General economy of India (Photographer: Dhiraj Singh/Bloomberg) 

World's Fastest-Growing Economy Isn't Creating Jobs Like Before

(Bloomberg) -- In India, the world’s fastest-expanding economy, the link between growth and job creation is weakening.

New research from the privately-run Azim Premji University shows that a growth rate of 7 percent is now leading to less than 1 percent improvement in employment, while in the 1970s and ’80s an expansion of 3 percent to 4 percent was resulting in a much higher 2 percent gain in jobs. The outcome is an unemployment rate that’s hit 5 percent in 2015, the highest in at least 20 years.

The main reason for the worsening correlation between growth and jobs was a mismatch between skills and “good jobs,” according to researchers led by Amit Basole. The share of the so-called goods jobs that broadly includes formal employment with regular pay accounted for only 17 percent of the country’s 467 million workforce.

“Simply put, higher growth has raised aspirations but has failed to generate the kind of jobs that will allow people to fulfill those aspirations,” the researchers wrote in the report, called State of Working India 2018. “This obviously points to the issue being not only one of job creation, but of the creation of decent and desirable jobs.”

World's Fastest-Growing Economy Isn't Creating Jobs Like Before

Growth has averaged 7 percent since reforms began in 1991 under Prime Minister P.V. Narasimha Rao to open up the economy. The most recent figures show gross domestic product expanded 8.2 percent in the three months through June from a year earlier, making India the world’s fastest-growing major economy.

India is on track to hold that position, with the International Monetary Fund retaining its growth forecast of 7.3 percent for the fiscal year through March 2019.

Still, unemployment remains high, especially among young and educated Indians. More than one-third of about 23 million people who were actively searching for jobs have graduate or higher levels of education, the study found.

World's Fastest-Growing Economy Isn't Creating Jobs Like Before

Failure to create opportunities for the young workforce will not only hurt Prime Minister Modi’s re-election bid next year, but impede the economy’s current pace of expansion.

“India’s employment situation and the state of its labor statistics are both subjects of national news. The performance of the present government on job creation is also expected to be a key issue in the upcoming general elections in 2019,” the researchers said.

Other highlights of the report:

  • Of India’s 467 million workforce as of 2015, 46.6 percent were self-employed, 32.8 percent were casual workers, 17 percent were regular salaried workers and the rest had contractual employment
  • Jobs growth in manufacturing largely in form of contract workers
  • Among those classified as regular workers, only 10 percent had jobs with benefits and a written contract in manufacturing sector, 28 percent in services and 1 percent in construction
  • Wage levels have remained low and have grown slowly over the last three decades, especially compared to the rates of GDP growth
  • Productivity and managers’ pay rising faster than workers’ wages
  • Unemployment in youth and higher educated reached 16 percent

©2018 Bloomberg L.P.