Economics

TOPICS: Tracing the progress of the Indian Economy in the post reform period with
emphasis on the poverty and unemployment situation.

S. Mahendra Dev and M. Venkatanarayana

Indira Gandhi Institute of Development Research (IGIDR)
Young people are a major human resource for development, key agents for social change and
driving force for economic development and technological innovation. But harnessing these
resources is a major challenge. The youth challenge is considered as the most critical of the
21st century’s economic development challenge.
It is a major focus of the Millennium Development Goals (MDGs) and was reaffirmed by the
Ministers and Heads of Delegations participating in the- High-Level Segment of the
Substantive 2006 Session of the Economic and Social Council (ECOSOC) They committed to
develop and implement strategies that give youth everywhere a real and equal opportunity to
find full and productive employment and decent work. Since independence there has been a
policy concern for youth in India. The Planning Commission of India has recognised youth as
the most vital section of the community (Visaria, 1998). Also it had made a particular reference
to unemployment among the problems faced by the youth. Varied youth welfare activities,
including the promotion of sports, have been designed and developed. However, the higher
relative incidence of youth unemployment has not received adequate attention.

Few of the factors which has absolutely affected Indian economy is Unemployment, in order
to under the same, these two components are required essentially:
1) Labour Force Participation Rate.
2) Worker Population Rate.

Labour Force participation Rate: The labour force participation rate is the measure to evaluate
working-age population in an economy. The participation rate refers to the total number of
people or individuals who are currently employed or in search of a job. People who are not
looking for a job such as full-time students, homemakers, individuals above the age of 64 etc.
will not be a part of the data set. This is an important metric when the economy is not growing
or is in the phase of recession. It is that time when people look at the unemployment data.

Trend of Labour Force participation Rate in India :The overall labour force participation
rate (LFPRs) based on NSS usual status (includes both principal and subsidiary) shows that
there has not been any steady decline or increase during the last three and half decades but
it was fluctuating between 40 to 44 percent. However, a close look at the trend shows that
during 1970s the LFPR had increased to its highest ever in 1977-78 and began to decline
thereafter. During the 1980s decline in WPR continued till late 1990s.Between 1987-88 and
1993-94, although there was marginal increase in LFPR, there was a sharp decline of 2
percentage points between 1993-94 and1999-2000. But the LFPR increased again between
1990-2000 and 2004-05 with sharp increase of 2.4 percentage points. Again during 2007-08
the LFPR has declined by 1.7 percentage points from the level of 2004-05.

Worker Population Rate:

The data refers to worker population ratio (per 1000) for persons of age 15-59 years for each
State/UT. Worker Population Ratio is defined as the number of person/person-days employed
per 1000 person/person-days.

Worker Population Rate in India: But a close look at the trend shows a similar pattern
observed in the case of LFPR. Clearly, during 1970s the WPR had increased to its highest
ever and during the 1980s there was a decline that continued till late 1990s. The WPR
declined to its lowest ever to 39.7% in 1999-2000 and revived between 1999-2000 and 2004-
05 with an increase of 2.3 percentage points. But, it declined to 40% in 2007-08.

( Data and graphs with details are here https://data.gov.in/search/site?query=Employment

)

Category LFPR 2004-05 LFPR 2009-10 WFPR 2004-05 WFPR 2009-10 UR 2004-05 UR 2009-10
Rural 44.6 41.4 43.9 40.8 1.7 1.6
Urban 38.2 36.2 36.5 35.0 4.5 3.4
All India 43.0 40.0 42.0 39.2 2.3 2.0

3) Levels of Unemployment and its measurement standards in India,

The National Sample Survey Organization (NSSO),since its inception in 1950, does the
measurement of employment / unemployment in India.

The National Sample Survey Organization (NSSO) provides three different estimates of
employment and unemployment based on different approaches / reference periods used to
classify an individual’s activity status. These are the
 1. Usual status approach with a reference period of 365 days preceding the
date of survey
2. Current weekly status approach with a reference period of seven days
preceding the date of survey
3. Current daily status approach with each day of the seven days preceding
date of survey as the reference period.

In order to find out whether an individual is employed or unemployed it needs to be first

determined whether h/she belongs to the ‘Labour Force’ or not, which in turn depends
on the Activity Status of the individual during the chosen reference period.

Activity Status refers to the activity situation in which the individual is found during the
reference period with respect to his participation in economic or non-economic
activities.

The NSSO defines following three broad Activity Status i) Working (engaged in an
economic activity) i.e. ‘Employed’ ii) Seeking or available for work i.e. ‘Unemployed’ iii)
Neither seeking nor available for work.

