GDP growth and employment in India – The Core IAS

GDP growth and employment in India


  • What should be the more important concern for policymakers: Boosting economic growth or increasing employment?
  • Prefer a scenario where India has the fastest GDP growth rate even if millions of Indians fail to get a job or would you rather have a scenario where most Indians have a well-paying job even if India’s GDP growth is not as fast.
  • As things stand in India, it is GDP (gross domestic product) growth — the measure of the overall size of the economy — that dominates the national discourse. Employment or unemployment lags far behind in importance.
  • But that is not the case for all economies. In fact, while reading the inflation-related news stories coming out of the US and India in the recent past, some of you might have noticed a crucial difference: In the US, which is the world’s biggest economy, the primary concern is employment levels, not GDP.

Why don’t Indian policymakers or indeed the general public bother more about employment?

  • In India, which has been starved of economic growth for long, GDP growth is viewed as the first and necessary step towards any kind of development and prosperity. This is especially true since the start of the economic reforms in 1991; all policymakers, across most political party lines, seem to agree that there can be no debate about the primacy of GDP growth.
  • It is believed that fast GDP growth will automatically bring about employment.
  • On the face of it, this argument makes sense. But will growth automatically lead to enough job creation? Or, more precisely, has economic growth resulted in fast enough job creation in India?

SWI 2023:

  • This question has been answered in the past and almost always in the negative. But a new report — called the State of Working India (SWI 2023) — brought out by the Centre for Sustainable Employment within the Azim Premji University provides yet another update to this very important question.
  • Often findings on employment get mired in data — in particular, whether the data is from official sources or has been sourced from a private firm. What makes the SWI 2023 report stand out is that APU academics and researchers have used official employment and unemployment data to arrive at the results.
  • This is the fourth edition of SWI and it focuses on “a long-run view of India’s structural transformation experience and its implications for three key social identities: caste, gender, and religion.
  • SWI 2023 analyses data from 1983 to 2023 and uses a whole host of official data sources including Periodic Labour Force Surveys (PLFS), the National Family Health Surveys (NFHS), as well as Census 2011 and Economic Census 2013 among others.
  • Understanding the findings will not only help readers understand how economic growth impacts employment in the aggregate but also how it impacts different segments of the Indian economy. In other words, while GDP growth per se may be non-partisan, its job-creation benefits are not distributed in the economy equally. Rather, as data shows, factors such as caste, religion, age and gender tend to have a considerable impact on how the benefits of growth get distributed in the economy.
  • Moreover, SWI 2023 also underscores the need to appreciate the quality of the jobs being created. For instance, providing “casual labour” at an MGNREGA (National Rural Employment Guarantee Programme) worksite or a construction worksite or working part-time in one’s family enterprise without any pay (“self-employment”) are very poor substitutes for holding a job that provides a regular wage. 

Did India’s GDP growth create enough jobs?

  • Not really. Job creation continues to be India’s main challenge and this is the biggest macro takeaway from SWI 2023.
  • To some extent, this was known since unemployment has become more acute over the decades. But what the SWI 2023 report shows is the relationship between growth and employment has become weaker over time.
  • Since the 1980s, non-farm output — that is GDP from sectors other than agriculture — consistently grew much faster than non-farm employment.
  • A good way to measure this relationship is to look at employment elasticity of growth — it is the extent to which employment grows when GDP grows by one unit. It is calculated by dividing the employment growth rate by the output growth rate.
  • As can be seen, employment elasticity has consistently fallen between 1983 and 2017, showing that a 1% increase in GDP leads to a less than 1% increase in employment.

What about the 2017 to 2021 period?

  • The period 2017-2021 has seen a sharp turnaround in employment.
  • However, it is noteworthy how employment elasticity went up so sharply in the last few years. As highlighted in circles, while non-farm employment growth rate improved during this period, it is also true that the employment elasticity calculation was helped by the fact that the non-farm output growth also fell quite sharply.
  • Nevertheless, this turnaround raises a valid question: Has India’s growth process become more efficient at creating jobs since 2017?
  • In a superficial sense, yes. But that is why this number (employment elasticity for 2017 onwards) is misleading because if you look at what kind of employment is generated then it is not the kind of jobs that you want.
  • One needs to distinguish between jobs that are created when employers want to employ people versus the jobs that are created when employers do not want to employ people.
  • When the economy does well and employers find it worthwhile to create new jobs, the kind of jobs that are created is regular wage jobs or, at least, casual labour (like working on a construction site) jobs. But instead, what has been created in this phase is self-employment.
  • Self-employment is the kind of job that you create for yourself when no one is hiring you. This is the kind of work that pays no regular wage with the remuneration distinctly below other categories of jobs. Think of someone being fired from work and then deciding to join as a part-time worker in a home enterprise.
  • Between 2017 and 2021, there was a slowdown in overall regular wage job creation but formal jobs (with a written contract and benefits) as a share of all regular wage work rose from 25% to 35%. In 2020-21 regular wage employment fell by 2.2 million. But this net change hides an increase in formal employment by 3 million and a loss of about 5.2 million of semi and informal regular wage employment.
  • The biggest losers in the process were the women. While half of the lost employment is accounted for by women, only a third of the increase in formal employment accrued to women. So, in net terms, women lost out on formal employment in this period. Not only that, there was a shift towards self-employment due to distress.

Meaning for India’s growth strategy?

  • Over the long-run GDP growth and employment growth have been uncorrelated in India suggesting that policies oriented towards achieving faster GDP growth will not necessarily speed up job creation.
  • That leads to the obvious question that is worth not only trillions of dollars of GDP but also millions of Indian jobs: If India’s existing growth process is not creating enough jobs or, at least, not creating enough good quality jobs, then what can be done?
  • India’s desire to boost new job creation via industrial growth has failed to take off repeatedly. It is an open question whether such plans will materialise in the future or not, especially since the sentiment is decidedly protectionist across the world. Why would another country import goods from India in such a world?
  • Some argue that India should double down on boosting labour-intensive manufacturing, even if it is for just domestic consumers. They argue that this would create jobs. Others argue that India should stop running after the mirage of an industrial boom; it has not happened and now that time is past.
  • Still others argue that perhaps shifting to “green” manufacturing can provide India with an opportunity to redo the industrial revolution.
  • There are no easy answers and many things must be done to create jobs. Report points to a framework for a National Employment Policy that was outlined in the previous (2021) SWI report.