Context, economic growth, and the employment challenge
This India Employment Report 2024 is the third in a series of publications by the Institute for Human Development on labour and employment issues. The first report, India Labour and Employment Report 2014: Indian Workers in the Era of Globalization, was the first of its kind on development and employment issues in India. It provided a comprehensive view of the employment situation in the country and analysis of labour market developments in the wake of globalization of the Indian economy (IHD 2014). The second report, India Employment Report 2016: Challenges and the Imperative of Manufacturing-Led Growth, provided an in-depth review of the evolving characteristics of India's labour force and the employment challenges confronting the country. Based on an overview of the policy interventions that would be required for India's continued development, the report concluded that pursuing a manufacturing-led growth strategy would help the country overcome the formidable challenges (Ghose 2016).
The Institute for Human Development collaborated with the International Labour Organization (ILO) to produce this 2024 report, which revolves around youth employment, education and skills. Based on analysis of the trends and patterns of the Indian labour market over the past two decades, including the impact of the COVID-19 crisis, the report describes the emerging characteristics of the employment challenges now confronting the economy as well as the impact of growth on employment. The report presents in-depth analysis of the youth labour market, the emerging youth employment challenges and the important links with education and skills. It also reviews the prevailing strategies and suggests additional policies and approaches to address emerging employment challenges and the challenges to youth employment in particular.
India has experienced high economic growth since the 1980s, particularly since the 1990s, with the liberalization of the economy. The growth rate accelerated in the 2000s and, in some years, even exceeded 8 per cent. But after 2008, the growth rate substantially declined due to the global financial crisis and then collapsed during the COVID-19 pandemic in 2020 and 2021. Despite these disruptions, the economy has achieved, on average, more than a 6 per cent growth rate over the past four decades. Although not at the level achieved during the 2000s, growth has almost stabilized since the end of the pandemic, and India is among the fastest-growing major economies in the world. Currently the world's most populated country and the fifth-largest economy in dollar terms, India is expected to have sustained economic growth of 5–6 per cent in the next 15 years or so. It is also projected to become the third-largest economy in the world by 2027 (Ernst & Young 2023) and is expected to touch a gross domestic product (GDP) of US$7 trillion by 2030 (DEA 2023). India's growth story has benefited from a demographic advantage, huge investment in digital public infrastructure, a large expansion in physical infrastructure, reforms in the goods and services tax and better service delivery thanks to adoption of technologies. The Government's resources have increased due to increasing tax revenues. According to current estimates, the Indian economy grew 7.3 per cent and 7.2 per cent in 2022 and 2023, respectively (Government of India 2023). India has thus exhibited resilience in economic growth, including in the post-pandemic period.
The economy has gradually globalized since the 1990s. The export of goods and services as a percentage of GDP has increased, from 6.3 per cent in 1984 to nearly 22 per cent in 2022. The composition of goods and services as a percentage of GDP has also considerably increased, from 7.7 per cent in 1984 to 23.6 per cent in 2018. Service exports, particularly of software and information technology-enabled services, has had an important role in the growth (DEA 2023).
The high growth has led to important changes in the Indian economy and society: The level of absolute poverty has declined significantly. There have been improvements in the living standards as well as other social and human development indicators, although the Human Development Index is still low when compared with other country averages.
Although India has performed well in terms of its rate of growth and size of the economy, which has placed the country in a leading position on the world stage at an aggregate level, its position in terms of per capita income has much scope for improvement. Estimations based on International Monetary Fund data indicate that India's per capita income is the lowest among G-20 countries in both dollars (US$2,601) and purchasing power parity (PPP) (US$9,073) terms. According to estimates by the World Development Indicators in PPP terms, gross national income per capita in 2022 was US$8,210 for India, US$21,250 for China and US$77,530 for the United States (World Bank 2024).
Within India, the growth story is an uneven one. There is wide variation in the per capita net state domestic product. In 2021, the per capita national state domestic product in Delhi was more than eight times what it was in Bihar and six times that in Uttar Pradesh. Between 2011 and 2021, the per capita state domestic product in Bihar, Uttar Pradesh, Rajasthan, Jharkhand, Manipur, Meghalaya and Assam grew at a slow pace, in contrast to other states in the North, South and West (CSO 2024).