All those individuals having a broad activity status as i) or ii) above are classified as
being in the Labour Force and those having activity status iii) are classified as outside
the Labour Force. Thus labour force constitutes of both employed and unemployed.

In other words, Labor force (also called work force) is the total number of people
employed or seeking employment in a country or region.One is classified as ‘not in
labour force’, if he or she was engaged in relatively longer period in any one of the non-
gainful activities.

Unemployment rate is the percent of the labor force that is without work.

i) Gender Difference and Unemployment: ( Deshpande, Ashwini; Goel, Deepti; Khanna,

Shantanu )
Almost one-third of the gap between per capita GDP of India and China is because fewer
people are working in India than China. This is due to a much bigger gender gap in
employment in India. The share of men aged 15 years and above who are employed in India
and China was 76.4% and 73.5% respectively in 2017. For women, these numbers were
25.9% for India and 60.4% for China. While, the share of working women has been going
down in both these countries since 1990s, the absolute numbers are much lower for India.

A Mint article by Stephan Klasen, professor of development economics at University of

Gottingen, Germany provides a useful summary of economic research on this topic. It lists
factors such as women dropping voluntarily from workforce with increasing family incomes,
rising incompatibility of work and family duties as workplace moves away from home etc.
The article also faults India’s development trajectory based on domestic consumption and
high value service exports, which has not led to creation of jobs for women with medium
levels of education such as those in China and even Bangladesh for this problem.

ii) Organised, Unorganised Sector and Unemployment:

India's workforce comprises nearly 92 per cent in the unorganised segment, with the entire
farm sector falling under the informal category, while only one-fifth of the non-farm workers
are found in the organised segment. Estimates suggest that in the non-farm sectors, as we
move up the income ladder, the share of the informal sector gradually declines. However, as
far as the agricultural sector is concerned, irrespective of economic class, the share of the
unorganised workforce remains flat. Further analysis reveals that the coverage of social
security schemes has been extremely sparse among the economically and socially
vulnerable sections. The pro-rich, pro-capital policy of the present regime is reflected in the
recent downward revision of the interest rate to the subscribers of provident fund. Further,
the move towards defined contributory schemes away from defined benefit schemes of
pension funds is fraught with danger. Therefore, we argue that given the poor affordability
and lack of an institutional mechanism, any design of social security that relies heavily on a
contributory basis is bound to fail dismally.

iii) Urban and Rural and Unemployment:

Over the past few years, the government had undertaken a series of transformational
reforms that not only impacted the economy but also had a lasting impression on the
mindset of people. Some of the structural reforms include introduction of GST, the
bankruptcy code, and demonetisation.

Some other reforms such as Niti Aayog Digital India and Jan Dhan Yojna, MUDRA yojna,
Make in India, PM Jeevan Beema Yojna, Suraksha Beema Yojna, Fasal Bima Yojna, Atal
Pension Yojna, Garib kalyan yojna, Udaan Scheme and Swachh BharatNSE 0.00 %
Abhiyaan, Skill India, Beti Bachao Beti Padhao, Smart city mission, National Sports Talent
Search Scheme are expected to show positive meaningful impact in the medium to long
term.

These transformational reforms contributed to India sustaining an average growth rate of

7.3% over the past four years and helped in covering up the rural and urban gap in Indian
economy.

Difference between joblessness and Unemployment

( The following is to be done in front of the respective supervisor as the research materials is
either vague or not understandable )
Before coming to poverty few things which are needed to be focused regarding
Unemployment are:
Digital world and Unemployment:

The digital economy promises a wealth of decision ready data at the fingertips of companies,
governments and even international civil society organisations. What about the social
entrepreneurs and small, but impactful, civil society organisations where limited tools are
available?

In today’s economy, civil society organisations are left to relieve the pain felt by marginalized
youth, women and children, while government points to the private sector to create the
necessary jobs and the private sector in turn points to the government to create and
implement the necessary policies to allow it to create jobs. But no one has asked which jobs
must be created, for who, how and why – especially when it comes to tackling these
inequalities.

Perhaps digital tools are able to provide insights and an understanding of the future of youth
empowerment and employment. First, data collection (personal, market and other sources of
big data) must be improved, and so must the analysis of that data. Finally, decision making
must then be based on the employability, in terms of soft skill attributes, of the person. As
digital tools become more efficient in solving daily productivity problems and become more
adaptive to learned situations, we’ll progress to a stage where digital tools can be deployed
to solve some of society’s greatest challenges, including unemployment and/or
employability.

