Not enough jobs, private investments missing: What’s wrong with the world’s fastest growing economy?

A report from rating agency CARE, released early this week, revealed that India's employment scenario is not looking good. It said job growth in corporate India moderated to 3.8 percent in fiscal year 2018, from 4.2 percent in the previous fiscal and the problem is most severe with smaller companies.

The report, based on an analysis of over 1,600 corporates, said smaller companies with net sales of less than Rs 500 crore have witnessed a contraction in employment growth, while larger companies with over Rs 500 crore sales had a positive employment growth in 2017-18.

This comes on the heels of GDP growth projections, both by global and domestic agencies, placing India at the top of the world growth chart and is giving us goosebumps with the thought that once again India is set to beat China on growth rate. But the fact is GDP figures do not make much sense to the common man if there aren’t enough jobs to go around. Even worse, if the jobs are not generated with sufficient pace in smaller companies, as the CARE survey says. Because that's where the majority in the economy of 1.3 billion people are employed. The CARE figures confirm the fears of a jobless growth in the economy, which is a political setback for Narendra Modi who is set to seek the public's mandate in less than eight months from now.

 Not enough jobs, private investments missing: What’s wrong with the world’s fastest growing economy?

File image of Prime Minister Narendra Modi. Reuters

A decline in the job numbers would also give room to multiple questions--What happened to the famed start-up promotion Modi has been advocating from Day One, the Skill India campaign that intended to generate jobs, the numerous calls to foreign investors to put more money on the table on stalled projects to revive the economic momentum. For Modi, these questions are hard to answer.

The private investment scenario too doesn't look good. Recently, economy monitoring agency, CMIE, said private sector investments continue to remain low. Logically, this has had an adverse impact on stalled projects, which according to CMIE is on the rise. Its data says Indian companies announced new projects worth Rs 1.49 lakh crore in the quarter ended September, down 41 percent from the previous quarter, and 12 percent lower than in the same period last year (read a detailed report here).

If one looks deeper at the numbers, the problem is mainly in the private sector, which is refusing to put fresh money on the table. That is the root of unemployment because unless fresh money comes to the economy, the question of new jobs doesn’t have much relevance. The fact is new projects aren’t taking place because investors aren’t too optimistic about the economic scenario on the ground. Crucial land, labour reforms are pending even now. The current situation, in a way, is reminiscent of UPA’s period of ‘jobless growth’ characterized by a phase of high GDP growth but with no corresponding job creation on the ground. Critics pointed out then that unless the fruits of high economic growth reach the job seeker, the whole growth-talk is a farce.

Perhaps, the Indian economy is still not very different from those days as far as employment is concerned. Remember, India is projected to grow at 7-7.5 percent, making it the fastest growing economy in the world. Quite clearly, the Indian economy has had major headwinds at this point. A free falling rupee (trading around 74 per dollar at this point),  skyrocketing international crude prices (India imports 80 percent of its domestic demand), a tightening global interest rate environment (which means persisting threat of capital exodus).

The multiple economic headwinds even threaten to eat into Modi’s political points garnered through his early economic moves--demonetisation, success in generating political consensus for GST rollout and subsidy reforms.

The displeasure on the ground on account of lack of jobs is a nightmare to any incumbent who is seeking a public mandate to return to office. Acknowledging the job problem is important, as one of Modi’s ministers did recently in the context of agitations in Maharashtra. But, many of the top ministers at the Centre continue to downplay the problem often picking up convenient data points that aren’t widely accepted. If not properly addressed, for a large economy like India, the dissent on the ground on rising unemployment can be unsettling. The tag of the world’s largest growing major economy may not be enough to calm job seekers.

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Updated Date: Oct 19, 2018 10:54:57 IST

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