India has only a limited window of opportunity remaining to capitalize on its growth story, relative to its demographic advantage of an increasing working-age population – in contrast to the population decline evident in developed countries as well as in China. The expanding digital infrastructure, along with increasing physical and social infrastructure, particularly educational opportunities, are likely to propel growth in the future. Another growth opportunity lies in the form of India assuming an important role in the global supply chains through output-incentive plans and the growth of its domestic consumer market.
While the economic growth has had some positive impact on the country's labour market conditions, it has not led to a radical structural transformation in employment conditions. There has been a slow, although steady, decline in the share of agriculture and a rise in the share of services in total employment – the share of agriculture fell from 60 per cent in 2000 to around 42 per cent in 2019. This shift has been largely absorbed by construction and services, the share of which in total employment increased from 23 per cent in 2000 to 32 per cent in 2019. The share of manufacturing has remained almost stagnant, at around 12–14 per cent (see Part 1 of Ghose 2016 and Chapter 1 of IHD 2014).
An important change has been the increase in labour productivity, largely due to increasing capital intensity. The proportion of regular and formal sector workers have increased from 14 per cent and 12 per cent in 2000 to 21 per cent and 18 per cent, respectively, in 2019. However, the increase in formal workers has been insignificant, with 90 per cent of workers still informal (including informal workers in the formal sector). The share of labour income in total income has been falling, and despite some recovery, as of 2019 it was still below its 2000 level.
The Indian labour market exhibits several characteristics akin to a lower-middle-income country.
The following four important employment challenges emerged in the analysis of the labour market characteristics and are addressed throughout this report in detail, with focus on the employment challenges for youths.
Despite the reasonably high growth, there has not been commensurate expansion in productive employment opportunities. Instead, there has been falling employment intensity in the growth process. It is widely acknowledged that this has been mainly due to the growth process being services-led – contrary to manufacturing-led that most developed countries experienced during their development process. Consequently, the process of structural transformation has been slow in India and even characterized as "stunted".
New technological developments have led to significant changes in the labour market. First, capital intensity over the years has been increasing, leading to lower employment intensity of the growth process. Second, the skills composition of work has been changing: while jobs requiring high skills have been increasing, those requiring low skills have been contracting, thus exacerbating the labour market inequalities. The labour market exhibits rather high levels of inequality in terms of regions, social groups, gender and occupation. This is a major factor behind the labour market inequalities and the overall societal inequalities.
Regional demographic changes highlight the disparity in employment outcomes, particularly youth employment, across the regions. Many large states in the eastern and central parts of India are characterized by a youth bulge. These states are relatively underdeveloped and have low per capita income. In addition, these states have a small proportion of highly educated youths, low incidence of formal (regular) employment and a large proportion of young people not in employment, education or training, which underscores the need for regional policies designed to address such differences in the employment situation for youths and promote more-balanced opportunities.
The proportion of youths with a higher education level rose substantially among unemployed persons over the past two decades, from 2000 to 2022, along with heightened aspirations, which could be indicative of some degree of a mismatch between education levels and relevant skills required for the high-skill jobs. If so, it indicates a crisis of employability. It also indicates that education levels are an imperfect proxy for skill levels, given the co-existence of educated unemployed persons with an underqualified workforce in high-skill and medium-skill jobs.
A major challenge emerging in the labour market stems from the rapidly changing technologies that will increasingly have major implications for the various aspects of the labour market and employment. For example, artificial intelligence has created opportunities as well as major challenges. The labour market is being – and will further be impacted – by climate change, which seems to be occurring more rapidly than was forecasted by climate scientists only a decade ago (Stern 2015). It is critical to understand this important issue and its consequences for the labour market in the likely transition to new requirements of a carbon-reducing regime. Although workers in the informal sector are adversely affected by extreme weather events, such as record-breaking heat waves, opportunities are also emerging in terms of green jobs. A major share of India's transformational target of 500 GW of installed non-fossil fuel electricity-generation capacity by 2030 will come from renewable energy technologies like solar and wind (CEEW et al. 2022). India can potentially create about 3.4 million jobs (in the short and long terms) in the solar and wind sectors by installing new capability to achieve the targeted non-fossil electricity-generation capacity. The two major issues of changing technology and climate change are not discussed with any depth in this report, but they require due attention in any discussion on employment and the labour market.