Wages and Earnings: ( Carlos Gradín, Montek Singh Ahluwalia )

There exist substantial differences in wages across rural and urban locations. It is
manifested across types of occupations as well as types of contract of the worker. In
general, rural wages, across occupations, sectors or types of contract, are lower than urban
wages. The rural-urban wage gap for those in regular employment, with continuous monthly
or weekly source of wages, has increased over the years. On the other hand, for casual
workers, who essentially are daily wage earners, the wage gap is much less across locations
and has also reduced over.

Wage Differences Across Agricultural and Non-Agricultural Sectors Non-agricultural wages

are almost always higher than agricultural wages in both rural and urban areas. This is partly
due to the lower rate of return in agriculture and also due to the need for higher levels of skill
required in non-agricultural employment. The figure below shows that the gap between
agricultural and non-agricultural wages has increased over the years for both male and
female workers in the rural areas.

Raghuram Rajan
When asked about not having a proper definition of poverty, he stated that India do not need
an exact definition of poverty but there are financial services where Indian needs to focus
and ponder as they serve the purpose and felicitates welfare.
Dr APJ Abdul kalam
To create a better world, it is necessary to alleviate poverty.

Poverty in India:
India has a significant problem of poverty, despite being one of the fastest-growing
economies in the world. It had a growth rate of 7.11% in 2015, and a sizable consumer
economy. The World Bank reviewed and proposed revisions on May 2014 to its poverty
calculation methodology and purchasing power parity basis for measuring poverty
worldwide. According to this revised methodology, the world had 872.3 million people below
the new poverty line, India had third highest number of people living in extereme poverty in
after Nigeria and Congo in January 2019.[1]. Although, it was a minimal 3.6% in terms of
percentage. As of 2014, 58% of the total population were living on less than $3.10 per
day. According to the Modified Mixed Reference Period (MMRP) concept proposed by World
Bank in 2015, India's poverty rate for period 2011-12 stood at 12.4% of the total population,
or about 172 million people; taking the revised poverty line as $1.90.

1. Lack of Inclusive Economic Growth:

The first important reason for mass poverty prevailing in India is lack of adequate economic growth in

India. In the first three decades of planned development (1951-81) in India, annual average growth in
national income had been 3.6 per cent.With 2.1 per cent per cent per annum growth in

population, per capita income grew by only 1.5 per cent per annum during this period. In

addition, with the increase in saving rate from about 9 per cent in 1950-1951 to 20 per cent

of GDP in 1979-80, increase in per capita consumption expenditure was too small to make

any significant dent on the problem of poverty. Besides, because of prevailing income

inequalities per capita consumption expenditure of the poor could have hardly risen.

Further, trickledown effect of overall economic growth was operating only to a small extent.

This is manifest from the feet that employment opportunities had been increasing at a very

slow pace during this period. In fact, in NSS 1999-2000, rate of unemployment increased.

No wonder that even in 2009-10, 355 million persons or 29.8 per cent of population lived

below the poverty line.

2. Sluggish Agricultural Performance and Poverty:

Many economists have pointed out that in the year of good agricultural output, poverty ratio

declines. Good performance in agriculture leads to more employment opportunities and fall

in prices of food grains. More employment opportunities and lower food price cause poverty

ratio to decline. The experience of Punjab and Haryana shows that with agricultural growth

through use of new high yielding technology (popularly called green revolution), poverty ratio

can be significantly reduced.

However, in various states of the country such as Orissa, Bihar, Madhya Pradesh, Assam,

East Uttar Pradesh, where poverty ratio is still very high new high-yielding technology has

not been adopted on a significant scale and as a result agricultural performance has not

been good. As a result, poverty prevails to a larger extent in them.

Further, Indian policy makers have neglected public sector investment in agriculture,

particularly irrigation for quite a long period since 1980-81. As a result, irrigation facilities

whose availability ensures adoption of new high-yielding technology and leads to higher

productivity, income and employment, are available in not more than 33 per cent of
cultivable land. As a result, many parts of the country remain semi-arid and rain-fed areas

where agricultural productivity, income and employment cannot be sufficient to ensure

significant reduction in poverty.

3. Non-implementation of Land Reforms:

Equitable access to land is an important measure of poverty reduction. Access to adequate

land, a productive asset, is necessary for fuller employment of members of an agricultural

household. Most of the rural poor are agricultural labourers (who are generally landless) and

self-employed small farmers owning less than 2 acres of land.

They are unable to find employment throughout the year. As a result, they remain

unemployed and under-employed for a large number of days in a year. No wonder that these

landless agricultural labourers and self- employed small farmers remain poor. Land-reforms

were intended to provide them equitable access to land.

An important type of land reforms was to redistribute land through implementation of callings

on land holdings so that poor landless labourers and small farmers should have access to

adequate land for having fuller employment and enough income to meet their basic needs.

