India is one of the fastest-growing economies in the world. On pace to become the third-largest economy, surpassing Japan and Germany, by 2028. India also has the second largest labor force in the world, second only to China, with 476.6 million people. Despite all the positive signs, there are several glaring complications for the future. Amid a booming economy, it cannot accommodate the millions of new workers that are entering or are poised to enter the workforce. Over 42 out of 100 youth workers do not find jobs in their desired field of work. That is approximately 73 million unemployed young people, and currently, 100,000 new workers are entering the economy for jobs. This reveals a catastrophe developing right under our noses.
In every economy, there are two employment sectors, formal and informal. The former is a form of employment where there are clear terms of employment, and the government supervises it, such as most office jobs, factory work, or bureaucratic positions. As the name suggests, the latter provides less job security, employs workers for wages on the margin, and the government does not supervise. Some examples of informal jobs might be food hawkers, seasonal agricultural workers, or freelance repair persons. Demonetization of the Indian banknote in 2016, the COVID-19 pandemic, and the failed labour transition from agriculture to the service sector are several factors causing this debacle. Demonetization brought the entire middle-low class population to a standstill. In 2016, over 600 million Indians did not have a bank account, so there was no way to remunerate informal workers after the government issued the demonetization order. The sheer instability caused by COVID-19 cannot be overstated, as the pandemic forced 57 percent of informal workers into debt from June to August 2020.
The effects of demonetization and COVID-19
In 2014, as part of his campaign, Narendra Modi, the current Prime Minister, promised 100 million new jobs to youth by 2022. Here we are in 2023, and it has yet to be determined how many jobs Modi has added to the economy, never mind to the youth. One of the most significant factors causing unemployment was demonetization in 2016. On November 8, 2016, Modi announced that the government would ban the currency of INR 500 (about USD 6.15) and INR 1,000 (about USD 12.3), rendering 86 percent of the total cash flow illegal.
One main contributor to this policy was the black economy — goods being illegally sold via the black market — which made up about 20 percent of India's 2016 GDP. This market meant the Indian government was losing a significant amount of tax revenue and regulation power. The demonetization policy successfully combated that issue, but also financially crippled hundreds of millions of citizens. The policy move resulted in a dramatic drop in GDP growth in the next two quarters. It also significantly disrupted the informal sector, where employers could not pay their employees because the notes possessed no purchasing power in an open market. It immobilized many employees and reduced an already decreasing labor force, with the youth unemployment rate increasing by 0.8 percent two years into demonetization. However, it did recover by about .3 percent in 2019; unfortunately, COVID-19 intervened and decimated the national economy.
COVID unsettled the world's daily economic and societal balance for around 18 months. In 2020, from April to June, India's GDP contracted by 24.4 percent, recording the overall GDP contraction for the fiscal year 2020/21 by 7.3 percent, the worst financial year in its history. The pandemic also shut down the entire country and its 1.3 billion citizens for 68 days from March 25, 2020. This severely crippled the labor industry; furthermore, numerous businesses axed their employees in order to save financial resources. The lockdown also stalled the education sector, which forced students to take classes through their phones because families, traditionally, did not invest in everyday technology like computers, tablets, etc. Thus, the new wave of graduates were not as skilled or trained as prior classes of new workers.
The disappearing female labor force
Female labor employment also reached historic lows. In 2021, Indian female employment, to the female population, crashed to 19 percent, lower than in Pakistan, Saudi Arabia, and Bangladesh. Despite its massive youth population, young people in India make up the lowest share of the labor force, with 19 percent, while young women account for just 5 percent of the labor force. The economy has also failed to provide jobs for new workers entering the job market. In 2019, over 100,000 young South Asians entered the job market daily, and nearly half of them did not find jobs, thus, clearly showing extensive weaknesses within India's fast-growing economy.
Overwhelming dependence on agriculture
Another contributing factor is the distribution of jobs in India. According to the data from 2019, around 43 percent of jobs were in the agriculture sector, 25 percent in the industrial sector and 32 percent in the services sector. The agricultural employment share of 43 percent is much higher than the world average of 27 percent. On the contrary, the services sector employment share of 32 percent is much lower than the world average of 51 percent. Finally, the industrial sector holds 25 percent of employment compared to the world average of 23 percent.
These statistics show an overwhelming dependence on the agricultural sector to provide new jobs and maintain the current employment rate, given the severe consequences of demonetization and COVID-19. Of the 465 million workers in the agricultural sector, close to 91 percent are informal workers. With the lack of job security, regular wages, and government oversight, these workers often cannot provide for their families and are forced onto the streets to look for employment. Formal sector jobs are more desired than informal sector jobs, and it is easy to understand why: they provide job security, regular pay, and social security benefits, in some cases.
On January 26, 2022, there were significant demonstrations against “irregularities” in the application procedure for 35,000 railway clerical posts in the state of Bihar. There were more than 12 million applicants for the 35,000 vacancies; because of the overwhelming excess of applicants, the railway ministry raised their criteria to tender applicants with better qualifications of a high school diploma as the basic requirement. Inevitably, major protests broke out in Bihar, where an abandoned train car was set on fire.
Change is urgently needed
“A lot of this growth is jobless growth,” said Raghuram Rajan, the former governor of the Reserve Bank of India, regarding India's record-breaking growth, in an interview with NDTV. It perfectly describes the booming Indian economy that has failed to capitalize on its most incredible resource — employable young people. Given that the population will be older in the 2030s, now is the chance for the government to correct its economy to provide more employment opportunities for its youth. Moreover, there are several solutions.
Diversification of employment opportunities is essential. India is over-dependent on agriculture to provide jobs for its educated workers and also close the skill gap between the occupation and education level. There needs to be a concerted effort to shift the paradigm towards the industrial and service sectors and encourage more workers to move sectors — all with extensive government support. The government needs to support and incentivize entrepreneurship at the entry level. Consequently, small businesses can create jobs on a large scale without fear of overleveraging. The next reform is to increase the concerningly low women employment from just 19 percent. Regulation laws prohibiting and restricting women's employment should be revoked, and the government should establish self-help groups, and initiate women-focused programs similar to China. Whether these solutions are quick and effective in the short term remains to be seen, but India's future could be jeopardized if it fails to restructure its job economy.