Why Unemployment Keeps Rising in India

A line of unemployed in India waiting to apply for jobs

About the top 10 to 20 percent of Indians have been happier with a more luxurious consumption basket made possible with partially or totally imported goods sustainable only with international capital inflows. The inflows have not only eased the foreign exchange constraint on their consumption, but also helped in boosting the prices in the stock market.

This happier and politically most vocal upper class of Indians wants this show to go on. So do corporate houses, especially two or three large houses, not only because it helps them to use their inflated stock prices as collateral for borrowing from banks, apart from other undue favors they receive from a government.

Meanwhile the unemployment situation worsens relentlessly, while the government and the corporations talk of higher GDP growth, but not of employment!

Looking through several estimates of unemployment in India, a reasonable guess on the conservative side would be that about 11 million persons currently enter the labor force every year, with at least 20 million as the carry-over unemployment from the past.

Assuming an average 7.5% unemployment, these figures yield an annual 4.1% growth in unemployment, in addition to the growth rate of population at approximately 1.9%. This means employment has to grow at least at 6% per cent per annum (without considering labor productivity growth) so as not to let the unemployment situation get worse over time. 

Two qualifications are essential here. First, the really poor in search of their next meal so to say, cannot afford to be unemployed, and in this sense the unemployment estimates used here are likely to be underestimates.

Second, a similar phenomenon is also visible in the Indian statistics in case of women’s participation in so far as very poor women have a higher rate of participation than better off ones.

This understanding is important for devising employment guarantee schemes.  At near subsistence wage with relatively long hours of work, it is reasonable to suggest those who would seek employment cannot afford to search around for long. Therefore, making such jobs available without complicated bureaucratic procedures is sensible.

The labor productivity difference between small agriculture and large, organized industry is about 12 to 16 times. This enormous difference in labor productivity is a double-edged sword. It is a potential source of large increase in output by shifting labor from small agriculture to large, organized industry – the policy of corporate industrialization pursued by India.

But it also has the destructive potential source of creating a serious unemployment problem, because any given level of output can be produced with much less labor. Thus, it can result in a serious loss of livelihood if the much higher labor productivity in the organized and corporate sector faces constraints of market size, due to rising unemployment.

Also, corporate industrialization is not the solution for reducing unemployment, but part of the problem. This is because large scale land acquisition for industrialization adds to the growing pressure of unemployment with more people losing livelihood than gaining jobs. So long as India continues on this path of development, the unemployment problem will only worsen.

The political problem of grossly inadequate industrial job creation surfaces as an unmanageably vast informal economy which exists side by side with the formal organized economy.

Those displaced from small scale agriculture without an alternative livelihood are unambiguous losers. The human situation only gets worse in the economy unless compensation is actually paid by the state through some mechanism because higher growth fails to do that job.

Indeed, the mechanism for compensation payment needs to be specified as an integral part of the industrialization process. Without an institutionalized welfare state where basic needs like nutrition and health, education, housing, and old age pension are guaranteed by the state, make-shift mechanisms emerge.

Various mechanisms for compensating those adversely affected emerge, especially prior to elections with political parties promising various freebies. This process gains momentum in a competitive democracy with the political parties trying to outdo each other. It invariably is a zero-sum game if total welfare funds are fixed, and the ruling party has a decisive edge.

If the welfare fund has to be expanded, it requires either taxing heavily the rich corporates and the upper classes, the gainers of the jobless industrialization, or seeking temporary solutions like selling off public assets including not only public sector enterprises but also natural resources.

In India we now have the spectacle – instead of offering tax breaks and subsidies – the handing over of natural resources like land, water bodies, village commons, seashores, and forests to corporations in the name of incentivizing the corporations for higher economic growth.

Silence is the golden rule which no political party wants to break because none have escaped the slogan of higher corporate-led growth.  As a result, no political party has been able to confront the real challenge of creating an extensively decent livelihood and reducing rising unemployment.

Pretending to bypass the problem, by promising various dole outs is a hollow electoral game, played with much show and little substance, so long as it lasts, because the real problem of unemployment, lack of livelihood and destitution grow like a galloping cancer to engulf the system. 

When the job of industrialization is entrusted to large private corporations, as an essential aspect of growth, the state is hardly in a position to devise a fiscal mechanism of fair compensation to be borne by private industry. Instead, a dangerous anti-people mutualism between the government and the large corporations develops under the guise of economic development.

Symptoms of the disease are abundant: heavily subsidized price for land and related natural resources for corporations, tax breaks and cultivated blindness to frauds by favored corporations, and receiving in return generous contributions to the political party and its election funds (think of electoral bonds, willful defaults of bank loans.)

The cost of industrialization is borne to a disproportionately large extent, not by the general public but the most vulnerable section. High prices, increasing cost of living, heavy indirect taxes are general symptoms, but much worse is hidden from the public eye.

In India, the Adivasi’s, the poorest among us, and roughly 8% of the population account for 40% of the displaced population, i.e. 5 times higher probability of being displaced in the name of development. A similar story would be told if we could have reliable data of the displaced classified by castes.

Our focus should be on raising the productivity of small agriculture in the present phase of India’s development. The emphasis would be on raising the productivity of land not of labor.

Infrastructure development including road communication and connectivity should have this land productivity augmentation as the focus. This is instead of the currently pursued self-defeating programs of creating world class connectivity among cities amidst a sea of destitution and poverty in the countryside.

The biggest potential for expansion of employment probably exists through expansion of basic welfare services like delivery of primary health and education. They are not only public goods needed desperately by the poor, but they can become a part of the social wage, rather than simply trying to increase private monetary wage to cover consumer expenditure on those basic items.

It will be utterly misleading to think of these sketchy suggestions as a complete blueprint for economic development focused on employment. This is meant to stimulate an alternative imagination, an imagination of development which escapes the trap of corporate-led growth that breeds more and more inequality and environmental degradation.

Even worse, in the name of economic development a dangerous mutualism between authoritarian government and a few favored large corporations develops. It leaves only the empty shell of democracy with all contents hollowed out.  

Amit Bhaduri is a researcher and former Economics Professor at Jawaharlal Nehru University (JNU), New Delhi; and Professor of ‘Clear Fame’, Pavia University, Italy. He was also professor in a number of world famous universities. He resigned from JNU in 2020 over the”throttling” of dissent on the campus.

This is an abridged version of Amit Bhaduri’s note: “Rethinking Employment and Industrialization in India”.

The abridged article was first published in Global Indian Times, USA, on December 22, 2023, https://www.globalindiantimes.com/globalindiantimes/2023/12/22/india-unemployment-122023

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