Context: According to the Economic Survey 2023-24, India needs to create nearly 7.85 million jobs annually in the non-farm sector to accommodate the growing workforce. Therefore, a country with a population of 1.4 billion cannot rely solely on the services sector and will need all sectors of the economy to contribute to job creation.
Why Has India Struggled to Accommodate its Growing Workforce?
- Lower Growth of Manufacturing Exports from India: While India’s services exports constitute 4.3% of the world’s commercial services exports, goods exports barely account for 1.8% of the global goods market, resulting in low job generation in the manufacturing sector.
- Decline in Export-related Jobs: Direct employment linked to exports peaked at 9.5% of total domestic employment in 2012 but fell to 6.5% in 2020.
- Limited participation in Global Value Chains (GVCs) is one reason India has struggled to generate sufficient trade-related jobs, according to the World Bank. Around 70% of international trade involves GVCs, but despite rapid economic growth, India’s trade in goods and services has decreased as a % of GDP, and its participation in GVCs has declined over the past five years.
- India’s participation in GVCs has been declining due to issues such as difficulties in procuring raw materials, high transport costs and rise in average tariffs from 13% in 2014 to 18.1% in 2022.
- High import tariffs on key intermediate inputs and non-tariff barriers in export markets have raised production costs, making Indian producers less competitive in international markets compared to countries like Vietnam, Thailand, and Mexico.
- Service Sector-Driven Growth: Over the past two decades, India’s economic growth has increasingly been driven by the services sector.
- But the expansion of the services sector has coincided with a noticeable decline in traditional industries such as apparel and footwear, which provide livelihoods for millions of low-skilled workers.
- The stagnation in manufacturing has exacerbated the divide between high-skilled and low-skilled jobs.
- Dominance of High-Skilled Service Sector: This is due to dominance of the service sector and high-skill manufacturing in India’s export basket.
- India has emerged as a key market for multinational companies to establish data analytics and software development centres, known as Global Capability Centres (GCCs), to leverage the large pool of qualified IT engineers in the country.
- Since these sectors are less suited to absorbing large portions of the Indian workforce, job creation due to trade has diminished.
- Slowdown in IT Services Sector: The IT services sector, a bellwether of Indian skilled employment, has recently seen a slump in hiring. Leading companies who are major recruiters of young Indians, have witnessed a significant drop in their workforce in 2024 compared to 2023, with their collective headcount reducing by more than 61,000 individuals.
- Lack of Skill Development: Only 16% of India’s labour force have undergone some form of skill training. Hence, insufficient vocational skills and low education levels among the workforce reduces their employability. Only 45% of graduates are considered employable according to the India Skills Report.
What are the Measures Taken by the Government?
- PM MITRA Scheme: With an aim to boost scale in the Indian textile sector, the Centre in 2023 had approved the setting up of seven PM Mega Integrated Textile Region and Apparel (PM MITRA) Parks to develop world-class infrastructure with an outlay of Rs 4,445 crore for a period up to 2027-28.
- Setting Up of New Industrial Smart Cities: Last month, the Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi had also approved setting up of 12 industrial smart cities under the National Industrial Corridor Development Programme (NICDP) with an estimated investment of Rs 28,602 crore.
- Reduction in Tariff: In the FY25 Union Budget, the government announced tariff reductions on various items, including medical equipment, mobile phones and related parts, critical minerals, solar energy products, marine products, leather and textiles, precious metals, electronics, petrochemicals, and telecom equipment.
- Prime Minister’s Employment Generation Programme (PMEGP): The Government is implementing PMEGP for assisting entrepreneurs in setting up new units in the non-farm sector. It aims to provide employment opportunities to traditional artisans/ rural and urban unemployed youth at their doorstep. Since 2018-19 to 30 January 2024, estimated employment generated (no. of persons) are 37.46 lakhs.
- Deendayal Antyodaya Yojana – National Urban Livelihoods Mission: (DAY-NULM): The Mission aims to reduce poverty and vulnerability of the urban poor households by enabling them to access self-employment and skilled wage employment opportunities, resulting in an appreciable improvement in their livelihoods on a sustainable basis. From 2018-19 to 30 January 2024, estimated number of skill trained candidates placed under DAY- NULM are 5.48 lakhs.
- Pradhan Mantri Mudra Yojana (PMMY): PMMY is being implemented by the Government for facilitating self-employment. Under PMMY, collateral free loans up to ₹10 lakh, are extended to micro/small business enterprises and to individuals to enable them to set up or expand their business activities. Around 47.7 crore loans were sanctioned under the scheme as on 29 March 2024.
- Pradhan Mantri Mudra Yojana (PMMY): PMMY is being implemented by the Government for facilitating self-employment. Under PMMY, collateral free loans up to ₹10 lakh, are extended to micro/small business enterprises and to individuals to enable them to set up or expand their business activities. Around 47.7 crore loans were sanctioned under the scheme as on 29 March 2024.
Creating Large Scale Employment (Way Forward)
- Identifying Skilling Needs through decentralised community action. This can help enumerate all those wanting employment in a community register and making it the basis of finding skill providers and employers.
- Converging initiatives for education, health, skills, nutrition, livelihoods, and employment (at the local government level) with women’s collectives to ensure community accountability. Employment does not improve in isolation. All human development indicators achieve better when they devolve and converge.
- Introducing need-based vocational courses/certificate programmes alongside undergraduate programmes in every college. This will greatly improve employability on scale by making graduation programmes employable.
- Investing in Industrial Training Institutes (ITI), polytechnics as these technical institutions can also work as a hub for feeder schools. Schools must develop an equivalence framework for academic and vocational inputs in terms of credits and hours. The focus should be on States/districts with the least institutional structure for vocational education.
- Introducing enterprise and start-up skills through professionals in high schools: Schools need to introduce technology and enterprise as a subject at the upper primary/high school-level onwards. It is important that experimentation and innovation with an understanding of business processes are a part of the regular school curriculum. Visits by professionals to schools can impart finishing skills to students.
- Having a co-sharing model of apprenticeships with industry is critical as far as manufacturing sector opportunities or even the services sector is concerned. Skilling costs must be shared with potential employers as standalone government-funded skilling is not always the best way forward.
- Streamlining working capital loans for women-led enterprises/first-generation enterprises to enable them to go to scale. While efforts to create comprehensive credit histories of every woman borrower are underway (Reserve Bank Innovation Hub), technology can be a great enabler in going to scale.
- Starting a universal skill accreditation programme for skill providing institutions, and let the state and industry jointly sponsor candidates for courses. Skill providers can be accredited after a rigorous assessment process. Candidates can be co-sponsored by the state and employers.
- Apprenticeships on scale can facilitate the absorption of youth in a workplace. The scale must go up. The focus must be on skill acquisition and the government’s condition for employer subsidies in any form must always be for wages of dignity on successful completion of apprenticeship.