India is at an inflexion point in terms of its demographic transition, whereby the share of the working-age population increased from 59 per cent in 2011 to 63 per cent in 2021 and is expected to remain stable over the next 15 years or so. Thus, the country is in the final stage of reaping its demographic dividend. Although the share of youths in total population has now started to decline, youths in India still account for a large population share (27 per cent) and size (371 million persons) when compared with most countries and will continue to be significant in the country's demographic structure for the next ten years.
The labour force participation rate (LFPR) among youths has been declining, with a reduction from 54 per cent in 2000 to 42 per cent in 2022, and the decline has been sharper among youths aged 15–19 compared to youths aged 20–24 and 25–29. The worker population ratio for youths also experienced a declining trend between 2000 and 2019, before the COVID-19 pandemic (ILO 2022a).
In keeping with global trends in which young people are three times as likely as adults to be unemployed (ILO 2020a), the unemployment rate of Indian youths is higher than for adults. The youth unemployment rate has been rising over the past several decades – from 5.6 per cent in 2000 to 6.2 per cent in 2012, and then increasing threefold, to nearly 18 per cent in 2018, and reaching around 15.1 per cent in 2020. Unemployment among educated youths is particularly high and had exceeded global averages by 2018 (ILO 2022). Indian youths are attaining high levels of education, but not enough employment opportunities are getting created for them, as reflected by the declining participation in the labour force and workforce. The challenge of educated youth unemployment is increasing and becoming huge in India, with immense implications for societal balance and peace.
The Indian media frequently reports stories of thousands of educated youth applying for a small number of advertised government jobs, often much below their educational qualifications. Recently, more than 93,000 candidates applying for jobs included 3,700 PhD holders, 5,000 graduates and 28,000 post-graduates who applied for 62 posts of "peon" in the Uttar Pradesh Police Department, although the jobs require only a minimum eligibility of education till Class 5. The SSC MTS 2023 recruitment examination conducted in May 2023 in Uttar Pradesh State received a staggering 5.5 million applicants for group D jobs (positions such as peon, watchman, gardener). Among the applicants, many candidates had high qualifications, such as bachelor or master of technology, master of business administration, master of art or master of science degrees. Fifteen vacancies for peons, drivers and watchmen in Gwalior, Madhya Pradesh State had nearly 11,000 unemployed young people with graduate, post-graduate, engineer and MBA or PhD degrees applying – and not just from within the state but also the neighbouring state of Uttar Pradesh. Sometimes, such a rush for job applications leads to violence. Millions of youth had applied in 2022 for about 150,000 jobs with the Indian Railways in Bihar and the neighbouring state of Uttar Pradesh. Bihar experienced massive protests when thousands of jobless youth hit the streets in the last week of January 2023 over the alleged irregularities in the results published by the Railway Recruitment Board for the non-technical popular categories examination. There was widespread violence, with agitators pelting stones at train compartments, blocking railway tracks and even burning bogies of trains (as reported by media at that time). Although such reports are more frequent from less-developed (northern) states, this rush, although on a smaller scale, has also been reported from developed states. In June 2022, for instance, about 1.7 million people applied for 3,400 jobs requiring a minimum qualification of Class 10 in the developed state of Gujarat.
Source: The Economic Times, 31 January 2024; India Today Education Desk (Updated), 7 June 2023; NDTV, 29 December 2021.
Globally, the COVID-19 crisis exacerbated the labour market challenges generally faced by young people (ILO 2022c). In India, the decline in the Worker Population Ratio among youths was reversed between 2019 and 2022, with a much higher increase among women than among their male counterparts, especially in rural areas. The pandemic crisis likely compelled young people to work to support their family's income (ILO and UNICEF 2020).
There is a significant gender gap in the labour market, with low rates of female labour force participation. This gender gap in the LFPR has remained almost consistent over the past two decades. In 2022, the LFPR of young men (at 61.2 per cent) was almost three times higher than that of young women (at 21.7 per cent), and the gender gap was similar in both rural and urban areas.
