situation where a large proportion of the jobs being created, is of poor quality.
• The service sector-led growth in recent years has intensified this as there is coexistence of strong job creation in some Information and Communication Technology (ICT)-intensive services, along with a significant portion of the jobs being created in ‘traditional low value-added services, where informality and vulnerable forms of employment are dominant.
• The outcome of such a process is the high incidence of informality which continues to undermine the prospects of reducing working poverty’.
• The pandemic and associated policy responses have exposed the vulnerability of these urban jobs.

What factors are responsible for the situation?

• Boost in labour supply: Firstly size of labour supply in India is getting a boost from the rapid expansion of the working age population.
• Rising job aspirations: Secondly 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: Thirdly size of 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. While sectors like education, professional businesses, allied services recorded acceleration in employment growth.
• 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.

The trend of global economies On the basis of the five-year trend between 2014-19, the policies by all other major economies like the US, UK, Germany and Japan are showing positive results. 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.

How to create actual jobs?

• Create stable demand: The government should focus 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.
• Cut in taxes to push sales: Reducing and rationalising GST slabs for some of the commodities like two-wheelers from 28% to 18% will help push sales and create demand.
• 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.
  • 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.
• 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.

Other important measures

• Coordination between urban and local governments: First, given the scale of urbanisation, the focus on urban employment generation programmes should be in coordination with local governments; this is key to solving other problems faced by cities.
• More focus on skill development: Lack of desired skill set makes it difficult for employers to fill job positions. Employer’s collaboration with the educated bodies will ensure a skilled labour pool in coming years.
• Large investment and focused approach: The sectors which created the highest number of jobs for the past decade i.e. manufacturing, construction, trade, hotel and transport are most badly hit due to the pandemic. Large public investment and targeted effort especially towards the younger section of population is required to revive these sector.
• 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.

Conclusion

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