The new year is upon us and Omicron is darkening the horizon worryingly, weakening consumer confidence and undermining India’s economic recovery. Growth prospects depend on a symbiotic and psychological relationship between consumer sentiment and business confidence. If consumers are enthusiastic about spending, it means they don’t have income or work anxiety. This can only happen when companies hire with great enthusiasm. But companies will only do so once they see signs of a recovery in demand, which in turn depends on consumer sentiment. To break this cycle of somewhat self-fulfilling pessimism, you need a big boost, or other sentiment booster.
Economists alone cannot understand what this could be, beyond monetary and fiscal boosters. Maybe a cricket victory? Parties and weddings? Or a vaccine breakthrough?
Fortunately, Omicron is less of a shock absorber for at least four reasons: its power and death rate, at least so far, are quite low; the health infrastructures are much better prepared than during the second vicious wave of the summer; the country’s immunization status continues to improve; and finally, the pandemic is doomed to become endemic at some point and people just want to get back to their normal economic life. The US economy is actually overheating despite Omicron. Its job market is not only hot, it is going through what has been called “the great resignation”. Since April, on average, more than 4 million people have left their jobs each month in the United States. There are approximately 10 million unfilled vacancies. in various industries and membership bonuses are offered even for mundane jobs.
But the situation in the Indian labor market is quite the opposite. Despite an expanding workforce, the pace of job creation is woefully inadequate. The country’s labor force ratio (LPR) fell to 42%, according to the International Labor Organization. Even the Center for Monitoring Indian Economy’s monthly survey shows the LPR has fallen to 40%. This means that 60% of able-bodied adults between the ages of 18 and 60 are not even looking for work. The LPR for women is barely 21%, and goes down to single digits in states like Uttar Pradesh and Bihar. India’s LPR is even lower than its neighbors, with Bangladesh at 53%, Pakistan at 48% and Nepal at 74%.
Are these discouraged workers who have lost all hope of finding a job? It doesn’t match the frantic crowds that show up at government recruiting centers, even for modestly paid Class 3 and Class 4 jobs. There is no doubt that the pandemic and associated lockdowns have adversely affected the informal and labor-intensive sectors, and the low LPR may be a lingering effect of this. But overall job growth in recent years has been weak, given the demands of the country’s population explosion. Another indicator of distress in the Indian labor market is the demand for work on the National Rural Employment Guarantee Scheme (NREGS) sites. It acts as a proxy for unemployment insurance. In the most recent fiscal year ended March 31, demand for these state-assured jobs increased 42%, with work supplied to 112 million people. Since April, this figure has increased by a further 20%. NREGS budgetary expenditure had to be increased during the pandemic period to more than ??1 trillion per year, which reflects the heavy dependence of people on it.
Even though the NREGS provides for a wage floor, rural wages are stagnant. India’s urban unemployment rate reached 9.3 percent in the first quarter of 2021, according to data from the National Statistics Office’s periodic Labor Force Survey. Since economic growth this year will be close to 10% and probably 7% next year, employment growth is insufficient. This means that income will be distributed asymmetrically, a problem confirmed by increasing inequality, as the recent World Inequality Report reported.
One solution is to focus on labor-intensive exports and capitalize on the current boom in Western economies like the United States. India’s most abundant resource, namely labor, is woefully underutilized. Of course, you can argue that India’s numero uno position as a recipient of remittances ($ 80 billion per year and growing) makes the country a de facto labor exporter. These transfers come mainly from semi-skilled and unskilled emigrants to West Asia. Software exports are also labor intensive, but incorporate high skills and employ only a few million people. Amid the boom in the digital economy brought on by the pandemic, our IT industry has experienced a recruitment frenzy. New hires are expected to triple in 2022. But that’s barely a drop in the ocean of nearly 500 million people looking for meaningful work. The real drivers of employment growth outside agriculture are construction (both infrastructure and real estate), textiles and clothing, footwear, tourism, retail and, more and more, logistics. The government also has around 2 million vacant positions at various levels. But these jobs are not opening anytime soon due to budget constraints.
Even though industrial jobs are likely to be eliminated by automation, there is still a sufficient window for job creation that will support livelihoods. Bangladesh’s relentless focus on garment exports has refuted the exaggerated risk of automation, and its per capita income has exceeded that of India. It is just one more country in a long line of Asian success stories involving growth driven by labor-intensive exports. In India, the loss of schooling for almost two years will undermine our stock and the formation of human capital.
India’s real pandemic is one of unemployment and underemployment. In a world of aging rich societies with great disparities between the demand for and supply of labor in the developed and developing world, why can’t we convert its larger and larger workforce? younger in an advantage? The vaccine India needs is the one that will break the persistence of jobless growth.
Ajit Ranade is Principal Investigator, Institution Takshashila
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