Unemployment remains a major economic challenge for India despite the government’s efforts to tackle it. Professor Santosh Mehrotra says the true extent of the problem is often underestimated because of the flawed methodology used by the government to calculate the unemployment rate. To better understand why India is facing unemployment and whether such measures are being taken. Pradhan Mantri Kaushal Vikas Yojana Skilling the youth effectively, Policy Circle approached Professor Mehrotra, Visiting Professor at the Center for Development, University of Bath and expert on Labour, Employment and Skills Development.

In March 2023, the government announced that the unemployment rate had reached a five-year low. However, since its methods of calculating unemployment differ from international standards, these numbers can be disputed. Prof Mehrotra says the employment data produced by the government and the Reserve Bank of India is flawed and needs to be re-evaluated.

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Understanding Unemployment in India

According to Professor Mehrotra, the problem of unemployment in India is mostly because the government is not prioritizing it. “If the government does not acknowledge the problem, how can we hope to solve it,” asks Professor Mehrotra. By constantly saying ‘everything is fine’, the government hinders the solution to the unemployment crisis. is made

The organized sector is shedding jobs, while a new generation of job seekers – albeit better educated – often lack practical work skills. As the economy recovers, these individuals may find themselves unqualified for available positions, leading to widespread unemployment, increasing social inequality, and increased conflict.

Unemployment rate in India (in %)

Even the steps taken to upskill and improve the people did not yield concrete results. The current approach is fragmented; A mere three months of training through schemes like the Pradhan Mantri Kaushal Vikas Yojana cannot adequately equip a person. Most of the applicants for these schemes have completed only 10th to 12th standard and usually find government jobs with only passing marks.

The education level of the workforce in India is alarmingly low. The main problem is the quality of education, which is significantly lower than in countries like China, Vietnam and Indonesia. India urgently needs to address this crisis, especially given that its demographic dividend is at its peak. This demographic dividend occurs when the working-age population increases while the dependent population—under 15 and over 60—falls. It represents a golden opportunity for any nation, often once in a lifetime.

However, since 2012 due to economic mismanagement, India’s labor force participation rate has been declining. The country cannot afford to waste this opportunity.

At the current rate, India is in danger of squandering its demographic dividend. Prof Mehrotra says non-agricultural employment is not growing at the same pace as the influx of young people into the labor force – a trend that has persisted since 2014. Non-agricultural job creation is hampered by a sluggish economy. For a developing country like India, the declining employment rate presents a serious development problem, especially given the declining labor force participation among women.

Lessons from China

To tackle unemployment effectively, India should learn from China, which has successfully developed labour-intensive manufacturing, and India can adopt a similar approach. The first step is to correctly identify the problem. There are many factors that create challenges. Since 1991, for nearly 30 years, India has lacked a clear industrial policy. In contrast, East Asian countries, including China, have maintained strong industrial policies focused on manufacturing.

Unemployment rate in China (in %)

Since India has not established a clear manufacturing strategy, manufacturing has definitely developed but has not become a major sector of the economy. A leading sector typically grows faster than the overall economy, and as a result, manufacturing has not driven GDP growth in India as much as it has in East Asia. Notably, the share of manufacturing in India’s GDP is around 16-17%, the same figure recorded three decades ago in 1991.

The missed opportunities in the manufacturing sector can be highlighted by the rise of China. Since 1990, China has been known as the factory of the world. Conversely, despite initiatives such as Make in India, India’s manufacturing sector has experienced a decline in employment since 2012. The number of manufacturing jobs fell by 3 million in the six years since 2012, a first for India.

The decline is particularly troubling in labor-intensive sectors such as textiles, garments, wood and furniture, food processing, and leather and footwear, which account for half of overall manufacturing employment. An unfavorable policy environment for these sectors has further contributed to the decline in manufacturing jobs. Currently, India’s share of manufacturing employment is even lower than that of Bangladesh, which is 16%.