Rising Unemployment: A Cause for Concern

Published : Oct 02, 2019 11:24 am | By: M D Sridharan

The unemployment data released by the government shows that it is at 45 year high. With both the urban and rural unemployment rising, it is time that the government need to accelerate its effort and take adequate measures to stop India’s joblessness.

The unemployment rate in the country has hit a four-decade-high. The data released by National Sample Survey Office (NSSO) pegged the unemployment rate at 6.1 per cent, in 2017-18. The figure is almost three times higher than the 2.2% in 2011-12.  The data released by NSSO has promptly evoked the opposition parties to harp on the failure of Narendra Modi government to create jobs. But, the government maintained that it was only a draft and not the full report.

Actually, the debate over the rising unemployment erupted even before the 2019 general elections and there were allegations that the government withheld the release of the National Sample Survey Office's (NSSO) first Periodic Labour Force Survey (PLFS) ahead of the 2019 general elections. The NSSO's jobs surveys are normally conducted once every five years. In FY17, it started the PLFS including quarterly surveys for urban areas and annual surveys in rural areas. 

The issue became highly politicised and finally the cat is out of the bag after a long delay.  The NSSO’s job survey for 2017-18 had shown a spike in the unemployment rate to over 6 per cent, a 45-year high. But still the government maintained that they have used a new design methodology for the survey hence it was not comparable with previous data. The Finance Ministry also issued a statement which said that comparing the recent jobs data with past data was faulty.

Separately, Centre for Monitoring Indian Economy (CMIE) conducted surveys and the CMIE data revealed that the unemployment rate is at a 3-year-high of 8.4 per cent in August 2019 and the unemployment rate has hit the highest level since September 2016. According to CMIE, the unemployment rate was higher in the urban areas as compared to the rural. The urban unemployment rate was at 9.6 per cent, and rural stood at 7.8 per cent in August 2019.   Aided by growth in rural India, the overall employment was nearly 2 per cent higher than it was in August 2018.  The year-on-year employment growth in rural India stood at 2.9 per cent in August 2019, while urban India reported a 0.2 per cent decline, CMIE report revealed.

The annual report (July 2017-June 2018) of the Periodic Labour Force Survey (PLFS) pegs the all India unemployment rate at 6.1 per cent in the given year. For the rural areas, the unemployment rate was 5.3 per cent, while in the urban areas it was 7.8 per cent. Among the rural men, the unemployment rate was 5.8 per cent while among the women it was 3.8 per cent. While among the urban men it was 7.8 per cent and 5.7 per cent among urban women.

What the Data Implies

In 2013 Narendra Modi said that 65 per cent of the Indian population, below the age of 35, are struggling with unemployment’ and promised that if voted to power, the BJP would “provide one crore jobs”.  Surely, it was a positive statement that drew millions of unemployed youth to believe him and also vote for him. Then Modi criticised UPA’s jobless growth and assured jobs for the youth. It was very much apparent that that the votes of the millions of youths were one of the crucial factor that helped Narendra Modi to become the Prime Minister of India in 2014.

Evidently, during the 2019 poll campaign, there was much pride in the successful completion of a full term and also in the fact that none of the BJP ministers was tainted of corruption.  Both PM Modi and party President Amit Shah, delved deeply on every pioneering effort by the government. The government even claimed that its efforts at job creation and formalisation of the economy were bearing results. Again in 2019, Modi appealed to the youth to vote for the BJP assuring all around “vikas”. Visibly, majority of the youth were floored by such data which the government displayed. But, ironically data remained different from the propaganda and bitter ground realities vis-à-vis the actual loss of jobs and the abysmal quality of jobs.

In tune with the country’s growing economy and requirements, the government decided to make a few changes with respect to availability of household data on employment-unemployment. Accordingly, in the PLFS conducted from 2017-18, a decision was taken to use education levels as a criterion for stratification at the ultimate level.

In India, the labour force surveys (Employment and Unemployment Surveys) have usually been bundled along with the household Consumer Expenditure Survey, conducted typically once in five years. The employment and unemployment surveys conducted by the NSSO till 2011-12 used the monthly per capita expenditure of the household in the selected villages/blocks as a basis for stratification of households.

The change in criteria from monthly per capita expenditure to education levels for stratification of availability of household data on employment-unemployment has direct implications on the comparability of the results of PLFS with the EUS of earlier years.

