Economic distress and inflation were among the main concerns of the Indian electorate in the ongoing national elections. Even those holding favourable views of the government believed it hadn’t done enough on the jobs front.

Electoral games

It is interesting how the major political parties have positioned their campaigns in the ongoing general elections, now drawing to an end. Under the bold slogan “Choose jobs, not hate”, Congress leader Rahul Gandhi promised to fill more than 3 million vacant government posts if elected to power. The party manifesto included a commitment to the right to apprenticeship for all graduates, a guaranteed programme of urban employment, and time-bound recruitment of candidates appearing for the government exams, some of which drag on for years.

The ruling BJP’s manifesto also includes similar promises of jobs and empowerment. Yet, many of the party’s ads focus on welfare schemes, such as the payouts to farmers and cooking cylinders to low-income families, rather than the jobs. Also, economic performance has not been the primary focus of the party’s campaign. It is almost exclusively focused on Prime Minister Narendra Modi. Instead, the party has chosen the well-trodden path of communal polarisation, with the Prime minister repeatedly bringing up unfounded and bizarre allegations of the opposition favouring the minorities.

A problem of supply

Unlike Western countries, where formal, stable employment is the norm, a defining characteristic of a developing economy like India is that many young people are forced to work in low-skill professions, join family businesses, or get self-employed in low-paying occupations. The Indian economy has grown steadily over the past many years but has failed to add quality employment in line with its growing youth population.

Poor quality of technical education is often blamed for the unemployability of young graduates. Yet this misses the fact that if there is substantial availability of well-paid jobs in any sector, skill development follows, as has happened in the IT sector.

Formal unemployment figures are not a reliable way to understand the amplitude of the problem as they do not record many seekers who are not actively seeking work in lower-paid professions or in family businesses. Rather, one must depend on indirect evidence.

For instance, for every government post advertised, there are hundreds of applicants, many of them overqualified. Job aspirants spend years preparing for government exams because only a limited number can be filled yearly. The number of Indians going abroad for studies or jobs has assumed significant proportions in recent years, pointing to dissatisfaction with the opportunities at hand. Hundreds of technical colleges have shut down in the past decade because their graduates could not find appropriate job opportunities.

Government response

The Narendra Modi government has tried various strategies to revitalise the job sector over the years. When Modi entered office in 2014, he promised to create 20 million jobs. Part of his strategy was to revitalise the Indian manufacturing sector. He launched an ambitious programme named “Make in India” aimed at creating 100 million additional manufacturing jobs by 2022. Businesses were encouraged to reduce imports of manufactured goods and offered incentives to produce within the country. India was expected to rival China for its manufacturing capabilities. Ten years later, the results are mixed.

While imports of items such as mobile phones and toys declined and a few big names, such as Apple, started manufacturing in the country, India has yet to become the manufacturing giant as was hoped for. Most manufacturing units in the country remain small-scale, employing less than 50 people and there are fewer people employed in the manufacturing sector than was the case 10 years back. Tellingly PM Modi has not invoked the ‘Make in India’ program in his campaigning.

Moreover, a blue-collar manufacturing job may not be the path to prosperity, as was the case in China. There is a distinct trend of contractual employment where even large Indian manufacturers outsource operations or hire temporary staff. These are typically paid less than permanent employees, do not get health or retirement benefits, and remain outside the ambit of labour laws. The government itself makes extensive use of the contractual workforce.

Back-office of the world

For long, the Information Technology (IT) services sector compensated for the lack of vibrant manufacturing. Thousands of young graduates find work each year in local and multinational companies. Current estimates for the number of people employed by the IT services sector stand at over 5 million. Not only was the IT sector relatively immune from cost competition, unlike manufacturing, but it also paid well.

However, employment in any one sector cannot grow indefinitely. Traditionally, the big IT companies hired fresh graduates in the thousands from college campuses nationwide. While the best campuses still attract recruiters, the numbers have decreased drastically recently. The industry body NASSCOM reported that aggregate employment in the Indian IT sector dropped for the first time in 20 years. Many of the top Indian IT companies have shrunk their workforce. It needs to be clarified if this is a temporary slowdown after the COVID-era boom in hiring or a more permanent status quo.

Even if it is a temporary downturn tied to global events, there is a new disruptor in Artificial Intelligence, a double-edged sword for the Indian IT industry. While India leads in the number of available AI talent, there are apprehensions that advances in AI will make many traditional IT and back-office roles redundant. It is hard to predict whether the number of jobs that AI replaces turns out to be significantly higher than the ones it creates.

A daunting challenge

The new Indian government, which will form once the results are declared on June 4 will have to contend with this difficult problem. It is easy for the opposition to promise to fill 3 million government jobs, but the fact is that government employment has been declining over the past many years. Employment in manufacturing is unlikely to go up significantly from current levels. Over-reliance on the IT sector must also prove problematic sooner or later.

Economists often talk about a ‘demographic dividend’ for countries with a large youth population, such as India. The ability to create well-paid jobs and broad-based prosperity will determine whether the country's large youth population will turn out to be a dividend or a demographic nightmare.