India’s New Govt Faces Job Creation Challenge

The election results have proven that “Modi’s guarantee” is no longer enough. The people of India want stronger policies on employment and agriculture.

For the past decade, the Bharatiya Janata Party (BJP) enjoyed an absolute majority in the Lok Sabha, the lower house of India’s parliament. This time, it has fallen well short of that mark. Its diminished numbers likely reflect its failure over its previous terms to address the economic distress of a sizable section of society, particularly young people and farmers.

The next government in New Delhi must change its approach towards increasing employment, especially youth employment, by making direct interventions. The most effective starting point for such a process would be adopting a National Employment Policy that was on the fringes of policy discussions when the Congress-led government was in power before 2014. By 2022, the BJP-led National Democratic Alliance (NDA) government said in parliament that there was no plan to develop a National Employment Policy.

The most enduring feature of India’s labour market is the high level of informality. More than 90 percent of the workforce is in the informal economy. It needs a holistic look to allow everyone to participate in talks on concrete measures that can be taken to create jobs and provide social security to workers. Alongside this, the government must recalibrate the incentives extended to the private sector, linking these to their ability to create jobs.

Possibly the most troubling aspects of the NDA government’s economic policies pertain to its dealing with the farm sector.

Agriculture remains the mainstay of India’s workforce. According to the Economic Survey of 2022-23, 65 per cent (2021 data) of the country’s population lives in rural areas and 47 per cent of the population depends on agriculture for livelihood. There is a lack of adequate income for them, which is a major problem for rural workers.

In 2020, the government brought in three controversial farm laws, which would have facilitated the entry of large traders for procuring agricultural produce. This was an attempt to replace government agencies that have been procuring all the major commodities from farmers since the 1960s. Though farmers’ agitations forced the government to withdraw the legislation, the farmers’ demands to address the problems faced by India’s crisis-ridden agriculture were never given any attention.

One of the most intriguing anomalies of Indian policy-making during the past 80 years has been the lack of political will to formulate a National Agricultural Policy. It is ironic that, while the United States and the members of the European Union have been adopting the Farm Act and the Common Agricultural Policy respectively, every Indian government since independence has avoided enacting a domestic equivalent, even though agriculture employs a very small share of the workforce in the US and Europe.

Doing so would ensure that everyone, including the farmers’ organisations and the state governments, are fully involved in making policies in agriculture. A comprehensive policy aimed at improving the viability of Indian agriculture, improving the lives and livelihoods of 47 percent of the country’s workforce, can provide the impulses necessary for sustaining high and inclusive growth.

India has a relatively young population. The country can trigger a strong development cycle by engaging young people in its workforce. The benefits of the demographic dividend, which has long been discussed in the context of the Indian economy, can then be reaped.

But this demographic dividend seems a long way off given the high levels of youth unemployment. Over the past few years, and particularly after the COVID-19 pandemic, this has been a major pain point for the Indian economy.

While the official statistics show high levels of growth, this growth has not been employment augmenting to the desirable extent.

India’s labour market shows two disquieting features. Firstly, official statistics show that the country’s young people (15-29 years) have consistently higher unemployment rates than the overall workforce. Secondly, there are high levels of gender inequity and the employment opportunities available for women have not shown any signs of improvement.

The youth unemployment rate during the first quarter of 2024 was 17 percent, two and a half times higher than the corresponding figure for the working-age population. The unemployment rate for young female workers was even higher at 22.7 percent. These figures suggest that India is wasting a large share of its labour force and that the possibility of realising the demographic dividend is extremely bleak.

The NDA government’s response to addressing the stress in the labour market has usually been to encourage the private sector to increase investment in the hope that this would create jobs. In recent years, it has done so by providing a slew of fiscal and other incentives.

In 2019, the government cut corporation tax substantially, arguing that this would stimulate private investment and hence create jobs. This cost the government Rs 1 trillion in taxes the following financial year.

After the COVID downturn, the government pumped additional liquidity into the economy, expecting that this would enable the private sector to increase investments and jobs. It also launched a Production Linked Incentive Scheme to encourage private sector investment in 14 key manufacturing sectors.

The continued high levels of youth unemployment indicate that these measures haven’t worked.

Instead of addressing these problems, the overwhelming focus of the NDA government was to create a “dole economy” by extending freebies to the distressed, an approach which it had itself criticised a few years ago. The election manifesto of the BJP, titled “Modi ki Guarantee” (Modi’s guarantee) was essentially a “guarantee” to continue with these freebies, the most significant of which was to extend free ration to more than 800 million people, covering nearly 60 percent of the population.

The election verdict indicates that Indian voters are not satisfied with handouts alone. They are looking for what the International Labour Organization calls “decent work”, implying productive work for women and men in conditions of freedom, equity, security, and dignity.

(Published under Creative Commons by 360info™)