India will fail to plug jobs gap even with 7% growth: Report

India will struggle to create enough jobs for its growing workforce over the next decade even if the economy grows at a rapid pace of 7 per cent, Citigroup Inc said, suggesting the world’s most-populous nation will need more concerted steps to boost employment and skills.

Citi estimates India will need to create about 12 million jobs a year over the next decade to absorb the number of new entrants to the labor market. Based on a growth rate of 7 per cent, India can only generate 8-9 million jobs a year, the bank’s economists Samiran Chakraborty and Baqar Zaidi wrote in a report this week.

The quality of jobs being created in India is another challenge, the economists said. An analysis of the official data showed about 46 per cent of the workforce is still employed in agriculture, even though the sector contributes less than 20 per cent to gross domestic product. Manufacturing accounted for 11.4 per cent of total jobs in 2023, a lower share than in 2018, the figures show, a sign that the sector hasn’t bounced back since the pandemic.

Also, fewer people are employed in the formal sector now than before Covid — the share was 25.7 per cent in 2023, the lowest level in at least 18 years, Citi said. Only 21 per cent of the workforce — or about 122 million people — in India have jobs that pay a salary or wages, compared with 24% before the pandemic. More than half of the 582 million workers in India are self-employed, the figures show.

India’s joblessness, especially among young people, was a key concern among voters in recent elections and was cited as a reason for the drop in support for Prime Minister Narendra Modi’s ruling party.

The official unemployment rate of 3.2 per cent underestimates the scale of the problem, with most economists relying instead on data from the Centre for Monitoring Indian Economy, a private research firm, which put the jobless rate at 9.2 per cent in May, the highest in eight month. For those aged 20-24, the rate is more than 40 per cent, according to CMIE figures.

Citi’s economists propose a series of measures to boost jobs in India, such as strengthening the export potential of manufacturing sectors, extending incentives to attract foreign companies and filling up about 1 million government vacancies. The government also needs to consolidate multiple employment generation programs for better impact, the economists said.