Breaking India’s Jobless Growth Trap

• 09 Jul 2024

This editorial is based on “Welfarism is not the solution for India’s job problem, skill creation is” which was published in The Indian Express on 09/07/2024.  The article highlights the urgent need to address India's unemployment crisis by implementing long-term job creation policies, emphasizing vocational training, wage subsidies, and basic income supplements to boost demand and create sustainable employment opportunities.

For Prelims: Share of Manufacturing Sector in India’s GDP, Economic recession, Skill India, Gig economy, Industry 4.0, Skill India Mission, Pradhan Mantri Kaushal Vikas Yojana, Apprentice Protsahan Yojana, Production Linked Incentive Schemes, e-SHRAM Portal.  

For Mains: Reasons for India’s Jobless Growth, Major Government Initiatives to Bridge the Employment Gap.  

India's urban landscape is a canvas of ambition. Modern metropolises pulsate with economic activity, attracting a steady stream of young graduates seeking their fortunes. For countless young Indians, the city lights represent the beacon of opportunity. They arrive with dreams of a better life, fueled by years of education and ambition. However, these dreams are increasingly deferred by the harsh reality of urban unemployment.  

India faces a critical challenge of creating good-quality jobs, especially for its young population. This issue has persisted across decades, with economic growth failing to keep pace with job creation. India needs to shift focus on creating a future-proof workforce equipped to navigate the demands of the evolving Indian economy. By addressing this challenge head-on, India can ensure its cities remain engines of growth and opportunity for all. 

Why Is India's Economic Growth Not Corresponding with Sufficient Job Creation? 

• Paradox of High-Skill, Low-Employment Sectors: India's economic growth has been predominantly driven by services and capital-intensive manufacturing sectors, which typically generate fewer jobs relative to their economic output.  
  • The IT sector, for instance, contributes significantly to GDP but employs only about 4.5 million people directly.  
  • This trend is further exemplified by the recent push for advanced manufacturing, such as in semiconductors and electronics.  
  • While these industries boost economic indicators, they often fall short in creating large-scale employment opportunities, particularly for the less skilled workforce. 
• Premature Deindustrialization and Its Impact: India is experiencing premature deindustrialization, where the share of manufacturing in both GDP and employment begins to decline at a much lower level of per capita income compared to developed countries.  
  • This trend, partly driven by global competition and automation, limits the ability of the manufacturing sector to absorb surplus labor from agriculture, traditionally a key pathway for job creation in developing economies. 
• Impact of Global Economic Trends: India's job market is increasingly influenced by global economic trends. Protectionist policies in developed economies have affected India's export-oriented industries, impacting job creation in these sectors.  
  • Moreover, global supply chain disruptions, economic recession (over 4.25 lakh tech employees lost  jobs in 2023) have highlighted vulnerabilities in certain industries and their employment potential.  
• Skill Mismatch: The rapid pace of technological change has created a significant gap between the skills demanded by the job market and those possessed by the workforce. 
  • The 2015 Report on National Policy on Skill Development and Entrepreneurship had estimated that only 4.7% of the total workforce in India had undergone formal skill training, highlighting a severe shortage of job-ready skills.  
  • Recent initiatives like Skill India, while ambitious, have struggled to meet targets and ensure successful job placements.  
  • This mismatch not only leads to unemployment but also underemployment, where individuals work in roles below their qualification level or potential. 
• Informal Sector Dominance: Over 90% of India's workforce is employed in the informal sector, characterized by lower productivity, limited job security, and minimal social protections. 
  • This prevalence of informal work not only affects job quality and worker welfare but also hampers overall economic productivity and the ability to create sustainable, high-quality jobs. 
  • The gig economy and platform-based work have created new employment opportunities but also introduced job market precarity.  
    • These platforms offer flexible work but often lack job security, benefits, and career growth prospects. 
• Demographic Dividend Challenge: India adds approximately 12 million people to its workforce annually, creating an immense pressure on job creation.  
  • To absorb these new entrants and address existing unemployment, the economy needs to generate 10-12 million jobs per year.  
  • However, job creation has consistently fallen short of this target.  
    • This failure to harness the demographic dividend risks turning it into a demographic burden, potentially leading to social unrest and economic instability. 
• 'Missing Middle' and MSME Subsidence: India's industrial landscape is marked by a predominance of very small firms (with less than 50 workers) and a few very large corporations, with a conspicuous absence of mid-sized firms.  
  • This 'missing middle' phenomenon hampers job creation, as mid-sized firms typically have the highest potential for employment generation and scaling up.  
  • The lack of adequate growth from small to medium enterprises stunts overall job creation in the formal sector. 
    • Also, the MSME sector, initially hit by demonetization and further exacerbated by the COVID-19 pandemic, continues to struggle in its recovery efforts, hampering job growth.  
• Impact of Automation and AI: Emerging technologies, particularly automation and artificial intelligence, are reshaping the job landscape across sectors.  
  • The McKinsey Global Institute estimates that 9% of India's workforce could be displaced by automation by 2030.  
  • While these technologies create new job roles, they often require high-skill levels, potentially exacerbating unemployment among less skilled workers.  
• Mismatch Between Academia and Industry 4.0: India's traditional education system, often fails to equip students with the critical thinking and practical skills required in the modern job market.  
  • The India Skills Report found that only 47% of Indian graduates were employable in 2019, highlighting a significant gap between academic qualifications and job readiness.  
  • This mismatch not only leads to unemployment among graduates but also creates inefficiencies in the labor market, where companies struggle to find suitable candidates despite a large pool of job seekers. 
• Regional Disparities in Growth and Job Creation: Economic growth and job opportunities in India are heavily concentrated in a few urban centers, leading to significant regional imbalances.  
  • This concentration creates migration pressures, with workers moving from less developed regions to urban areas in search of employment.  