Another important land reforms measure related to tenancy reforms, which were intended to

protect the poor tenants from eviction of land cultivated by them and fixation of fair rents to

be charged by the landlords. Further, ultimately ownership rights over land are to be

conferred on the tenants cultivating the land.

With security of tenure and fair rents they would have incentives to cultivate land and adopt

the new green revolution technology. In this way with the implementation of land reforms,

poor agricultural labourers, small farmers and tenants were expected to rise above the

poverty line.

But with the exception of West Bengal and to some extent Kerala land reforms remain

unimplemented with the result the rural poverty did not decline adequately. On the other
hand, in West Bengal implementation of land reforms have led to a faster decline in rural

poverty.

4. Rapid Population Growth:

Rapid population growth since 1951 is another important factor responsible for persisting

poverty in India. Population in India has increased from 36 crores in 1951 to 102.7 crores in

2001, that is, 66 crores people have been added to the Indian population in the last about 50

years since independence. Rapid population growth causes excessive sub-division and

fragmentation of holdings. As a result, per person available land has greatly declined so that

households do not have access to sufficient land to produce enough output and income for

them.

Further, rapid growth of population increases the dependency ratio, that is, an earning

member has more persons to support. This causes lower per capita consumption

expenditure which is not enough even to meet the basic needs.

Rapid growth in population in India since 1951 has caused lower growth in per capita income

causing lower living standards of the people. Besides, explosive growth in population has

worked to reduce rates of saving and capital formation which is crucial factors for

determining growth in income and employment.

Though the rate of gross saving and investment rose from about 9 per cent of GNP to about

21 per cent in 1978-79. But, it fell to 18 to 19 per cent per annum in 1980. The rate of saving

and real investment (i.e., capital formation) remained almost stagnant at around 22 to 23 per

cent per annum during the eighties and nineties. This has especially caused low rate of real

investment in agriculture. This has adversely effected the growth in irrigation-facilities which

are important factor in determining income and employment in the rural economy.

We thus see that rapid population growth has adversely affected growth in per capita

income, saving and capital formation which are so essential for reduction in poverty.
5. Unemployment and Under-employment:

The existence of unemployment and underemployment in the Indian economy is another

cause of poverty in India. Unemployment prevails more among casual labour whose

proportion in labour force has been increasing and in their case unemployment and poverty

go together.

The unemployment has been caused by rapid growth of population and labour force on the

one hand and relatively low rate of capital formation and economic growth on the other.

Besides, the generation of employment opportunities by the organised sector has been quite

insignificant.

As a result, the demographic reassure on land has been increasing resulting in

unemployment, and disguised unemployment in agriculture and the informal sector. Thus

has caused low productivity, low incomes and poverty.

According to the latest NSS survey, 1999-2000, 7.2 per cent of rural males and 7.0 per cent

of rural females in the labour force were unemployed on the basis of daily status approach.

In the urban areas, 7.3 per cent males and 9.4 per cent females were unemployed on the

daily status basis. It is worth pointing out even daily status unemployment rate does not

reflect accurately the extent of unemployment in India.

In a country like India where social security system does not exist, poor cannot afford to

remain unemployed for long. He takes up whatever work is available no matter how low the

remuneration is. In fact, the poor work very hard and even for long hours and still are unable

to earn enough income to meet their basic needs.

6. Slow Growth of Employment:

In the beginning of the planning era it was thought the organised sector over a period of 20

years will generate sufficient employment opportunities for the unemployed poor. The actual

experience has belied these hopes. Take, for instance, the experience of the last decade

(1990-2000) of economic development.

It is estimated that employment in the total organised sector (including both public sector and

private sector) increased from about 26.4 million in 1990 to about 28 million in 2000, that is,

in 10 years period, the organised sector which include industrial and services sectors as well

as organised agriculture could generate employment for only 1.6 million people whereas

labour force increased from about 340 million in 1990 to 406 million in 2001, that is, 66

million increase.

The reason for this is the use of capital intensive techniques in the production processes.

These techniques are intended to save labour rather than employ it. Further, relative to the

size of the total Indian economy, the organised sector is of very small size so that it is wishful

thinking to expect that the growth of organised sector, that is, factory type industries and

services using capital intensive technologies, generally imported from the Western

Countries, would be able to generate enough employment opportunities.

7. Inflation and Food Prices:

Rate of inflation and level of food prices is an important factor that causes poverty. Inflation,

especially rise in food prices, raises the cost of minimum consumption expenditure required

to meet the basic needs. Thus, inflation especially rise in food prices pushes down many

households below the poverty line.

That is why Public Distribution System has been designed to provide food-grains and other

essential items such as Kerosene oil, standard cloth, pulses at subsidised prices, that is,

prices which are lower than the free market prices.