India’s joblessness, a story unfolds

The global economic slowdown has hit many industries, and the passing year came down very hard on the businesses, with many companies closing their operations and numerous people losing their jobs. With a new year just around the corner, many businesses are hoping for a better 2020.

In India about 1.2 crore people enter the workforce every year but the pace of job creation remains far below than what is needed, even though the economy is growing at over seven percent. According to a recent report by CARE Ratings, in a study involving 1938 businesses across all sectors and including all listed public sector entities – there has been a slowdown in growth of employment as compared to growth in GDP. The report observed that employment growth has slowed down in the last two years after a sharp recovery in 2016-17. Jobs grew at a rate of 2.5% in 2015-16, 4.1% in 2016-17, 3.9% in 2017-18, and 2.8% in 2018-19. In an ideal scenario rate of growth in employment has to be aligned to growth in GDP.

Looking at rising unemployment and job losses in India

CARE Ratings in its report released mid November, 2019, said, “On an annual basis the difference between the growth rate in GDP and employment was 5.5% in 2015-16, 4.1%, 3.3% and 4% respectively in the subsequent years. Therefore, there is a case that supports the argument that employment growth has not been commensurate with GDP growth with a difference of 4.2% in CAGR during this period.”

In Jamshedpur (the steel city of India) alone, about 80,000 people lost their jobs, as per a Quint report (dated Dec 3, 2019 ). According to the Periodic Labour Force Survey released in June 2019, the unemployment data for 2017-18 stood at 6.1% – 7.8% urban and 5.3% rural, making it a 45-year low.

As per the data presented by the Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India has increased from 5.9% in February 2018 to 7.2% in February 2019. As per the report, India had around 31.2 million people actively looking for jobs in 2019. Azim Premji University in its report “State of Working India 2018” has said that the relationship between growth and employment generation has only become weaker over the past few years.
Meanwhile, the Government of India has not released any official data on unemployment and job losses. The absence of any official data and constant denial by the government has only deepened the fear of joblessness.

India’s joblessness can be majorly attributed to the nature of the country’s economy. About 75% of the workforce in the country is engaged in the unorganized sectors like agriculture, construction and small enterprises. Also, Indian economy has primarily been a cash economy, and most of the small traders, businesses rely heavily on cash to support their transactions.

These sectors were left unsettled after demonetization with employers being unable to either procure their supplies or pay their employees or vendors. This led to job losses across the value chain for many trading, small businesses, and manufacturing clusters. Multiple small businesses, MSME’s had to tone down or shutter their operations.

GST, which came just a few months after the demonetization only added fuel to the fire with its poor implementation. Many small enterprises shut down their entire businesses because of the complexity of fulfilling criteria for registration, filing returns. GST, also impacted mid and large size businesses considering, lack of clarity regarding adjustment of inputs, refunds, etc.

Keeping it simple, we can say that the overall impact has created a reverse dominos effect, wherein, a hit on small businesses and the absence of cash in circulation led to reduced or deferred consumption and spending which in turn also impacted the bigger businesses and their growth plans. Even mid and large corporates across the sector had to tone down their growth and hiring plans considering poor forecasts and poor uptake of products in the market. A key example of this could be the Automobile sector. The sector saw a good number of job cuts – mostly focussed on contractual and seasonal manpower, as well as freeze in hiring of regular shop floor and white collared workers. The country’s biggest car manufacturer, Maruti Suzuki reportedly cut 3,000 contractual jobs.

According to a leaked report from the National Sample Survey Organisation (NSSO), over the next two decades, roughly 18 to 20 million Indians will enter the job market every year, but half of them will not actually enter the workforce. Another interesting fact that adds up to the current job scarcity is the gross enrolment rate in higher education, which has gone up from 19.4% to 25.8% between 2010 and 2018. This is a major reason why young job seekers from the age of 17-26 are over represented in the unemployment figures. A student who has invested heavily in education would want a formal good-paying job than enter the unorganized sector with lesser pay.

In India, an added concern has been poor quality of talent produced by educational establishments that mushroomed over the last decade. As per an Aspiring Minds survey – “The ‘ National Employability Report for Engineers 2019’ – over 80% of engineers in India are unemployable in the jobs available in the knowledge economy. The skill gap in the indian talent ecosystem has been highlighted by many industry leaders from top Indian and global employers. Addressing the issue, Ginni Rometty, Chairperson, President & CEO of IBM Corporation during a company conference in March 2019 said that Indians lack the required skill sets to address the requirements of new-age jobs. She highlighted the need to look at education beyond obtaining/giving away degrees. Rometty, said – “In India, you have the same issues. Open jobs, (but) no matching skill sets,” and “You have got to believe in a few different things than I think you believed in the past. One is to believe that skills are perhaps more important than a degree.”

Underemployment is also a major contributor to these stats as many highly qualified graduates are applying for the lowest-grade government jobs. Prime example of this could be facts revealed by Indian Railways, the country’s largest employer. In 2019 alone, around 19 million applications were accepted for the group-D vacancies out which 44% applications were from engineering graduates or postgraduates. To put that into perspective, group-D posts only require a high school diploma and pays only 18,000 per month.

Vacant Government Jobs

Meanwhile, lack of funds with the government has left many government posts vacant. Over 4,12,752 central government contractual jobs, about a million state and central government teaching jobs, and about half-a-million jobs in the state police are left unoccupied. The following data is compiled by the Times of India based on the answers submitted in Rajya Sabha on February, 2018.

Automation & threat to jobs in labour intensive sectors

Adding fuel to the fire, automation is also threatening 69% of the jobs in India. In a media statement, Chief Economist, CRISIL, DK Joshi said, “India hasn’t exactly succeeded in generating a lot of jobs in the manufacturing sector and now automation threatens to take away jobs. Now is the time to focus on other labour intensive sectors as well because of the predicted job losses.” He further added, “We are a little late in joining the manufacturing bandwagon. Even after so many years of reforms, manufacturing doesn’t contribute to GDP substantially. For job creation, you will have to push manufacturing which has been the traditional job creator across the world. However, to cater to the burgeoning labour pool, you will have to look beyond manufacturing sectors like education and health as well.”

All the above said facts and data point in the same direction regarding the situation of joblessness in India. With more and more qualified candidates entering the job market the government can no longer disassociate itself from the scenario. Before the situation worsens, India must revise its policies and create an environment where innovation and job creation needs to be facilitated with relaxed rules and norms. Otherwise, the country’s diversity can turn into a demographic burden with inflation on a continuous rise.