Glossing over unemployment, its high electoral price
Source: The Hindu
For Prelims: Important Events around National and International
For Mains: GS III-Unemployment, GDP Growth, Inequality in the economy
Highlights of the Article
Unemployment in India
Inequality gap
Gross Domestic Product (GDP)
Context
The Indian economy requires 25 million-plus jobs to be generated over the next five years in order to employ all those who are presently unemployed in this nation.
The Narendra Modi government has claimed that the Indian economy, judged by GDP, grew at an impressively rapid pace of 8% last year. But even if that claim is true, it has not created an adequate number of appropriate jobs going by the current unemployment in India
UPSC EXAM NOTES ANALYSIS
1.Unemployment in India
- The data reveals a downward-sloping trend line, suggesting a negative correlation between the two factors: in states where a significant portion of the workforce is involved in self-employment, the unemployment rate tends to be lower.
- Given that much of self-employment in India is informal, states with a higher prevalence of informal work may find it easier to accommodate job seekers.
- However, it remains uncertain whether this relationship is causal. Does a lack of opportunities in self-employment lead to higher unemployment, or do individuals in states with high unemployment rates simply prefer not to pursue self-employment?
- A considerable portion of informal self-employment stems from agriculture and rural economies.
- Hence, a relevant measure is to analyze the proportion of the workforce engaged in urban sectors.
- A clear positive correlation emerges, indicating that unemployment rates rise in states with higher urbanization levels.
- This elucidates the elevated unemployment levels in highly urbanized states like Goa and Kerala, juxtaposed with lower rates in states such as Uttar Pradesh, Jharkhand, and Madhya Pradesh. Urbanized states typically possess smaller agrarian sectors, leading to fewer informal job opportunities compared to rural areas.
- Although informal sectors persist in urban settings, their capacity to absorb job seekers is relatively limited compared to rural agriculture, which often serves as a reserve by absorbing surplus labour
2. Statistics
- The deterioration in the employment scenario can be tracked at many levels
- One, over the years, there has been a sharp fall in the labour force participation rate in India
- Data from CMIE suggests that the labour force participation rate has fallen to around 40 per cent. For comparable countries, it is significantly higher.
- This decline suggests that despite India’s young population, many have simply opted out of the labour force, perhaps feeling let down by the absence of remunerative, productive jobs
- The situation is even more dire for women who had a considerably lower participation rate to begin with. India’s female labour force participation is not only lower than the global average, but also lower than countries like Bangladesh
- Two, even as the unemployment rate has declined from the highs observed during the initial phase of the pandemic, it remains elevated, suggesting that among those looking for jobs, those unable to find jobs remains high
- Three, the unemployment rate is higher among the younger and more educated. As per the periodic labour force surveys, the unemployment rate is higher among those in the 15-29 age group (22.5 per cent in September 2019), and those educated up to at least the secondary level (11 per cent).
- Four, while there are signs of increasing formalisation as indicated by the EPFO data, a substantial share of the labour force continues to remain employed in the informal sector, lacking a safety net
3. Inequality gap
- The disparity between the affluent and less privileged has widened significantly over the past two decades. Furthermore, during the BJP's tenure over the last decade, official data indicates a notable increase in wealth inequality.
- Presently, 1% of India’s population possesses 40% of the nation’s wealth. This poses significant challenges for both the democratic fabric and stability of the country.
- This phenomenon is visually depicted as “K-shaped” economic inequality, where the consumption and income of a few individuals are rising, while a substantial portion of the less affluent population is experiencing a decline, forming a downward 'K' shape.
- Government economists also argue that the Modi administration has achieved sustained and rapid economic growth, which has contributed to public welfare. However, the veracity of these claims remains uncertain and will need validation over the next three years.
- Contrary to government assertions, recent electoral outcomes have cast doubt on the notion that India is the fastest-growing major economy globally, a narrative championed by government experts through various media outlets. This skepticism is underscored by the BJP's significant decline in parliamentary seats in the Lok Sabha, relying now on alliances with just one state each from "regional" parties.
4. Growth Statistics
- India's recent economic growth has relied heavily on a substantial increase in the Budget deficit to fund extensive government capital expenditure.
- However, this strategy has not been accompanied by structural investments in key sectors such as industry, agriculture, and services.
- It is noteworthy that the GDP growth rate plummeted from 8% to 3.8% in the fourth quarter of 2019-20. Comparatively, the GDP growth rate for the fiscal year 2015-16, from April 1, 2015, to March 31, 2016, was approximately 8%, contrasting with the previous fiscal year from April 1, 2014, to March 31, 2015.
- Each fiscal year comprises four quarters: April 1 to June 30, July 1 to September 30, October 1 to December 31, and January 1 to March 31. Before the onset of COVID-19, the GDP growth rate for the quarter from January 1, 2020, to March 31, 2020, declined to an annual equivalent of 3.4% compared to the same period a year earlier, from January 1, 2019, to March 31, 2019.
- Therefore, the Finance Ministry's reported growth rate of 8.2% for 2023-24 appears to be a temporary surge. Doubts linger regarding its sustainability into 2024-25. Experts in quantitative economics anticipate a further decline in growth
5.Conclusion
During the last decade, this government’s economists have frequently called for the “next generation of reforms” to accelerate national economic growth
Moreover, in agriculture, 92% of the jobs are in the unorganised sector. In industry and services, 73% of the jobs created are in the small- and medium-informal sections
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Mains Practice Questions
1.Explain the term "K-shaped" economic inequality and its implications for a country's socio-economic landscape. Provide examples to support your explanation
2.Compare and contrast the GDP growth rates in India for the fiscal years 2019-20 and 2023-24. Discuss the factors influencing these growth rates and their implications for economic policy
3.Analyze the impact of Budget deficits on India's economic growth strategy in recent years. How effective has this strategy been in stimulating economic activity? Discuss with examples
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