India’s economy is growing rapidly. Why can’t it produce enough jobs?

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NEW DELHI — On paper, India’s economy has had a banner year. Exports reach record highs. Profits of listed companies doubled. A vibrant middle class, built over decades, is now forking out so much on movie tickets, cars, real estate and vacations that economists are calling it post-pandemic “revenge spending.”

Yet, even though India should have the fastest growing of any major economy this year, the headlines in pink do not reflect reality for hundreds of millions of Indians. Growth is still not translating into enough jobs for the waves of educated young people entering the labor market each year. Far more Indians earn their living in the informal sector, and they have been battered in recent months by high inflation, especially food prices.

The disconnect is the result of India’s uneven growth, fueled by the voracious consumption of the country’s upper strata, but the benefits of which often don’t extend beyond the urban middle class. The pandemic has amplified the divide, throwing tens of millions of Indians into extreme poverty while the number of Indian billionaires has grown, according to Oxfam.

The concentration of wealth is partly a product of the growth-at-all-costs ambitions of Prime Minister Narendra Modi, who pledged upon his re-election in 2019 to double the size of India’s economy by 2024, lifting the country into the $5 Trillion or More Club alongside the United States, China and Japan.

The government announced late last month that the economy grew 8.7% last year, to $3.3 trillion. But with domestic investment lackluster and government hiring slowing, India has turned to subsidized fuel, food and housing for the poorest to tackle widespread unemployment. Free cereals now reach two-thirds of the country’s more than 1.3 billion people.

These handouts, by some calculations, have pushed inequality in India to its lowest level in decades. Yet critics of the Indian government argue that subsidies cannot be used indefinitely to hide inadequate job creation. This is all the more true as tens of millions of Indians – new university graduates, farmers seeking to leave the fields and women taking up work – are expected to seek to flood the non-farm labor force in the years to come.

“There is a historic disconnect in the Indian growth story, where growth is essentially happening without a corresponding increase in employment,” said Mahesh Vyas, managing director of the Center for Monitoring Indian Economy, a research firm from data.

As a child, Ms. Sinha liked to pretend to be a teacher, standing in front of her village classroom with fake glasses and a wooden baton, much to the amusement of her classmates.

Her ambition was realized years later when she got a job teaching math at a private school. But the coronavirus has upended his dreams, as India’s economy contracted by 7.3% in the 2020-21 financial year. A few months after starting, she and several other teachers were fired because so many students had dropped out.

Ms. Sinha, 30, is looking for a job again. In November, she joined thousands of candidates vying for a coveted government job. She also traveled across Haryana in search of jobs but turned them down due to the meager pay – less than $400 a month.

“Sometimes at night I’m really scared: what if I can’t get anything?” she says. “All my friends are suffering because of unemployment.”

But for Indian politicians, high unemployment “is not a hindrance”, said Mr Vyas, the economist, adding that they were much more concerned about inflation, which affects all voters.

India’s reserve bank and finance ministry have tried to tackle inflation, which is hitting many countries due to pandemic-related supply chain issues and the war in Ukraine, by limiting wheat exports and sugar, by raising interest rates and reducing fuel taxes.

The bank, after raising borrowing rates in May for the first time in two years, raised them again on Wednesday, to 4.9%. In doing so, he predicted that inflation would reach 6.7% over the next three quarters.

Reserve bank officials also used a range of fiscal and monetary tactics to continue to support growth, which slowed in the first quarter of 2022, falling to 4.1%. Household consumption, a major driver of the Indian economy, has fallen in recent months.

“We are committed to containing inflation,” said bank governor Shaktikanta Das. “At the same time, we have to keep in mind the demands of growth. It cannot be a situation where the operation is successful and the patient is dead.

While the Bank of England and the Federal Reserve in the United States have said that their countries must accept lower growth rates due to high commodity prices, the Indian Reserve Bank is not in this camp, said Priyanka Kishore, analyst at Oxford Economics. “Growth matters a lot to India,” she said. “There is a political agenda.”

The ban on food exports is a sharp turnaround for Mr Modi. In response to Russia’s blockade of Ukrainian ports, which led to a global grain shortage, he said in April Indian farmers could help feed the world. Instead, with global wheat shortages driving up prices, the Indian government imposed an export ban to keep domestic prices low.

Temporary interventions like these are easier than tackling the root problem of large-scale unemployment.

“You have wheat in your godowns and you can ship it to households and get instant gratification,” Mr Vyas said, referring to storage facilities, “whereas trying out certain employment policies is much more long and intangible”.

Analysts say these policies could include increased efforts to develop India’s underdeveloped manufacturing sector. They also say India should ease regulations that often make it difficult to do business, as well as reduce tariffs so that manufacturers have an easier time securing components that are not made in India.

Exports have been a source of strength for the Indian economy, and the rupee has depreciated by around 4% against the US dollar since the start of the year, which should normally boost exports.

But inflation in the United States and war in Europe began to affect sales of Indian-made garments, said Raja M. Shanmugam, president of a trade association in Tiruppur, a textile hub in the state. of Tamil Nadu.

“All the cost of inputs is going up. Even earlier, this industry was working on very thin margins, but now we are working on loss,” he said. “So a situation that is normally a happy situation for exporters is no longer so.”

The struggles of working-class Indians and the millions of unemployed could eventually dampen growth, economists say.

Zia Ullah, who drives an auto-rickshaw in Tumakuru, an industrial town in the southern Indian state of Karnataka, said her income was still only about a quarter of what it was before the pandemic.

The $20 he earned daily was enough to cover household expenses for his family of five and school fees for his three children.

“Customers prefer to walk,” he said. “Nobody seems to have money these days to get a car.”

Mr Ullah, 55, said the cost of food had risen so much that he had to cut back on his meals and pull two of his children out of school.

“Only one, the eldest daughter, goes to school now,” Mr Ullah said. “The others are looking for work in the area.”

Hari Kumar contributed reporting.

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