Government incentives and a digitally savvy economy are transforming India’s position in global value chains
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“Prime Minister Modi has worsened unemployment in the country. Those who could provide employment have been devastated by demonetisation and a faulty goods and services tax system,” Gandhi said at a rally in India’s eastern state of Bihar on Saturday. “There is,” he said.
The move was widely criticized, but during his first term in 2016, Prime Minister Modi announced that 500 and 1,000 rupee notes would be demonetised, meaning they would no longer be legal tender.
Demonetization, aimed at curbing black money – money earned through illegal activities that evade taxation – was branded a “grave mismanagement” by Modi’s predecessor, Manmohan Singh.
But that did not prevent Mr. Modi from securing a second term in 2019 with even greater powers.
Arun Kumar, an economist and former professor at New Delhi-based Jawahar Lal Nehru University, told CNBC that the country’s unorganized sector has yet to recover from the effects of demonetization, adding that It added that this is one of the main reasons for the high unemployment rate in the country.
India’s unorganized sector comprises millions of privately owned small and medium-sized enterprises and accounts for approximately 93% of the country’s total workforce.
The ILO-IHD findings have been highlighted by opposition parties seeking to corner Prime Minister Modi’s ruling Bharatiya Janata Party on unemployment, with the chairman of India’s main opposition party, the Indian National Congress, called out a certain Indian National Congress leader. unemployment The situation is a “ticking time bomb”.
The issue resonates among voters, with a survey earlier this month by Lokniti, a research program of the New Delhi-based Center for the Study of Developing Societies and CSDS, finding that unemployment was the top concern among voters in India. It was shown that this is a matter of concern.
As many as 32% of respondents said rising unemployment was a problem. The main reason why they will not elect the BJP again. Some 62% of those surveyed said it had become more difficult to secure employment over the past five years.
However, the same survey also revealed that 44% of respondents are willing to give the Modi government another chance, while 39% do not want the current government to be re-elected.
India’s Ministry of Labor did not immediately respond to CNBC’s questions about the country’s unemployment situation.
The shift from the unorganized sector to the organized sector and from labor-intensive industries (such as leather and textiles) to capital-intensive sectors (such as e-commerce) has led to a decline in India’s ability to create employment. says Kumar. He said.
Former Reserve Bank of India governor Raghuram Rajan expressed similar concerns last week, pointing to a decline in employment in labor-intensive sectors such as leather goods.
“Unemployment is high, disguised unemployment is even higher. Labor force participation is low, and women’s labor force participation is really shockingly low,” said Rajan, who spoke at George Washington University on how to make India a developed economy. said.
A slowdown in hiring in India’s vast information technology sector is also contributing to a shortage of high-paying, white-collar jobs.
Citing the mobile phone sector as an example, Kumar said India’s manufacturing push has so far failed to address the employment situation due to limited value addition and increased mechanization.
“We’re assembling phones here, we’re not making components that would lead to higher job creation. If an Apple phone costs $1,000, we’re building phones here for $50 to $60. “We are adding dollar value, and the jobs created are commensurate with that added value,” he said. he told CNBC.
Manufacturing is both capital-intensive and labor-saving. According to an ILO-IHD report, job creation in India has become more capital-intensive as mechanization increases, with fewer workers employed between 2019 and 2000 than in the 1990s. are doing.
“We go down in them [labor-intensive] region. No wonder we have more jobs problems.” Rajan questioned the government’s priorities, adding, “Think about these chip factories. So many billions of dollars go into chip manufacturing. It will be subsidized.”
Economists such as Kumar say the government has introduced measures such as production-linked incentives to boost manufacturing, but as mechanization continues to increase, this has yet to lead to meaningful job creation. He says he hasn’t.
According to the Indian government, the PLI scheme, which will cost 1.97 trillion rupees (about $24 billion) over five years from 2021 to 2022, could potentially create 6 million new jobs.
The ILO-IHD headline figures on youth unemployment have been a big talking point this election season, but some key indicators of an improved employment scenario are getting lost in the debate.
According to the ILO-IHD report, the youth unemployment rate fell from 17.5% in 2019 to 12.1% in 2022 and 10% in 2023. Overall, the unemployment rate fell to 3.1% in 2023 from 3.6% in 2022 and 4.2% in 2021, according to government data.
Surjit Bala, a former IMF managing director and former member of the prime minister’s economic advisory council, told CNBC that much of the noise about unemployment is just a “political narrative.”
Despite unemployment being at the forefront of voters’ concerns and a key issue raised by opposition parties to put the ruling Bharatiya Janata Party at a disadvantage, numerous surveys show that Mr. Modi once again has strong support. This indicates that there is a high probability of winning this election. Delegation.
If Modi returns to power for a third term, he will become the second prime minister to achieve this feat after the country’s first prime minister, Jawaharlal Nehru.
— CNBC’s Naman Tandon contributed to this article.
