Everyone knows that we are grappling with a severe unemployment crisis. To remind you of the grim reality once again, it is at a 45-year high. India has recorded a spike in its unemployment rate in both rural and urban sectors.
According to the Centre for Monitoring Indian Economy (CMIE), the unemployment rate rose to 6.98% in October 2020. CMIE also shows that urban unemployment rate has reached 9%. But this didn’t happen overnight. Many factors over time have contributed to this problem, the outcome of which we see today.
It is a well-established fact that the unemployment rate is directly proportional to population growth, given the fact that government effort is constant. It is estimated that we are going to overtake China in a few years as far as the population is concerned. Unfortunately, employment generation is not as fast as reproduction.
More than 50% of the population is employed within the agriculture sector — which reminds me — farming is both a challenge and an opportunity. Opportunity in the sense that it absorbs 50% of the population. That means it offers a backup alternative to unskilled unemployed for a temporary period. Challenge remains the seasonal demand in the agricultural sector. There is a lack of systems that provide alternatives for farmers and labourers.
Other factors include technology development, automation and robotics, lack of long term plans by the government, immobility of labour force due to unwillingness of people and other reasons, inadequate growth of infrastructure and low investments in the manufacturing sector, economic change, inadequate state support, legal complexities and low infrastructural, financial and market linkages to small industries or small businesses, social norms which prevent women from contributing their part in the economy, lack of skills that are in demand, etc.
It would have been much easier for the government to cope with the currently existing socio-economic problem if the Covid-19 had not come. Certainly, migrant workers crisis, lockdown and recession-induced by economic slowdown has further aggravated the existing issue of unemployment. It has affected every sector of the economy adversely. IMF projected a GDP growth of 1.9% for India in 2020. With this subdued forecast, India is likely to record its worst growth performance since the 1991 liberalisation.
We should not get into numbers, at least for now. The more worrisome part is the fact that we are only going to observe an increase in poverty, decrease in the overall demand, increasing dependence on the working population, wastage of human capital, labour exploitation, crimes and social tensions if we don’t change our approach while dealing with macro-economic issues.
We need to get to the basics first. Companies can’t flourish and invest heavily in capacity expansion in a “low consumer demand” environment. FICCI business surveys reported: “While the business environment has started showing improvement through the different phases of unlocking of the economic activities by the government, the biggest worry for India is the weakening consumer demand”.
Consumption, which was already low, further saw a decline amidst the pandemic. So, it is clear that until consumption rises, it is highly unlikely to observe positive job growth. Consumption will rise only when there is more money at the bottom of the pyramid.
FICCI report also suggested measures like easy credit availability, additional direct cash transfer, a temporary reduction in GST rates, enhanced government procurement, part funding of salaries to support jobs, etc. These measures are, however, unlikely to bring any major change soon.
As far as government schemes and programs are concerned, there has been no significant achievement of flagship schemes including Startup India, Stand up India, Pradhan Mantri Kaushal Vikas Yojana (PMKVY), Skill India and so on. These programs have failed not just because of the poor implementation, but because of lack of clarity associated with unemployment itself. There has to be an acceptance from the government’s end that there persists an unemployment crisis in the first place.
Our programs fail because we don’t get to the root of the problem. Our baseline data, surveying method and assessment process are faulty; that is why we design policies erroneously which turn out to be unproductive.
Without a doubt, getting back to normal is not easy that too at a time when a recession is inevitable. But “wait and watch” policies in economics do more harm than good. Therefore, necessary measures (to be discussed in next parts) are to be taken by identifying problems, redefining priorities, reinventing approaches and fixing things accordingly.