This article discusses the importance of addressing structural economic issues to tackle the jobs crisis in India. The author argues that the current economic growth model has failed to create enough jobs, particularly in manufacturing, and has led to a decline in the quality of jobs in the informal sector. The author also criticizes the government’s attempts to formalize the economy through policies such as demonetization and GST, which have had negative consequences for the informal sector and aggregate demand. The author calls for a more calibrated and coordinated strategy to address market failures and create truly competitive markets. The author also suggests that India needs a national jobs strategy that takes a holistic view of the economy and addresses the underlying structural weaknesses.This article discusses the importance of addressing structural economic issues to tackle the jobs crisis in India. The author argues that the current economic growth model has failed to create enough jobs, particularly in manufacturing, and has led to a decline in the quality of jobs in the informal sector. The author also criticizes the government’s attempts to formalize the economy through policies such as demonetization and GST, which have had negative consequences for the informal sector and aggregate demand. The author calls for a more calibrated and coordinated strategy to address market failures and create truly competitive markets. The author also suggests that India needs a national jobs strategy that takes a holistic view of the economy and addresses the underlying structural weaknesses.
CSDS’s post-poll survey highlights that economic interests, particularly the life experience of unemployment, price hikes and poverty faced by most of India, played a dominant role in shaping voters’ choices in the 2024 general elections. This should not surprise anyone who has paid attention to the real economy or, as Rathin Roy evocatively put it, looked “under the hood”.
ARCHIVE PHOTO: A worker checks screen connections used for cement filtration at the manufacturing plant in Kolkata’s industrial area, June 12, 2012. REUTERS/Rupak De Chowdhuri (INDIA – Tags: BUSINESS EMPLOYMENT)/File photo (REUTERS) {{^userSubscribed}} {{/userSubscribed}} {{^userSubscribed}} {{/userSubscribed}}
Despite robust growth in FY 24, at 8%, private final consumption expenditure (consumption demand) grew at a much lower 4% — reflecting the severe blows taken by the informal economy, where most of India is employed. Growth in the number of manufacturing establishments has slowed and employment has declined significantly between 2015-16 and 2022-23. At the same time, employment in low-productivity agriculture grew (42.5% in 2018-19 to 45.8% in 2022-23), while real wages have stagnated and even contracted in some periods. Moreover, the formal sector is unable to absorb India’s growing (poorly) educated youth. Unemployment among educated youth has increased significantly, accounting for almost half of the total number of unemployed non-student youth in 2022. The picture is clear. India’s structural transformation has stalled for now and this played a role in how India voted in 2024.
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India’s stalled structural transformation and the jobs crisis form the backdrop against which Finance Minister Nirmala Sitharaman will present the newly elected government’s first full budget on July 23. The path she takes will depend on how the Bharatiya Janata Party (BJP) interprets the electoral mandate. We won’t know that until next week. But if the BJP has read the message in the mandate, as we can only hope, the task ahead will require a radical change in the economic policy framework.
The jobs crisis is rooted in the economic growth model India adopted when it liberalized, exacerbated by policy missteps over the past decade. That model skipped low-skill manufacturing and grew instead on the back of a much smaller, high-skill service sector, breaking the link between growth and jobs. Worse still, it failed to invest in key public goods — quality health care and education — despite growth.
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It has become fashionable in economic policy circles to ignore this reality and instead argue that political stubbornness, driven by vested elite interests, has been the barrier to deepening the factory market reforms needed to boost production and improve productivity. We need bold, market-reform leaders who will get the state out of the way, the argument goes. Candidate Modi exploited this sentiment effectively a decade ago.
But if there is one lesson to be learned from the past decade – from farm laws to ill-conceived attempts to formalise the economy through demonetisation and the GST as policy instruments – it is that building genuine, competitive markets requires recognising the structural inequalities within which markets operate in the real economy. Indeed, it is these inequalities that necessitate government intervention – in local infrastructure (roads connecting villages to cities, not just highways, public transport and physical markets), in incentivising supply chains and strengthening bargaining power – rather than state withdrawal through deregulation.
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Consider the botched farm laws. An argument I have repeatedly made with Mekhala Krishnamurthy in this column is that the protests and demands for guaranteed MSP did not arise, as our lazy public discourse tries to claim, because of vested interests seeking to perpetuate market distortions — but because reforms did not provide credible guarantees for alternative mechanisms for market development, price support, risk management, etc. that would protect farmers. On the other hand, when market conditions were favourable, repeated government interventions have turned the terms of trade against farmers through export bans to keep prices low. Add to this visible cronyism and concentration of economic power in the hands of a few, and it should come as no surprise that market reforms are viewed with some suspicion by the average Indian and the demand for subsidies and guaranteed MSP persists.
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A similar challenge applies to business growth and the informal sector. Instead of creating enabling conditions, the government sought forced formalisation through policies such as demonetisation and GST, expecting this to lead to broader efficiency gains. It did not. Instead, it decimated the informal sector, exacerbated by lockdowns, causing severe hardship for the most vulnerable and hitting aggregate demand.
To break out of this low-value equilibrium, it is necessary to design policies that can demonstrate credible pathways to creating truly competitive markets. Rather than succumbing to big bang deregulation and disruptive interventions, a calibrated, coordinated strategy is needed that identifies market failures and enables appropriate state intervention. At its core, this is a governance challenge. It requires incremental reforms that can be achieved by empowering state governments, improving central-state coordination, and investing in local government—the opposite of the current deeply centralized reform model that values cronyism over genuine competition.
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As Budget Day approaches, policy circles are abuzz with ideas for job creation, from employment-linked incentives to training. However sensible these may be, they will amount to little more than lipstick on a pig unless the underlying structural weaknesses are addressed. India needs more than budget proposals: a national jobs strategy that takes a holistic view of the economy, embraces data, addresses weaknesses and identifies solutions. A special session of Parliament should be convened to debate the jobs strategy. Wishful thinking? Perhaps. But essential.
Yamini Aiyar will be a visiting professor at Brown University in 2024-2025. The views expressed are personal
News / Opinion / Necessary: a reformulation of the jobs debate
