Job Paucity in India - Reasons and Remedies

By SHRM India Content Team Jun 13, 2017
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India is one of the fastest growing economies in the world. It also boasts of low-cost, high quality and young manpower. Yet, the Indian workforce is lamenting over the lack of jobs. And, the situation for the job market in India may only get bleaker.

According to the data from the Labour Ministry, around 1 million people enter the workforce in India every month. The Asia-Pacific Human Development Report has warned that India is likely to witness a shortage of jobs in the next 35 years. In a country, where the working age population is likely to rise to 64 percent by 2021 and will dominate Asia-Pacific by 2050, it is very crucial to create enough jobs, but the employment rate continues to disappoint. In fact, a survey by the Labour Bureau under the Indian Ministry of Labour and Employment, shows that the current unemployment rate has reached five percent which is the highest in the last five years. A UN Labour Report also projects stagnation in the job creation in India.

The ruling government's initiatives such as Make in India, Digital India, and Skill India were expected to create jobs, but the results have been unsatisfactory so far. There are several other factors which have resulted in the demand-supply gap in the jobs in India. Let's take a look at them:

1.      Slowdown in the IT Sector

It is no secret that the Indian IT sector, which contributes to around nine percent of the country's GDP and employs 10 million people, is undergoing turmoil due to massive layoffs, automation, slowdown in the global demand, and stricter US visa norms (the largest market for IT sector for India). IT jobs have been hit the maximum as hiring fell by 24 percent YoY, as revealed by the job site Naukri.com in its Job Speak Index. India's sunrise industry may bring more job losses and a curb on the fresh recruitment.

2.     Manufacturing Sector Contribution is Not as Expected

The manufacturing sector currently accounts for 12 percent of India's labour force. It is expected to contribute 25 percent of GDP of India by 2022 and provide employment to 100 million people by 2025. It is also regarded as the transformational sector as it gives an opportunity to agricultural labourers to move from low-skilled to more value added jobs, and also creates two-three additional jobs in the allied activities.

The National Manufacturing Policy and the Make in India movement were aimed to inject fresh capital into the sector, and thereby, create employment. However, the sector has contracted for the first time in seven years, from a growth rate of 12.9 percent in 2009-10 to -3.7% in 2015-16. According to the Sixth Economic Census report, while the number of establishments soared by 28 percent over the last eight years, the number of employees in the sector increased by only 19 percent. This shows that establishments are getting smaller with a decline in average employment per establishment. The report even highlighted that small, single-person establishments have been growing, but owing to their small-scale operations, they do not create jobs. As far as the large manufacturing units are concerned, they are shifting towards automation, putting the existing and future jobs in jeopardy.

3.     Dominance of the Informal Sector

India is still largely an informal economy. Currently, only 10 percent of India's more than 470 million workforce is engaged in the formal sector. This means that 90 percent of workers lack the basic employment benefits such as fixed salaries, Employees' Provident Fund, job contracts and social security, which otherwise their formal sector peers enjoy. India is home to the world's largest illiterate population and 98 percent unskilled workforce. The education and skill gaps for the unskilled workers are two major reasons that hamper shifting jobs from informal to the formal sector.

4.     Lack of Labour Reforms

India's labour laws are prevalent from the days of the British Raj. They need a radical uplift to achieve the required employment growth in India. The reigning policymakers are voting in favour of introducing labour reforms, but there have been divided views among the worker unions, industrialists, and political wings. The archaic labour reforms further breed informality, capital substitution of labour, and corruption in the informal sector.

5.     Failure of Startups to Create Jobs

India is the third largest startup nation in the world. It was believed that the 'Startup India, Standup India' initiative would fuel growth of startups and result in creation of more job opportunities. However, jobs are shrinking instead.

The unicorn startups are in the phase of consolidation, they are either merging or consolidating their businesses. Makemytrip-Ibibo merger a few months ago and the recent Flipkart-Snapdeal merger are examples of the same. Then, there are startups like StayZilla shutting down due to fierce competition. Others, such as Grofers and Craftsvilla continue to remain operational but taking to the layoff route to achieve cost-efficiency. New startups and budding entrepreneurs are still trying to find a foothold, let alone expand their team beyond 3 to 5 people. All these cases are leading to job losses. The Indian startup ecosystem has seen around 10,000 job cuts since August 2015.

It is a daunting task for India to create jobs for its working age population. However, the efforts need to start now. Here is how India can pull itself out of the unemployment situation:

1. Improve the Quality of Manpower

As explained above, the vast majority of the Indian workforce is in the informal sector. If they need to be transitioned to the organized workforce, they need skill training. These people need to be encouraged to register for Skill India Programme and in vocational training institutes. According to the Ministry of Skill Development and Entrepreneurship (MSDE), more than 1.04 crore youth have been trained under the Skill India Mission in the year 2015-16 which is 36.8 percent higher than the previous year's recorded data. As of now, 60 percent of the training is directly under MSDE while 40 percent is across other Central Ministries. The government can collaborate with the Indian corporations and set up training centres in different cities, especially in the small towns, and villages. This will enhance their chances of employability in the formal sector.

2. Make Degree Courses Industry-friendly

According to the Employment and Unemployment Survey (EUS) 2016, 58 percent of graduate unemployed and 62 percent of post-graduate unemployed cited non-availability of jobs matching their skill and education as a primary reason for their unemployment. The degree courses in the Indian education system do not prepare the students for the 'on the job' readiness. The curriculum is majorly theoretical, barring a few lectures from industry faculty or visits to company sites. The education system should be overhauled to make it more job-friendly by:

  • Introducing industry-aligned curriculum.
  • Setting up more vocational training centres.
  • Offering more Massive Open Online Courses (MOOC).
  • Opening more academic institutions such as IITs, IIMs and AIIMS.

3. Give Impetus to Emerging Sectors

The Confederation of Indian Industry (CII) forecasts that India can create 5 million jobs every year provided it focuses on the sectors which can contribute substantially in employment. For instance, construction sector will itself create 30 million jobs in the next 10 years since there is a major thrust of the government on the infrastructure and road development. Other emerging industries such as healthcare, tourism, and content creation can drive job opportunities as well. Even the e-commerce sector has the potential to create 12 million jobs in the next 10 years, as highlighted in HSBC Global Report.

4. Support Small Medium Enterprises (SMEs) and Startups

The government's programs to boost the growth of startups and SMEs are laudable, but the entrepreneurs have not yet found them friendly enough for the ease of registration and operation. Lighter regulation, better financing schemes, adequate incentives and new business models could help them sustain in the long run. When they are confident of growth and viability, they will recruit more people to expand their operations.

5. Empower Women Workforce

According to India Development Report, India has one of the lowest female participation in the workforce. The women who work are primarily in the agriculture sector, followed by the service industry. Women tend to leave their careers post motherhood and for other family reasons. But, on the brighter side, the work-from-home women workforce is on the rise. Most of them are also ready to start a business. A Facebook study reveals that four out of five women in India wish to become entrepreneurs. If they are given the right opportunities and conducive environment, they can launch 15.5 million new businesses and 64 million additional jobs. This way, women population can be instrumental in fuelling the employment.

The responsibility of job creation lies equally with the government as well as private enterprises. With co-ordinated effort, they can create more job opportunities and help the Indian workforce tide over the existing difficult times.

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