The government insisted that the new PLFS methodology needs to be seen as a new series for measuring employment and unemployment on an annual basis.  Besides, the country has witnessed a significant rise in education levels and as a result the household income levels have also gone up noticeably. So is  the aspiration levels of the  educated youth and many of  them are no longer be willing to join the labour force or work force requiring low skills and low remuneration. With a sizable population getting educated and with the basis of sample selection changed to education instead of expenditure, it indicated there is excess supply of educated people.

There are many factors that contribute to the rise in unemployment. One of the main factors behind unemployment rate is the labour participation rate.  The increase in labour participation rate is a healthy sign and has risen slowly and steadily to 43.35 per cent in August 2019, from 42.46 per cent in October 2018. It has recovered from the combined shock of demonetisation and GST that led to a rise in unemployment rate in India. But the increase in labour force participation rate is not matched with an increase in the employment rate. The difference between the two has been rising. More people are seeking employment but not as many people are finding employment. In essence we have more seekers than the opportunities.

Also, new investments by major organisations across industries are important to absorb the workforce. Currently the investment scenario is not encouraging as the conditions are not conducive.    Also, experts point out the fact that a sizable percentage of workforce   remains in low-productivity and low-wage jobs which actually widened the gap between the rising working age population and the market trends. The situation has actually resulted in both underemployment and unemployment. So, the growth are of good quality jobs has remained very poor. Besides decelerating demand and investment, high GST rates on cement, steel, and other construction material had a significant effect on employment opportunities on both organised and unorganised sector.

With the significant percentage of the workforce remaining in underemployment category, the compression in consumption demand and investment has dented the employment opportunities.

Where the Government Erred?

The opposition parties are using the unemployment data to attack the Modi government.  Though the fact remains that 6.1 per cent rate in the 2017-18 survey is higher than any of the past surveys have produced, indeed it is not a high rate by international standards.

The PLFS data is a statistical embarrassment to the government. But, on the other hand the intransigent attitude of the government in accepting the rising employment crisis and also withholding the release the PLFS data on the labour market—employment, unemployment, wages, etc. has exacerbated the state of joblessness.

The misguided stubbornness of the government has provided enough ammunition for the opposition parties to launch an all out attack on the Modi government and also question Modi’s poll promise of creating 10 million jobs. Indeed, the jobs and the economy have become two most vulnerable aspects of the BJP.

The NSSO maintained that in order to radically change their sampling method, it has used a new methodology.  It was based on educational attainment rather than household per capita consumption. Experts point out that it is one of the biggest statistical blunders to select education as the basis for labour market survey and also it was done without much consultation.

Further, a large number of households with lower educational qualifications of not having more than a secondary level of education were missed out in the PLFS survey. Obviously, these households are likely to be poorer. Omitting them completely is likely to skew the wage pattern drastically. For example, when poorer casual workers such as those working on daily wages are missed in the survey as a result there will be a big decline of their share in the workforce. The recent data showed a 20% decline from 30.5% of the workforce in 2011-12 to 24.9% in 2017-18. On the other hand, the higher income salaried workers registered a near 20% increase in employment share from 19.3% in 2011/12 to 22.8% in 2017-18. Such large changes are unprecedented and on paper it indicated that the economy is doing very well when actually the unemployment rate has gone up. Is it not misleading?

Also, the data showed a cumulative 18% decline in their real incomes of the higher income middle class salaried workers. That is understandable as nowadays everybody is getting educated and the sample selection is based on education. Ostensibly there is excess supply of educated people than the demand.  But on the other side the PLFS data indicate that wages of the poorer casual workers have increased by 29% that portrays that there is inclusive growth under Modi which is far from the reality.

Impact Across Industries

Jobs are vanishing across India across industries from automobile to real estate.  While large companies have managed to sustain, many small and medium-scale companies have been forced to lay off lakhs of employees. There are reports with that with each passing day the slowdown has forced small-scale firms across several sectors are forced to cut production amid low consumer demand.

While contractual employees are first casualties of the slowdown, industry experts indicate that a prolonged effect could have a severe impact on India's overall employment figures. According to CMIE, if labour continues to face poor employment opportunities, it may start getting discouraged from entering the labour markets.

