Indians dropping out of labor force as country’s jobs crisis worsens

iNDICA News Bureau-

While Finance Minister Nirmala Sitharaman was wooing Silicon Valley investors earlier this week to participate in the India ‘growth story’, a Bloomberg report citing data from the Center for Monitoring the Indian Economy (CMIE), a private-sector economic research firm based in Mumbai, has raised fresh worries about the economy.

According to the latest data from the CMIE, women are dropping out of the country’s workforce in larger numbers as they are losing hope of finding the right kind of job.

Of course, it’s not only women who are dropping out. Men are, too, but the exit of women is reaching alarming proportions.

According to the CMIE, while the labor participation rate (LPR) has dropped below 40 percent from 46 percent between 2017 and 2022, about 21 million women have exited the work force entirely, leaving only 9 percent of the eligible female population employed or looking for positions.

While the country’s unemployment rate fell in March to 7.6 percent from 8.1 percent in February, the fall was caused not by more people finding jobs but by simply giving up looking for jobs.

Mahesh Vyas, managing director and CEO of CMIE, wrote in an article in the Business Standard newspaper that the country’s LPR fell to 39.5 percent in March from 39.9 percent in Feb. This was lower than during the second wave of the Covid-19 pandemic in April-June 2021. The lowest LPR during the second wave was recorded in June 2021 at 39.6 percent. The average LPR during April-June 2021 was 40 percent. March 2022, with no Covid-19 wave and far fewer restrictions on mobility, reported a worse LPR of 39.5 percent.

“The large share of discouraged workers suggests that India is unlikely to reap the dividend that its young population has to offer,” Kunal Kundu, an economist with Societe Generale GSC Pvt Ltd in Bangalore, told Bloomberg. “India will likely remain in a middle-income trap, with the K-shaped growth path further fueling inequality.”

The employment challenge India faces is no secret. With two-third of the population between the ages of 15 and 64, competition for anything beyond menial jobs is fierce. Whenever stable positions in government are advertised, which itself has become rare these days, thousands of candidates apply for each position.

While Prime Minister Narendra Modi had prioritized jobs in his election campaign, he has not been able to solve the demographic problem he is faced with. To keep pace with the rising youth population, India needs to create at least 90 million new non-farm jobs by 2030, according to a 2020 report by McKinsey Global Institute. That would require an annual GDP growth of at least 8 percent.

While India has continued to liberalize its economy, drawing in companies like Apple and Amazon, job opportunities continue to remain limited and economists now fear that the country may miss the window to reap a demographic dividend before the population begins aging. In other words, Indians may become older, but not richer.

The fall in employment predates the pandemic. After Modi banned high-value currency notes in a sudden move in Nov 2016, the small-scale and unorganized sector, which accounted for more than half the country’s economy, has been struggling to survive. The rollout of the unified Goods and Services Tax the following year only increased the challenges for this sector.

While the government has been trying to push the informal economy to transition to a more formal state, the pain caused by the process is threatening to drag the entire economy down as the informal sector was also the single biggest source of employment in the country.

Explanations for the drop in labor participation vary. Unemployed Indians are often students or homemakers. Many survive on rental income, the pensions of elderly household members or direct transfers from the government. In a world of rapid technological change, others are simply falling behind in having marketable skill-sets.

For women, the reasons sometimes relate to safety or time-consuming responsibilities at home. Though they represent 49 percent of India’s population, women contribute only 18 percent of its economic output, about half the global average.

“Women do not join the labor force in as many numbers because jobs are often not kind to them,” CMIE’s Vyas told Bloomberg. “For example, men are willing to change trains to reach their job. Women are less likely to be willing to do that. This is happening on a very large scale.”

The government has tried to address the problem, including announcing plans to raise the minimum marriage age for women to 21 years. That could improve workforce participation by freeing women to pursue higher education and a career, according to a recent report from the State Bank of India.

But changing cultural expectations can be hard, particularly with few jobs available.