Stumped By India’s Gargantuan Jobs Crisis? Fix The Shrinking Informal Economy That Absorbs The Largely Un/Semi Skilled Indian

Youth Unemployment
Photo by Andrea Leopardi on Unsplash

India’s job crisis is well known and the whos who of the Indian elite are engaged in finding solutions to this problem that is now seemingly out of control. Indeed, if there is one refrain in the corridors of power at the Centre and in the States, it is that we must address this gargantuan issue, lest it results in massive social unrest (signs of which are already visible). With more than half of the working-age Indians either jobless or worse, discouraged and demoralized to the extent that they have stopped looking for work, India’s job crisis needs urgent attention, and that too on a large scale basis. In this post, I offer my Two Cents worth of advice on how we can approach India’s job crisis by absorbing the largely un/semi-skilled Indian, who is being rendered “invisible” due to a variety of reasons, including automation, accelerating growth in services on one hand, and anaemic growth in manufacturing, with farming in crisis, and the Big One of all, the rapidly shrinking Informal Economy, meaning the Engines that drive job creation in India are sputtering, exacerbating India’s job crisis.

Take, for instance, the Informal Economy, which employs a majority of Indians of working age. Right from Petrol Pump attendants to mechanics, plumbers, electricians, and the works,  the Informal Economy has “something for everybody”. Moreover, the Informal Economy in India drives job creation on a massive scale since the “barriers to entry” are minimal or non-existent, which means anyone and everyone, from anywhere and everywhere can find employment. This is the reason for the migration of millions of Indians across the country, as urban megapolises and metropolises “absorb” these migrants in jobs ranging from Security Guards to those employed in the Food and beverage sector. The growth of the emerging Gig Economy is another job creator, which again needs minimal skills. So, any attempt to address India’s Job Crisis invariably has to focus on the Informal Economy. It is where the average Indian works and not in some glitzy and gleaming offices of the IT (Information Technology) and the Financial Services firms, though there is any number of daily wagers who “support” the aforementioned workforce, in housekeeping, security, admin, and sundry other jobs.

Having said that, the Informal Economy in India is shrinking to the extent that it is bleeding jobs not seen on a scale before. For instance, the Informal Economy that used to be more than 60% of the total economy has now been halved and shrinking even more. Thanks to Demonetization and GST (Goods and Services  Tax), the cash-dependent and grey market economy that supports the largely unskilled or semi-skilled worker, is losing its ability to create jobs on the scale that is needed if India’s Job Crisis has to be addressed. Moreover, the successive lockdowns and the large scale exodus of migrant workers to their hometowns have exacerbated India’s Job Crisis by shrinking the Informal Economy even more. While data pertaining to employment in the formal economy is readily available, the same cannot be said about the Informal Economy as it does register the jobs or protect the workers through social security (the Employee Provident Fund), as well as does not report jobs added and lost in the systematic manner in which the formal economy does. So, one has to go by estimates and the scarce statistics available in the public domain do indicate that India’s Job Crisis is driven by the inability to absorb the un/semi-skilled Indians, who make up the majority of the workforce in the country.

If we were to fix the problem of a un/semi-skilled workforce, or for that matter, India’s Job Crisis, the longer-term objective must invest in education and healthcare, which are catalysts for skill-building and fund upskilling as well. This is the East Asian Tiger Economy model, wherein South Korea is thought of as having “leapfrogged” over others mainly due to its human capital advantage. With massive funding in healthcare and education, along the lines that the Nobel Laureate, Amartya Sen, suggested,  the Tiger economies, reaped the benefits of an educated, healthy, and skilled workforce. Talking about human capital, India at the moment has the potential to reap the Demographic Dividend, home to the world’s largest cohort of those under 30. So, a longer-term strategy would surely be beneficial if it taps into this base of youth to be trained and skilled to the point where they can be absorbed into the formal economy. Until then, with anaemic manufacturing, and farming in crisis, our best bet yet is the Informal Economy. Miracles don’t happen overnight and it takes years of dedication and effort to build a capable workforce.

A short and near term strategy must focus on support and sustenance to the Informal Economy. There are signs that the “formalization” of the Informal Economy is happening as can be seen from the humungous jump in digital payments, wherein even roadside eateries now provide us with the option of paying digitally. Moreover, there are “green shoots” as well as can be seen in the uptick of personal consumption growth, since this indicates spending on every day as well as partly luxury items, signs of the Informal Economy reviving. The migrant workers are returning and construction activities have picked up and so on. While support and sustenance are one part, the best that the government can do is to let this sector pick up and return to pre-pandemic/Demonetization/GST levels and then, address the structural problems that bedevil the Informal Economy. India’s job crisis can only be solved by a longer-term strategy of human capacity building and in the near term, ensuring the semi and unskilled Indians are employed, at least in part-time or temporary jobs before the Demographic Dividend kicks in. Of course, we only have a “small window” of opportunity for this and otherwise, India’s Job Crisis can turn into a Demographic Nightmare.


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