World Bank’s report paints a bleak picture of unemployment in India; no reforms introduced by BJP government

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By Our Correspondent

NEW DELHI – The growing unemployment and inequality in India are set to put the brakes on the country’s growth and the capability to harness demographic dividend from its large population of youths, says a new World Bank document, titled “South Asia Development Update, April 2024: Jobs for Resilience”. The World Bank’s chief economist Franziska Ohnsorge has authored the report, which was released at its headquarters in Washington, D.C., United States of America, on April 2.

The report has identified India with a “no-reform scenario”, where employment growth is exceptionally weak compared to other emerging markets and developing economies. With no reforms being introduced by the Bharatiya Janata Party government to boost employment, India has failed to match its job creation with the expanding working age population from 2000 to 2023.

In a shocking revelation, the document has stated that India’s employment ratio has declined more than in any other country in the South Asian region, except Nepal, until 2022. These negative factors may cripple the country’s transformation into a fully developed economy and the target of becoming a developed nation by 2047 – underlined repeatedly by Prime Minister Narendra Modi in his Lok Sabha election rallies across the country – may remain a distant dream without reforms to boost employment.

The employment ratio, which has declined steeply in India, refers to the labour force currently employed against the total working-age population of a region. “Employment growth has not kept pace with working-age population growth. The South Asian region employs only 59% of its working-age population compared with 70% in other emerging markets and developing economies,” says the foreword of the report.

Calling it a “missed opportunity”, Ohnsorge said: “It is almost like the demographic dividend is being squandered.” She was referring to the large youthful working age population that is a bonus for a country as compared to a very large ageing population which is non-productive and a drag on the economy.

The International Labour Organisation (ILO) has also stated in its India Employment Report-2024 that the youths in the total unemployed pool constituted a massive 83%. On the other hand, the size of the elderly is set to rise to over 20% of the population by 2050. Evidently, India has a relatively small window to reap the demographic dividend before it enters the cycle of an ageing population.

A major reason for the slow growth in employment is the lack of investments by the private sector. In his foreword to the document, Marting Raiser, World Bank’s vice-president for South Asia Region, has pointed out that more than elsewhere, growth momentum in South Asia has been driven by the public sector while private investment growth has been weak. Without a thriving private sector, job creation is likely to continue on a weaker path than in other emerging market and developing economies.

The latest data on private equity (PE) deals in India corroborates this. Private equity investments have fallen to a six-year low at 24.2 billion U.S. dollars in the financial year ending March 2024. Compared to the previous year 2022-23, investments through PE deals have declined by 47%, when deals worth 45.8 billion U.S. dollars were signed. Among other reasons, geopolitical uncertainties and volatile conditions have reduced liquidity in the international markets.

Noting that India’s economy was expected to post a robust growth of 7.5% in the financial year 2023-24, the World Bank said this expansion coupled with recoveries in Sri Lanka and Pakistan, was largely driving the strong numbers for the South Asian region. Still, the region could have 16% higher output growth if the share of its working-age population that was employed was on a par with other emerging markets and developing economies, Ohnsorge stated.

“South Asia is failing right now to fully capitalise on its demographic dividend. This is a missed opportunity,” Ohsonrge said. The preliminary data suggested a 3-percentage point rebound in 2023, which had partially reversed the decline. The weak employment trends in the region were concentrated in non-agricultural sectors, the World Bank said, reflecting challenges in the institutional and economic climate, which had stifled the growth of businesses.

The World Bank’s report seems to suggest that the shift to services and the growth of a large talent pool could provide the employment boost required for the country to turn the corner. “In the services sector, India’s large, well-educated, young, and English-speaking workforce, coupled with a reliable digital infrastructure, has turned the country into a global leader in computer services and business process outsourcing and a global hub for medical services.”

India is at present witnessing a steep rise in ‘gig employment’ – a free market system in which temporary positions are common and organisations hire independent workers for short-term commitments. There was a rise of 184% in white-collar gig jobs this year compared to the previous year. But the casual employment cannot make up for sustained, long-term jobs, and current ground reports seem to point in the opposite direction.

The post-pandemic period has seen a crumbling of the start-up bastions especially in the edu-tech sector as risk investment has dried up. The crisis-ridden learning portal Byju’s has recently shed 2,000 employees, as it struggles to pay salaries. Earlier, Paytm, directed by the Reserve Bank of India to cease key operations, has been forced to retrench 20% of its staff at its banking unit.

Significantly, 36% of IIT-Bombay’s 2,000 graduates awaiting placements were not absorbed this year, and are still on the lookout for jobs. This is a slight increase of about 3% over the previous year. Though the IIT management has denied these findings of a survey conducted by a newspaper, the fact remains that the job market for even the best equipped has turned sluggish.

The inflation in the country has remained within the Reserve Bank of India’s 2% to 6% percent target range since a spike in mid-2023, and the policy rate has remained unchanged since February 2023. Food price inflation has been elevated, partly reflecting a weak harvest due to El Nino.

The growth in the near-term is more reliant on the public sector than elsewhere, whereas private investment, in particular, continues to be weak. Efforts to rein in elevated debt, borrowing costs, and fiscal deficits may eventually weigh on growth and limit the ability of governments to respond to increasingly frequent climate shocks. Yet, the provision of public goods is among the most effective strategies for climate adaptation.

This is especially the case for households and farms, which tend to rely on shifting their efforts to non-agricultural jobs. These strategies are less effective forms of climate adaptation, in part because opportunities to move out of agriculture are limited by the region’s below-average employment ratios in the non-agricultural sector and for women.

Since the employment growth is falling short of working-age population growth, the South Asian region, including India, fails to fully capitalise on its demographic dividend. Vibrant and competitive firms are key to unlocking the demographic dividend, robust private investment, and workers’ ability to move out of agriculture. According to the World Bank, a range of policies could spur firm growth, including improved business climates and institutions, the removal of financial sector restrictions, and greater openness to trade and capital flows.

Among the World Bank’s recommendations to encourage the growth of employment were supporting the participation of women in the economy, increasing access to finance, increasing openness to trade, easing financial sector regulations and improving education. The BJP government will be well-advised to devise strategies for carrying out reforms to create more employment opportunities, rather than provoking people’s sentiments to get their votes in the upcoming Lok Sabha elections.

The “South Asia Development Update, April 2024” may be accessed at this web link:

https://openknowledge.worldbank.org/entities/publication/6b5182fb-8d37-4384-af28-16feb55a3b31

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