India must reconnect growth, jobs, wages, skills, and social security before its demographic dividend turns into strategic vulnerability.
India faces a polycrisis
Prof Santosh Mehrotra — Author; Visiting Professor, Centre for Development Studies, University of Bath
India is told constantly that it is the fastest-growing large economy in the world. But the real question is whether that growth generates the jobs India needs. It doesn’t, and that is the structural economic crisis this book addresses. Our education system also produces young people who are, in large numbers, unemployable — a second crisis. Together they produce a third, an employment crisis. I call this a poly-crisis, and the third is a direct consequence of the first two.
To become a Viksit Bharat, India needs to grow at nothing short of 8% a year for twenty-two to twenty-five years. We have managed only about 6.2% over the last decade-plus, and no independent agency projects above roughly 6.5% through 2030. Compare that to 2003–2015, when we grew near 8% and generated 7.5 million new non-farm jobs every year. We are the world’s fourth or fifth-largest economy, yet our per-capita income ranks 147th — the only lower-middle-income country in the G20 — and income inequality has widened so sharply that India is now comparable to Brazil and South Africa, and, as Thomas Piketty notes, more unequal than under British rule a century ago.
Until 2015-16, India was undergoing genuine structural change — activity and employment shifting from agriculture toward industry and services, as development requires. Since then it has reversed. Manufacturing’s share of gross value added fell from 17% in 2011-12 to 14.3% by 2023-24, an unprecedented decline, while manufacturing employment fell from 60 million to 55 million over the same period, even as agricultural employment — which had dropped from 269 million to 200 million by 2018-19 — climbed back up by 80 million since. That is structural retrogression, not development. When government claims eight crore jobs created in four years, it omits that these are agricultural jobs, precisely where our educated youth do not want to be. Real rural wages, rising steadily until 2014-15, have been flat for a decade; urban wages show the same pattern.
Each year, six to seven million youth enter the labour force, alongside landless farmers needing non-farm work and roughly 30 million openly unemployed. We need eleven to twelve million new non-farm jobs annually; we are creating about six million. Sixty-two percent of our workforce still has fewer than eight years of education, and we have perhaps fifteen years left of our demographic dividend — half our workforce is already over 45, and 90% have no social security. If we don’t act now, we risk growing old before growing rich, a warning China’s own leaders are voicing about themselves.
The way out has three parts: raise agricultural growth above the 3-4% ceiling it has never crossed in 75 years, since rising farm incomes drive demand for non-farm goods; adopt a real industrial and manufacturing policy, something India has lacked for 35 years; and invest properly in public services — health, education, police, judiciary — which alone can generate millions of jobs. India has roughly a quarter the density of public officials that other emerging economies have; in every state, health, education and police make up 85% of government posts, and half of those posts sit vacant. No country becomes developed while underfunding these sectors.
The old link between GDP growth and jobs has broken
Mr Praveen Chakravarty
Member of Parliament, Rajya Sabha
Let me start with what the recent Tamil Nadu Assembly election told all of us politicians: the youth rejected the old order, saying they have no confidence in establishment politics and want something new. I would extend that to establishment economics too — the kind Santosh and I both come from. It is being questioned, and rightly.
Why are the young so disenchanted? Because traditional economic thinking is not working for them, and we must acknowledge that before finding solutions. The old theory held that GDP growth meant more output, more workers, more jobs and incomes — the classic trickle-down link. RBI data shows that link has broken: for every percentage point of GDP growth, the formal jobs it generates has been falling decade after decade since the 1980s. We could grow at ten or twelve percent and it still would not translate into jobs for our youth. That is the harsh truth.
Why has the link broken? Technology — and I don’t mean only AI, which is only now taking away the kind of work a university degree once guaranteed. We moved from the era of muscle — agriculture — to hands — manufacturing — to mind — services requiring a degree. Now AI can increasingly do what a McKinsey consultant or Wall Street analyst does, after years of costly education, while it still cannot take away a barber’s job. So why is a consultant paid a hundred times what a barber earns, when the consultant can be replaced and the barber cannot? These are fundamental questions our policy fraternity barely engages with, yet they’re exactly what we face on the ground.
Just a few kilometres from here, in Sriperumbudur and Kanchipuram, we assemble a third of the world’s iPhones — genuinely excellent for Tamil Nadu. But if machines increasingly do that work, what happens to our graduates? Fifteen or twenty percent nominal state GDP growth does not answer a young person’s real question: where is my job?
I don’t claim to have the answers — honestly, we don’t. What worries me more is whether we are even asking these questions seriously. Santosh and his co-author deserve real credit for putting rich labour-market data on the table, something policymakers have long lacked. Universal basic income gets discussed as one answer, but with sixty-five percent of Tamil Nadu’s revenues already going to debt servicing, we have to think hard about where that money, or money for skilling, comes from. It calls for a genuinely radical rethink, not despair.
Job creation also requires confronting costs
Dr V. Kumaraswamy
Author, Columnist, Commentator
This is a fantastic book, capturing the labour market beautifully. But labour is only one of four factors of production, and here I part ways with Santosh on a few points.
Consider government compensation globally: the ratio of average civil servant salary to average per-capita income is about 1.1 in the US and UK, 1.4 in China. In India it is 4.5 to 1. I recently visited a school where a government teacher handling classes one to three earned 1.1 lakh rupees, while the best private teacher there earned 30,000. Government is absorbing too much in resources to create too few jobs; at the highest global ratio, the state could employ four to four-and-a-half crore more people. Yet we are short-staffed exactly where it matters — 22 judges per million against a recommended 330, a police force on par with Uganda’s.
On MGNREGA: it was a huge intervention, a third of the labour market’s size, paying sixty to seventy percent above prevailing informal wages, in a market that had its own equilibrium. In most states outside Tamil Nadu, a worker earns roughly the same for four hours under the scheme as for eight hours in agriculture. Facing demands for higher wages, landlords mechanised rapidly — a harvester costing around 110 rupees an hour in 2011-12 now costs the inflation-adjusted equivalent of 4,000. The informal sector, which delivers 85% of India’s jobs, could not compete. Add land acquisition delays — I know a case that took seventeen years to secure possession after every clearance was paid — and GST’s formalisation of enterprises that once thrived on tax arbitrage, and you have a labour market progressively distorted since 2004.
