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The Indian Economy’s Agnipariksha


Background


Over the past week, violent protests broke out against the government’s newly-announced armed-forces recruitment scheme, ‘Agnipath’. The scheme proposes a four-year tour of duty for recruits, of whom only 25% shall be eligible for a permanent commission. As protests continue, with an ensuing destruction of public property, the BJP-ruled central and state governments have announced a variety of concessions, ranging from pensions to government job reservations, for the 75% of ‘Agniveers’ who do not receive permanent commission. The protests are ostensibly about young aspirants not being able to secure long-term jobs in the Army, especially after the recruitment process had been put on hold during the pandemic. However, as numerous analysts and the media have noted, the greater issue is about the worsening employment situation in the country — also reflected in the agitations against the farm laws and the alleged irregularities in the railways examination. These protests are a symptom of India’s growing economic malaise, and the status quo does not bode well for the near future.


An analysis of the empirical data allows us to paint a fuller picture of this grim situation. The conclusions derived from this data can, to an extent, explain the causes behind the frustration and desperation manifest in these agitations.



The Employment Crisis in Numbers


India’s shrinking labour force


In economic parlance, those who are seeking employment or are already employed are counted among the ‘labour force,’ while the term ‘workforce’ encompasses the entire working-age population of the country. The Labour Force Participation Rate (LPFR) is therefore a measure of the proportion of the working-age population which is employed or seeking employment. The unemployment rate is a proportion of those from the labour force and not the workforce who are unable to secure employment.


According to data from the Centre for Monitoring Indian Economy, an independent think-tank, India’s LPFR was at 40% as of April 2022, as opposed to 46% back in 2016-17. This is at odds with the Economic Survey of the central government, according to which the LPFR, while rising from April 2018 till March 2022, was at 37.5%. Regardless of which of these figures is accurate, it is evident that the number of job-seekers out of the working-age populace is very low—and if a fall in the LPFR has indeed taken place, then the falling unemployment rate is no evidence of job-creation. CMIE data lends veracity to the phenomenon of a fall in LPFR—it recorded a rise in the proportion of households with only a single employed member, with a corresponding fall in that of households with more than one employed member. This phenomenon is indicative of the rising vulnerability of Indian households.


High youth unemployment


CMIE data also measures the LPFR and unemployment rates among the youth. In the age bracket of 15-19 years—the age bracket where most defence aspirants lie. The unemployment rate from 2020 onwards has been above 50%, despite only 2% of these youngsters seeking jobs. Further, in the bracket of 20-24 years, the LPFR is around 33.5%, while the unemployment rate is still high at around 41%. Looking at these distressingly high unemployment rates, it is evident that the unemployment crisis is particularly acute among the youth.


Sub-par job creation


As per a June 16 Indian Express report, which relies on government data, 2020-21 saw a fall in unemployment rate and some job creation taking place. However, most of the jobs created were “in low-quality, unpaid work” and agriculture. Unpaid self-employment rose in both the rural and urban sectors, while there was a rise in the proportion of labour force engaged in agriculture (to 46.5% from 45.6% in 2019-20).



A lack of viable alternatives to public sector jobs


While agriculture retains the dominant share of the labour force, the rest of the market continues to create unappealing jobs. Thus, being unable to secure good non-agricultural private sector jobs, the appeal of government jobs rises for the workforce. This could be a plausible explanation for the pent-up frustration of aspirants for railway, civil services, and defence jobs. While protests like those against Agnipath may eventually lose steam, this underlying frustration is unlikely to go away so long as the market is unable to offer viable alternatives.


Macroeconomic Obstacles


The government is unlikely to be able to solve the employment issue any time soon, given macroeconomic instability, inflation, and threats of global recession. Rising global and domestic inflation: implications for growth and job creation Global inflation is a consequence of a number of factors—the massive rise in government spending to boost economic growth, the damaged global supply chains, and the trade shocks caused by the Ukraine War.


The rise in inflation (7.04% as of May) remains above the RBI’s tolerance band of 6% and is far from its target of 4%. Consequently, the government and the RBI are both scrambling to take measures to bring spiralling prices under control—with monetary measures leading to a rise in interest rates and fiscal measures leading to excise cuts on fuel. These measures are bound to cut down on consumption expenditure, which is a significant driver of economic growth, thus slowing down India’s economic recovery. Further, simultaneous compulsions of combating inflation and maintaining a sustainable level of public debt limit the government’s spending ability. Government capital expenditure is an important driver of economic growth, and therefore, potential cuts in such expenditure do not portend well for job creation. Schemes like Agnipath reflect the government’s desire to cut down on additional expenditures like salaries and pensions for permanent commissions.


Conclusion: Recession at home and abroad, and what it means for the employment crisis


Future growth prospects must be viewed with caution; Pandemic-induced shocks, China’s pursuance of a ‘zero-covid’ policy, and the Ukraine War have taken their toll on the American economy, and this downturn may translate into a mild recession in the coming one to two years, which will have an inevitable spill-over into the rest of the world. The US economy has shrunk by 1.6% from January to March 2022, The Economist expects a recession to strike the US by the year 2024. Even if India manages to sustain growth of over 7% in the next year, it must prepare for the impending economic storm. As for resolving the employment conundrum, it first remains to be seen how successfully the Indian economy breaks out of the inflation-growth cycle.


(Written by Raunaq Bawa and Edited by Anoushka Gehani)


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