How to export labor from India

India needs to create millions of jobs

The Indian population is growing at a rapid pace. Almost 1.3 billion people live in the South Asian country, which, according to the United Nations, will replace its neighbor China as the most populous country in the world by 2024 and will be home to around 1.7 billion people in 2056.

India's population is extremely young. The average age is just 27 years. Economists see a unique opportunity here: if the proportion of employable people is higher than the proportion of those who are dependent on working relatives, this corresponds to a competitive advantage, the so-called demographic dividend.

India can only take advantage of the demographic dividend if there are enough jobs, and this is exactly where the problem lies. Every year around 8 to 12 million young Indians enter the labor market. However, the number of new jobs is insufficient to meet the job demand of the growing working population. "If India does not succeed in creating enough jobs, the subcontinent is more likely to face a demographic disaster," warns Peter Deubet, deputy managing director of the Indo-German Chamber of Commerce in Mumbai, in an interview with Germany Trade & Invest.

The question arises why it is not possible to create enough jobs in a huge country like India with a lot of catching up to do in most sectors and regular growth rates of the gross domestic product (GDP) of around 7 percent. The problem is complex, but has its origins primarily in India's change from an agricultural country to a service society. The majority of job seekers are low-skilled. However, the service sector can only serve to a limited extent as a basin for workers with low levels of education.

In the call centers of the IT industry, for example, mostly young university graduates with good English skills work. In these companies, low-skilled workers can only find work as cleaners, gardeners, etc., and there are not many of these positions in IT companies anyway. New jobs are urgently needed in industry because there are employment opportunities here for the less qualified.

Government misses its job election promise

The ruling Bharatiya Janata Party (BJP) led by Prime Minister Narendra Modi started with high ambitions. Urgent jobs were to be created primarily through the government campaign Make in India. Their aim is to increase the share of the manufacturing industry from currently around 16.5 percent of GDP to 25 percent by 2022.

However, the goal of creating millions of new jobs every year was clearly missed. On the contrary: unemployment is as high as it was last during the oil crisis in the 1970s. According to a report by the Indian statistical office, the official unemployment rate rose to 6.1 percent; there is talk of "jobless growth". According to the report, almost every sixth young man in rural areas was unemployed, and among young men in cities the rate was around 18.7 percent.

Unemployment Rate in India

2010 2012 2014 2016 2017 2018
3,5 3,6 3,4 3,5 3,5 6,1

Source: International Labor Organization, Trading Economics, April 2019

This could lead to heavy losses for the BJP in the parliamentary elections, which will take place from April 11th to May 19th. Modi is accused of trying to postpone the publication of the report as a result. However, the report leaked and sparked heated debate in India. Modi not only failed to achieve its election promise to generate millions of jobs. He even tried to cover up the fact that during his tenure unemployment rose as high as it did 45 years ago, is the criticism of various managing directors that Germany Trade & Invest asked about the subject.

Modi's government indignantly denies allegations of attempting to withhold the report. The report by the Indian statistical office was only a draft, she had it spread. According to surveys, the BJP lost some of its popularity after it was published.

The results of the report should not really surprise anyone: For years, national and international media have been reporting on the huge rush to the few job advertisements. For example, 19 million Indians applied for 63 jobs on the state railways for positions as train drivers, electricians, conductors and porters.

Demonetization has cost many jobs

The unemployment rate of 6.1 percent may not seem high at first glance. However, one has to consider that hardly any Indian can afford to be unemployed against the background of a deficient social system. Most take up work in the informal sector in order to earn any money. According to a study by the Institute of Human Development, around 80 percent of the workforce in India work in the unorganized sector that is not statistically recorded. Many are "self-employed" workers or work in small and micro businesses. Almost 30 percent of the employees work as day laborers.

The devaluation of cash in November 2016, when around 86 percent of Indian cash was withdrawn from circulation, led to the loss of numerous jobs, especially in the unorganized sector. An overwhelming majority in the unorganized sector receive their salaries in cash. Due to the shortage of cash, many employers were no longer able to pay their employees, which continues to have repercussions today.

This is also reflected in the figures. According to the analysis institute Center for Monitoring Indian Economy, around 11 million jobs were lost in the 2018 calendar year, especially in rural areas. The organization of the manufacturing industry (All India Manufacturers' Organization) also reports that around 3.5 million jobs have been destroyed since 2016.

Using the potential of the demographic dividend and reducing the inflow into the unorganized sector is essential for the economic growth of the South Asian country. The Make in India campaign is an important step in the right direction. However, this alone is not enough to create enough jobs. Further reforms urgently need to be implemented in order to strengthen the labor market. This includes, among other things, the expansion of the infrastructure, the improvement of the education and health systems and the fight against discrimination on the labor market.

Further information on the economic situation, industries, business practice, law, customs, tenders and development projects in India can be found at http://www.gtai.de/india. The page http://www.gtai.de/asien-pazifik offers an overview of various topics in Asia-Pacific.