The rate of youths not in employment, education or training globally has been consistently the highest in South Asia, at an average of 29.2 per cent between 2010 and 2019 (ILO 2022a). India also has a large share of youths not in employment, education or training, and the rate is much higher among young women than men. The majority of young women not in employment, education or training are also out of the labour force, while the men with the same status are largely unemployed.
The quality and condition of employment among youths are poorer compared with the older age cohort, although more youths are in industry and services. They are more likely to be engaged in self-employed unpaid family work and casual wage work. They are also more likely to be involved in no-skill and low-skill informal work, which typically offers lower wages or earnings.
The developments in the Indian labour market and the long-run structural trends examined throughout this report encompass roughly two decades (2000–19). The period beginning in March 2020 through 2022 marks the crisis brought about by the COVID-19 pandemic and hence constitutes unusual years in terms of growth patterns and labour market trends. Thus, the analysis for the pre-pandemic period was broken down into time periods – 2000, 2012 and 2019 – to highlight the changes and continuities from a long-run perspective, expanding on the more recent subperiod wherever necessary to bring out a more detailed picture. The analysis also relied on available data for 2020 to 2022 to discuss the impact of the COVID-19 pandemic. The quinquennial rounds of the Employment and Unemployment Survey of the National Sample Survey Office provided the main basis for analysis of employment for 2000 and 2012. The National Sample Survey Office reports of the Periodic Labour Force Survey data were available from 2018 up to 2022, along with unit-level data.
The unit-level data in these surveys were chiefly used to develop conceptual tools and statistical indicators appropriate for the analysis of the labour market and employment in India. That they are the official data sources was the main reason for doing so. But also, the all-India estimates of the LFPR, the worker population ratio, the unemployment rate, including the distribution of employed persons in the country according to gender, location (rural and urban), broad industry and other categorizations, from the Employment and Unemployment Surveys and the Periodic Labour Force Surveys are generally found to be quite robust with reasonably low relative standard errors. Although there have been certain changes in the sample design of the Periodic Labour Force Survey, particularly in the method of stratification of households, the findings are comparable with the Employment and Unemployment Survey findings. This is due to the high level of precision of the all-India estimates and because the final estimates of aggregates (and accordingly, the ratios) for different domains are derived after appropriately adjusting the sample data with corresponding design-based weights at the household level.
Other databases, such as the Reserve Bank of India-KLEMS and the Annual Survey of Industries database, were relied upon where relevant, along with information from a range of published surveys, reports and literature. This includes the Survey on Youth and Skills that the Institute for Human Development conducted in urban areas of Delhi and Ranchi (the capital of Jharkhand State) in 2019. At various points in the report there is also disaggregated analysis of major employment trends and other labour market indicators by age, gender, education, social group and region to highlight underlying trends, especially regarding the youth working-age population.
The report is divided largely into two parts. After the introduction, Chapters 2 and 3 speak to the emerging pattern of employment and growth–employment linkages (Part 1). They provide an overview of the important changes and continuities in the overall labour market and employment scenario in India and the implications of the growth process for employment and the labour market. The analyses in these chapters goes into detail on the characteristics of the labour market over the past two decades and the factors behind the slow structural transformation. The chapters also discuss the transfer of labour from agriculture to the manufacturing and services sector and assess the changes in employment conditions. The challenges brought about by technological developments as well as labour market inequalities are briefly assessed.
In Part II, chapters 4, 5 and 6 move to the challenge of youth employment, education and skills in the face of the changing structure of the labour market and overall developments, along with a discussion of the active labour market policies. These chapters also map the emerging characteristics of youths and their labour market profile and provides detail on the education–employment links and the nature of the skills mismatch in India.
Chapter 7 then wraps up with summary analysis and emerging policy pointers on facing the overall employment challenges – especially youth employment. It is followed by a postscript in Chapter 8 on data that emerged for 2023 after the analysis for this report was completed.
The report focuses on the challenges associated with jobs, skills and education for youths and how to address those challenges. Some of the highlighted challenges as well as the policy measures to redress them are well recognized. The report has consolidated them while highlighting new challenges that emerged more recently, fuelled by the structural transformation brought about by the country's recent growth trajectory. It also highlights continuities that persist due to longstanding structural features of the Indian labour market.