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India’s economy has been growing rapidly, exceeding 8% in the last fiscal year, accompanied by a swiftly rising stock market. India is poised to become the world’s third-largest economy within the next two to three years. However, amidst these economic achievements, the government is distributing free food grains to 800 million out of its 1.4 billion population. Reports indicate that India’s income and wealth inequality are at their highest in decades, and youth unemployment levels are unprecedented. These contrasting aspects paint a complex picture of the Indian economy, with some factors significantly impeding its necessary development.

The unemployment situation in India

In India, there are two primary datasets used to estimate unemployment: the government’s quarterly Urban Periodic Labour Force Survey (PLFS) and the Centre for Monitoring Indian Economy’s (CMIE) Consumers Pyramid Households Survey. According to the CMIE, the unemployment rate in India was 7% in May, with similar rates around 7% to 8% reported in March and September. This means approximately 35 million Indians of working age, who are willing and able to seek employment, remain jobless.

Raghuram Rajan and Rohit Lamba highlighted in their recent book, “Breaking the Mould: Reimagining India’s Future” (2023), that official unemployment figures only account for those actively seeking jobs. Individuals like a 22-year-old preparing for civil service exams or a discouraged 35-year-old are not counted. Moreover, situations where multiple individuals are employed in roles where fewer would suffice, such as small retail stores or subsistence agriculture, contribute to disguised unemployment, further complicating the true extent of unemployment in India. Currently, India’s labor force participation rate stands at approximately 46%, significantly lower than Brazil (58%) and Indonesia (60%), and even lower than the OECD countries’ average of 60%.

Low Labour Force participation among women

A notable peculiarity of the Indian economy is the exceptionally low participation of women in the workforce, particularly in rural areas. Even in urban areas, much of women’s labour remains unpaid, often within family-owned agricultural enterprises or small-scale trading and retail businesses. Paid female labour participation remains stagnant at around 16%, a long-standing reality that underscores gender disparities in economic participation.

Challenges and impacts of unemployment on India’s development

The total production of an economy hinges on several critical factors, including investable capital, productivity (measured by the capital-output ratio), availability of labor, and other essential inputs like land. However, sustained economic success often correlates with technological advancements. Modern economies require skilled labour for high-tech sectors, yet India faces a dual challenge: a dwindling demand for unskilled labour due to technological advancements, coupled with a surplus of technically trained individuals inadequately prepared for modern employment opportunities. Consequently, a large segment of India’s youth finds themselves either unemployed or underemployed, earning insufficient incomes.

The role of aggregate demand

Economists agree that aggregate demand determines an economy’s output. If production lags behind aggregate demand, prices rise, ultimately reducing production to equilibrium levels. Purchasing power drives aggregate demand, highlighting the critical link between employment and economic production. A significant portion of India’s population with limited or no income diminishes overall purchasing power, thereby restraining GDP growth. The substantial unemployment and underemployment in India act as a significant drag on economic development.

Policy recommendations

India urgently needs a people-centric economic policy that prioritizes agriculture, rural development, and rejuvenation of Micro, Small & Medium Enterprises (MSMEs) to generate substantial employment opportunities. Policies should

promote environmentally sustainable practices and tap into emerging service sectors, where women can contribute significantly. Government support is crucial in fostering mass consumption goods production to bolster economic growth.

In conclusion, addressing India’s pervasive unemployment crisis requires comprehensive policy interventions that empower marginalised groups, foster inclusive growth, and harness the potential of its burgeoning workforce.