Essay: Jobless Growth in India: Anomaly or Reform Outcome? | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

“Unemployment is no longer merely a statistic; it’s a reality impacting people across all walks of life.”
—Barack Obama

India, among the world’s fastest-growing economies, has grappled with the paradox of jobless growth for decades. Despite strong economic growth, job creation has lagged behind, prompting scrutiny of India’s economic reforms since the 1990s and their effects on the labour market. Is this phenomenon an anomaly or a natural consequence of these reforms?

Jobless growth occurs when GDP grows robustly without generating proportional employment opportunities. In India, this issue has been stark since the 1990s liberalisation, privatisation, and globalisation (LPG) reforms. Despite high GDP growth, unemployment persists, with the informal sector employing most workers at low wages, without security or benefits. Service sectors and capital-intensive industries have fueled growth but failed to create sufficient jobs.

India’s economic reforms, launched in 1991, shifted from state-controlled policies to market-oriented strategies, aiming to enhance efficiency and attract foreign investment. These reforms reduced government oversight, deregulated industries, privatised public enterprises, and integrated India into the global economy through exports and FDI. While growth surged, job creation was uneven. The service sector, particularly IT and finance, expanded rapidly but relied on high-skilled labour, employing few. Manufacturing, capable of mass employment, grew slowly due to poor infrastructure and rigid labour laws. Agriculture, supporting nearly half the workforce, remained stagnant with minimal progress.

Several factors contribute to India’s jobless growth, rooted in structural issues and the nature of its economic reforms. The reforms disproportionately boosted the service sector, which is less labour-intensive than agriculture or manufacturing. IT and financial services grew but employed few, especially unskilled workers. Manufacturing lagged due to inadequate infrastructure, complex labour laws, and competition from nations like China and Vietnam. Agriculture suffered from low productivity and underinvestment.

Technological advancements and automation, accelerated by reforms and globalisation, increased productivity but reduced labour demand. In manufacturing, capital-intensive methods curtailed job growth, while IT created fewer, specialised roles, excluding unskilled workers. Labour laws, meant to protect workers, discouraged hiring due to challenges in downsizing, leading firms to adopt automation or temporary labour, intensifying jobless growth.

India’s labour laws, particularly in the formal sector, remain stringent despite reforms. Designed to safeguard workers, they complicate layoffs, prompting businesses to use machines or contract workers, resulting in fewer permanent jobs and fueling jobless growth. The education system struggles to meet modern economic needs. Many graduates lack skills for fast-growing industries, causing youth unemployment despite labour shortages in some sectors.

India’s growing youth population offers a demographic dividend, but without adequate job creation, it risks becoming a burden. Insufficient employment leads to underemployment, informal work, or migration abroad. Theoretically, jobless growth seems anomalous in a developing economy, where growth should drive employment. Historically, industrial transitions created jobs, but India’s shift remains incomplete.

This anomaly stems from the design of India’s reforms and the global economic context. The focus on market efficiency, foreign investment, and technology overlooked labour-intensive growth. The rise of services and high-tech sectors boosted GDP but didn’t employ enough workers. Thus, jobless growth is a foreseeable result of reforms that prioritised capital-intensive sectors and services without structural changes in manufacturing or agriculture to absorb workers.

The emphasis on capital-intensive industries and high-tech services, alongside labour market rigidities, concentrated growth benefits among a small group, increasing income inequality and underemployment. To tackle jobless growth, India must pursue inclusive development. Strengthening initiatives like Make in India can promote labour-intensive manufacturing. Enhancing infrastructure, streamlining labour laws, and supporting small and medium enterprises (SMEs) can spur job growth.

Reforming the education system to equip graduates with industry-relevant skills is urgent. Expanding vocational training and aligning curricula with market needs is vital. With much of the workforce reliant on agriculture, boosting productivity through technology, irrigation, and rural infrastructure is essential. Creating alternative rural jobs via industrialisation can ease agricultural pressure.

India must address informal employment by fostering a flexible labour market that encourages formal sector hiring. Simplifying regulations and lowering compliance costs can incentivise formal job creation. While automation poses challenges, it also opens opportunities in sectors like renewable energy, healthcare, and digital services, which can drive job creation.

India’s jobless growth arises from reforms favouring capital-intensive sectors over those with high employment potential. Inclusive development, through flexible labour markets, enhanced skills training, and investment in manufacturing and agriculture, can leverage India’s workforce, ensuring economic progress benefits all.

“We need to give importance to skill development because this way we can end unemployment.”
—Narendra Modi