India's auto sector, which employs over 3.5 crore employees, is the worst affected. Automobile industry is facing the sharpest effect of slowdown and has already announced the lay off almost 3 lakh employees. The figures are worrisome considering that the overall auto industry contributes to over 7 per cent of India's GDP. Besides, they have already warned the government that millions of jobs could be at risk if the government does not implement quick measures.

Medium and Small Scale Industries (MSMEs), mostly involved in outsourced production and manufacturing work, are facing an acute crisis as there is no work due to the demand slowdown. Many have closed down due to lack of liquidity and weakening consumer demand. MSMEs across manufacturing-heavy states like Maharashtra, Karnataka and Tamil Nadu are under immense pressure as many units have not only stopped hiring but are focused on downsizing due to lack of work.

While demand slowdown has severely affected workers in the unorganised sector, the effect of the slowdown is also creeping in to major firms. The effects of slowdown on production units and ancillary industries have led to lakhs of job losses. Real estate is another sector that is going through a rough period as many reports are now emerging from the ailing sector. On the agricultural front, the disbanding of the farm economy has reduced many land owning farmers to become farm labourers.

Since the slowdown has been triggered by a mix of macroeconomic and external factors, the risk of job losses could spread to most sectors if the government does not shift gears to take appropriate actions and also the government must provide stimulus packages to overcome sloppy demand.

At a time when both urban and rural employment seems to be vanishing on the back of a global slowdown, experts have urged the government to announce a mix of policy reforms, tax cuts and sector-specific packages for reviving demand.

But the economists and the experts are divided over the country's rising joblessness. While some observed that the ongoing unemployment crisis is led by compression in consumption demand and private investments and it will aggravate the unemployment rate further, others argued it is due to the economic slump.

The problem of Skilling India

Politics aside, India is clearly faced with challenges when it comes to not only job creation but also developing the right skill sets. Certainly India, Asia’s third largest economy with an enviable growing population of graduates is facing inadequate skill sets and a dearth of matching jobs. The unemployment crisis is actually the result of a combination of not generating enough jobs and also sizable number of Indian youth lacking the right skill set to make them employable. There is a mismatch ranging from basic communication to high level capabilities that many organisations look forward to meet specific roles.

Recently when the Tamil Nadu government placed an advertisement for filling up 14 vacancies of sweepers and sanitary workers at the state assembly secretariat in Chennai, as many as 4,000 people including MBAs and engineering graduates  applied, where as the required qualification for such low end jobs is  just VIII standard. Last year, when Indian Railways conducted a national recruitment drive for the cleaner and porter positions, it received a whopping 19 million applications for 63,000 menial roles.

These two incidents, though on one side, prove the popular perception that Jobs with government entities are more secure than the jobs in the private sector, it also brings to light the brutal facts of the unemployment crisis.  Indeed the harsh reality of the job crisis has broken the dreams of millions of Indian youth who aspire for a decent job with a moderate salary but have to settle for a menial job to earn a living. As millions of young Indians are entering the job market every year, there exists a mismatch. Industry experts point out the mismatch of academics and skills that has already exacerbated the unemployment problem.

It is estimated that a minimum of eight million new job seekers enter the jobs market every year in India. The Indian youth has become the first casualty especially those among the 20-24-year age group.  According to the CMIE the unemployment rate reached 37.9 per cent among the urban lot and 34 per cent among the rural youth in the first quarter of 2019.  At the same time it must also be noted that a majority of Indian employers reported difficulties filling job vacancies due to talent shortage.  Statistics reveal that in 2018 despite the employers’ efforts around 1,40,000 skilled techies could not be recruited.  Incidentally, Information Technology has remained as one of the strong areas of India’s economy. Indeed, the CMIE reports show that the more educated Indians are, the more likely they are to remain unemployed too.

Ironically, recently the MoS of Ministry of Labour and Employment Santosh Gangwar blamed lack of qualifications among north Indian candidates for them remaining jobless.  Gangwar said that there is no dearth of job opportunities in the country but those who come for recruitment in north India often complain that they are unable to find the quality in candidates required for the post they are hiring for. The statement by the MoS of Labour Ministry has come at a time when the economy slumped to a seven-year low of 5% in April to June quarter from 8% a year ago. The economic slowdown coupled with unemployment crisis has already put the centre in a dock as the opposition parties are holding the Modi government responsible.