What are the Major Government Initiatives to Bridge the Employment Gap?  

• Skill Development and Training Programs: 
  • Skill India Mission: Launched in 2015, this flagship program aims to train millions of youth in industry-relevant skills through various schemes like Pradhan Mantri Kaushal Vikas Yojana (PMKVY) and National Skill Development Corporation (NSDC). 
  • Apprenticeship Initiatives: Schemes like Apprentice Protsahan Yojana (APY) incentivize companies to hire apprentices, providing on-the-job training and experience for young individuals, 
    • Under this Scheme 50% of prescribed stipend paid to the apprentices is shared by the Government of India. 
• Incentivizing Job Creation: 
  • Aatmanirbhar Bharat Rojgar Yojana (ABRY): Introduced during the pandemic, this scheme provides wage subsidies to employers who create new jobs and retain existing ones. 
  • Production Linked Incentive (PLI) Schemes: These schemes offer financial incentives to companies in specific sectors (like electronics, automobiles) to boost domestic manufacturing and create jobs. 
• Fostering Entrepreneurship and Self-Employment: 
  • Pradhan Mantri Mudra Yojana (PMMY): Provides microloans to aspiring entrepreneurs for starting or expanding small businesses. 
  • Stand-Up India: This initiative aims to promote entrepreneurship among women and Scheduled Castes/Scheduled Tribes by facilitating bank loans. 
• Addressing the Informal Sector: 
  • e-SHRAM Portal: This online platform aims to register informal workers, improving their access to social security benefits and potentially formalizing their employment. 
• State-Specific Initiatives:  
  • Indira Gandhi Urban Employment Guarantee Scheme- Rajasthan 

What Measures can be Adopted to Boost Job Creation in India?  

• Localized Skill Ecosystems:  Create micro-level skill development hubs aligned with local industry needs.  
  • These hubs would offer tailored training programs based on the specific requirements of industries in each region, ensuring a direct pipeline of skilled workers to local employers. 
• Green Jobs Transition Fund:  Establish a dedicated fund to support workers transitioning from carbon-intensive industries to green jobs.  
  • This fund would provide retraining, relocation assistance, and temporary income support, facilitating a smoother shift towards a sustainable economy while minimizing unemployment. 
• Gig Worker Cooperatives:  Promote the formation of worker-owned cooperatives in the gig economy. These cooperatives would provide gig workers with better bargaining power, shared resources, and a safety net, while still maintaining the flexibility of gig work. 
• AI Job Augmentation Program:  Implement a national program to train workers in AI-assisted job roles. Instead of viewing AI as a job destroyer, this initiative would focus on creating new job categories that combine human skills with AI capabilities, increasing overall productivity and employment. 
• Circular Economy Job Clusters:  Develop specialized industrial clusters focused on circular economy principles. These clusters would create jobs in recycling, upcycling, and sustainable product design, fostering a new sector of employment while addressing environmental concerns. 
• Micro-Manufacturing Networks:  Encourage the creation of decentralized, small-scale manufacturing units connected through digital platforms.  
  • This network can be led by MSMEs through credit guarantee schemes that would enable distributed production, reducing the need for large factories while creating jobs in smaller towns and rural areas. 
• Nano-Entrepreneur Incubation Zones: Establish specialized zones in tier-2 and tier-3 cities focused on nurturing ultra-small businesses.  
  • These zones would provide shared resources, mentorship, and market linkages for entrepreneurs starting with as few as 10-15 employees, targeting rapid scaling to 40-50 employees within 1-2 years.  
• Precision Agriculture Employment Initiative: Launch a nationwide program to train and employ youth in high-tech, precision agriculture techniques.  
  • This would include drone operations for crop monitoring, data analytics for yield optimization, and IoT-based farm management, creating a new category of tech-savvy agricultural professionals. 
• Accelerating the Passage of DESH Bill: Accelerating the passage of the DESH Bill, which replaces the Special Economic Zones Act, can create a flexible framework for attracting investments and generating employment.  
  • It facilitates the development of specialized hub development based on regional strengths through more GIFT Cities like Gujarat’s, while enabling partnerships with economically similar cities abroad.  
  • Also, by integrating the sister cities concept, India can foster international economic cooperation, facilitating skill development, technology transfer, and market access.  

Drishti Mains Question:

Discuss the challenges faced by India's job market in keeping pace with economic growth. What long-term policies can be implemented to address these issues? 

UPSC Civil Services Examination Previous Year Question (PYQ) 

Prelims 

Q. Pradhan Mantri MUDRA Yojana is aimed at (2016)

(a) bringing the small entrepreneurs into formal financial system 

(b) providing loans to poor farmers for cultivating particular crops 

(c) providing pensions to old and destitute persons 

(d) funding the voluntary organizations involved in the promotion of skill development and employment generation 

Ans: (a) 

Q. Disguised unemployment generally means (2013)

(a) large number of people remain unemployed 

(b) alternative employment is not available 

(c) marginal productivity of labour is zero 

(d) productivity of workers is low 

Ans: (c) 

Mains 

Q. Most of the unemployment in India is structural in nature. Examine the methodology adopted to compute unemployment in the country and suggest improvements. (2023)

Q. The nature of economic growth in India in recent times is often described as jobless growth. Do you agree with this view? Give arguments in favor of your answer. (2015)