As we move towards the next general election it’s important to ask what’s going to hurt the BJP’s electoral prospects more — high food and fuel prices or massive unemployment accompanied by stagnant incomes of those who are lucky enough to have jobs, mostly very low-paying ones.

Officially, the unemployment rate in India is currently at over 8 per cent which is the mother of all understatements. In reality it’s far more likely to be around 50 per cent. It all depends on how you define being employed.

Most people who claim they are employed are merely working for perhaps 15 days a month at very low wages. If they are lucky they work 10 hours a day. Most work for half of that. And they feed four or more people with that income for 30 days a month.

That’s why the correct question in India should be “how much do you earn in a month” rather than “are you employed”. The latter question may elicit a positive response but it’s a meaningless one.

The strange thing is that although this has always been the case, governments have been more focused on inflation. It’s hard to escape the conclusion that, apart from periodic job melas, they have given up. It’s simply not a solvable problem.

It’s often the case that while you are trying to solve a major problem, another equally big one gets completely neglected. Nowhere is this more true than of inflation and employment.

Eyes off employment

Governments strain every monetary muscle to keep inflation low. And in the process they take their eyes off employment.

This is not just the old growth versus inflation problem. It runs much deeper into structural factors. This has always been the case in India and has worsened under the Modi government.

So focused has it been on that notional inflation target of 4-6 per cent that it has no clue today about employment and what to do about it. But it isn’t worried about the political implications.

There is a widely held assumption in India that employment is low because investment is low. The investment rate fell from 33.5 per cent of GDP in 2014-15 to 27.3 per cent in 2020-21, but touched 33.9 per cent and 33.8 per cent in FY18 and FY19, respectively. The investment ratio touched 35.3 per cent in Q4 of FY23.

But the more pertinent question is this: even if the investment rate were to go up to the Chinese levels of 1990-2015, which was between 40-45 per cent of GDP, would India be able to create enough jobs. And the dismaying answer is no.

Its workforce is around 700 million. A 45 per cent investment rate with current technologies might give it 75-100 million jobs. But given improvements in technology even that is doubtful. I would bet on 50-60 million.

So where will the remaining 600-odd million looking for jobs go? As a society, and not just a country, we are burying our heads in the sand.

In a way we are back to where Europe was in the 19th century. It had very high investment rates. But unemployment rates were high too. That’s what led to migration to the Americas, Australia, New Zealand and South Africa.

Europe wasn’t just exporting capital. It was also exporting labour. This option is no longer available. It is, if you like, similar to capital controls. The difference is that while the latter are self-imposed, migration faces externally imposed restrictions.

The paradox is that no political party talks very much about this. Inflation is always a political issue but employment never is.

Published on August 9, 2023