In fact the Modi government sensed the need for the Indian youths to be trained enough to make them employable.  Modi launched the “Skill India” programme, with an objective to train over 40 crore people in India in different skills by 2022. Modi government created a Ministry of Skill Development and Entrepreneurship to harmonise training processes, assessments, certification and outcomes and, crucially, to develop Industrial Training Institutions (ITIs). The government announced the setting up of 1,500 new ITIs and 50,000 Skill Development Centres.

Indeed the government need to be lauded for launching in “Skill India”   in 2015 which was actually a remarkable plan complementing Modi’s ambitious “Make in India” initiative, a policy inviting foreign investors, launched in 2014 within months after assuming office.

In an attempt to forge a strong skill development system, “Skill India” integrated vocational training classes linked to the local economy with formal education from class nine onwards.  Modi government even paid the training fees under Pradhan Mantri Kaushal Vikas Yojana  (PMKVY) and also tie up with industry in the relevant trades to improve placement opportunities for candidates. Besides, the government requested the companies to focus on for skill development initiatives and constantly upgrade the training processes.

While the intentions of “Skill India” are commendable, the scheme failed to achieve its objectives. The aim of the government is to reach out to 400 million young people by 2022, but only a mere 25 million had been trained under this scheme by the end of 2018.  This may be due to many factors such as lack of funds available for “Skill India”,  lack of candidates as the scheme targeted mainly rural youths  and finally due to mismanagement by both the officials and the training partners.

Also, the fact remains that not all those who underwent training got jobs. The real problem lies in the fact that though the number of those who have benefited from the Skill India scheme has increased considerably from 3,50,000 in 2016-17 to 1.6 million in 2017-18, the percentage of those who could find a job upon completion of their training has dropped from more than 50 per cent to 30 per cent.

Despite the structured efforts by the government, the unemployment rate is rising. Of course, in such a huge country like India, the challenge lies in its enormity of the problem. The government aimed to bridge the gap between industry demand and the skill ecosystem through “Skill India”.

But, industry observers point out that the training provided under “Skill India” was not good enough to make the candidates employable. That is one of the main reasons for the low employability rate. On the other hand, the government envisaged that a sizable number of youths trained would start their own business. But, statistics reveal that only 24 per cent of the 6,15,000 have started their businesses.  

There exists a mismatch between the skill sets that industries require and the skill sets that youth are equipped with. That brings out the moot point that the training provided under Skill India is not enough. Besides there are also mismatch between youth aspirations and the skills training being provided.  First of all the ground has to be prepared for proper training. Without proper training, it will be difficult to bring down the rate of joblessness.

The gap between youth aspirations and the skills training being provided must be analysed well and the youth needs to be trained properly.  It is time that the government need to scale up the expenditures in education and training accordingly. Unemployment rate is higher among the formally educated in comparison to the vocationally trained. But, at the same time vocational training courses need to be standardized to make it a level playing field.  

The government must also focus on understanding the industry requirements and accordingly implement the interventions in to the skill-development value chain. Absolutely there exists a need to have industry advisory boards to advice institutions, both academic and vocational training ones on improvements that need to be brought into the curriculum.

 It is highly critical to map skills being imparted to the tunes of industrial needs while designing training programmes.  It is essential to ensure the skilling-to-employment loop functions seamlessly. Thus, well-designed programmes will help the youths to absorb the skills effectively.

Besides designing the programmes, the government must also provide   counselling for the youth, especially those from rural background. The counselling in skilling programmes is highly essential to help the rural youths to align the purpose of the programme with their aspirations. In such scenario the outcome will be beneficial for both.

The government also must raise the bar for the training providers as currently most of training providers lack the right infrastructure in terms of qualified trainers as well as the materials.

With increased public-private partnerships, the government can also rope in educational institutes to facilitate vocational training and skill development.

Besides, PPPs can also help in facilitating linkages with the industries and employers for better placements for the youths

With economic growth and development milestones, the skill development ecosystem needs to be improved.  For an economy to sustain the growth it is essential that the workforce be exposed to some form of skilling or the other. Focused efforts which can cohesively develop and strengthen youth aspirations where youth can be employed are necessary for India. These sustained changes can effectively translate India’s potential workforce in to a skilled workforce. 

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