Analysis of India’s Current Unemployment Situation

According to the National Sample Survey Office’s Periodic Labour Force Survey, India’s
unemployment rate touched a 45-year high at 6.1%. About 5 million people have been added
to the workforce in last three years, however only 1.7 million have been employed. To
compliment India’s emerging growth, tackling the rising unemployment is extremely pivotal
at this juncture. This report assesses the broad causes of unemployment, provides appropriate
recommendations to address the issue and success criteria to evaluate the same.
Causes of Unemployment:
The premise of unemployment rests on a supply and demand mismatch. The causes of the
unemployment issue can be summarised under two broad heads of excess demand of job
seekers and low supply of job opportunities.
1. Excess Demand by Job seekers
 Educated NEET (Not in employment, education or training) youth has been growing by
5 million annually since 2011 whereas only 1.75 million non-agricultural jobs were
created annually between 2016 and 2018.
 Tertiary education enrolment rates have risen form 11% in 2006 to 26% in 2016,
however unemployment rose from 4.1% to 8.4% for graduates and 5.3% to 8.5% for
post-graduates in last three years.
 Excessive migration from rural agriculture to urban areas has put an added pressure on
limited jobs,
 Although India’s growth has been averaging at around 7%, employment has not been
commensurate to it, indicating a situation of jobless growth.

2. Dearth of appropriate Job opportunities:

 Short Term: Short term supply of jobs was acutely affected by demonetisation (about
1.5 million jobs were lost during January-April 2017) and the situation was worsened by
an immediate hasty roll out of GST.
 Long Term: Long term slack in supply can be further bifurcated into Primary and
Secondary sectors.
 Primary Sector: Unattainable credit, high debt, low productivity on divided land
holdings and erratic monsoons has resulted in a loss of land and job for multiple
farmers and their tenants.
 Secondary Sector: Labour intensive sectors such as manufacturing, food processing
is not able to absorb the excessive supply (manufacturing jobs fell by 2 million per
year between 2011 and 2016), because their own growth has been stunted because of
stiff competition from South East Asian countries that are becoming primary
manufacturing hub of global companies; increasing imports; infrastructure and access
to credit and insolvency bottlenecks in India itself.

3. Lack of skilled labour in Tertiary Sector: The service sector, that contributes around 54%
to GDP, is plagued by the issue of a dearth of supply of skilled labour, owing to
increased in number of employable graduated, however without the requisite skillset. A
testimony to the fact is the recent Annual Employability Survey 2019 that states that 80%
of Indian engineers are not fit for any job in the knowledge economy.
Recommendations:

1. The root cause of fundamental problems in India can be traced down to poor
education at primary and secondary levels. In addition to the existing efforts by
Government to boost the same, inviting private investment at these levels in education
can yield fruitful results
2. Tackle skill lags by increasing skill-development capacity through NSDC from 9
million to 20 million in next 2 years through doubling the count of training centers
and enrolling more private players to improve employability of individuals.
3. Promote entrepreneurship in agri-related and allied businesses to accommodate excess
workforce in the agricultural sector through state-run Economic Development
Councils.
4. Boost easy access to capital across all spectrums and enhance ease of doing business
5. Enhance access to transportation, communication and energy to propel growth to tier
2 and 3 cities
6. Provide Tax incentives and SEZ for labour intensive industries

Success Criteria
Success Metrix Unemployment Notes
Targets
Exceptional 2.2% The lowest in last two decade (FY 2011-
2012)
Average 3.2% The average unemployment rate of last
decade
Sub-standard 4.2-4.5% High unemployment rate reflecting that
the recommendations were not
implemented, or they were not efficient.

http://mospi.nic.in/sites/default/files/press_release/Presss%20note%20for%20first%20advance%20
estimates%202018-19.pdf

https://www.businesstoday.in/current/corporate/indian-engineers-tech-jobs-survey-80-per-cent-of-
indian-engineers-not-fit-for-jobs-says-survey/story/330869.html

https://data.gov.in/catalog/employment-and-unemployment-national-sample-survey