Essay on Poverty and Unemployment in India

To understand the level and trends of unemployment in India it is important to comprehend the relationship between unemployment with demographic transition structure and economic development in India (k., 2017)

Social scientists have argued over the impact of population growth on economic growth. The debate has oscillated from the “pessimistic view,” which explains that population growth restricts economic development (credited largely to Malthus), to the “optimistic view,” which says that population growth fuels economic growth (for example, Kuznets 1967). The debate seemed to have finally concluded in favor of the “neutralist view,” i.e., population growth does not matter for growth prospects.

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Bloom and Williamson (1998) As countries pass through various phases of demographic transition from high fertility and high mortality to low mortality and low fertility, the age composition of a country‟s population changes accordingly. During this demographic transition, all countries have a demographic “window of opportunity” when the growth in the working-age population is greater than the growth in the total population. This bulge in the working-age population, the increase in the share of the working-age population in the total population, is referred to as the “Demographic dividend.”

This demographic dividend comes but once in the life of any nation. When the share of the population above 60 years goes over 10 percent of the total population, the UN defines that society as aging. China’s demographic dividend will be over in a few years; India’s is expected to continue till about 2040 (World Bank, 2012)

Vasant Gowariker (1994) characterized the Demographic transition as the following five steps, regardless of where it occurs: Step (i) - The crude death rate (CDR) declines, with no significant decline in the crude birth rate (CBR). Step (ii) - The Natural Growth Rate (CBR-CDR) increases; concurrently population increases. Step (iii) -The Natural Growth Rate reaches a plateau; the birth rate begins to decline significantly. Step (iv) - The Natural Growth Rate begins to decline; the birth rate begins to decline faster than the death rate. Step (v) - The Natural Growth Rate declines at a fast rate and ultimately becomes zero - the number of births equals the number of deaths; the population stabilizes. In India, four of the above five steps are already over and the fifth (and the final) step has started that in real terms defines the Demographic Transition.

Unemployment is bigger than a political party it is a national danger and a national scandal - Ellen Wilkinson

One of the persistent problems faced by the Indian economy is the ever-increasing unemployment rate. Every year it reaches its peak, and the repercussions follow. The last decade has seen a massive growth in unemployment as well as underemployment in both, the urban and rural sectors of India.

Though the education level in the recent years has improved, the skill development still needs attention. (Huggins,2008)

From the evidence produced, there has been longer-duration unemployment in the eastern region of the country in the last decade. However, the high-frequency unemployment rates put up by the Centre for Monitoring Indian Economy (CMIE) showed a rapidly rising unemployment in last year (2018-19).

According to the Investment Potential Index Report (IPIR, 2017), the share of agriculture in employment was 60 percent in 2000 which fell to 53 percent in 2010. It is expected to fall even further to 40 percent with more and more workers moving out of agriculture. With the New Manufacturing Plan and investments in the infrastructure sector doubling from $500 billion the industry sector (manufacturing, construction, mining, electricity, and water supply) is expected to absorb more than 60 million additional workers over the next decade. Also, the service sector which provided 22 million new job opportunities in the past decade (1999-2000 to 2009-10) is expected to expand even at a higher pace creating employment for around 60 million workers in the sector by 2022.

It is impossible to imagine a better India with such an insurmountable number of unemployed youths in the country. (UN Labour report,2012)

Unfortunately, very few governments think about youth unemployment when they are drawing up their national plans- Kofi Annan

As per the projection of the National Commission on Population (NCP), the total population of India will be 1400 million in 2026, out of which the youth population will be 20% i.e., 280 million. The growth rate of the youth population is faster compared to any other age group. Youth unemployment is an important aspect of the ‘national unemployment problem’ (Visaria, 1998).

Unemployment can cause a person’s self-esteem to fall and a feeling of being a burden on their family and society might arise.

This potentially affects an individual’s personal life and the well-being of unemployed people, especially when one is unemployed for a sustained period. Further, it can lead to social isolation, decreased social contact, and a reduction in collective participation of individuals as they feel lonely and psychologically depressed. It often affects the mental health of people and they develop a pessimistic attitude toward life which can lead to involvement in negative activities or suicide (Emelie, Jeroen, & Finn, 2017).

In India many of the youth remain unemployed and some chronically unemployed. Employability will be low with a lack of education and skills. Young women in India face a higher risk of unemployment than men, in particular in urban areas. The problem of youth unemployment, particularly that of educated youth, is gradually becoming a major concern. In India, unemployment rates are rising. This can largely be attributed to a failure of the agriculture sector that forces workers to migrate and be part of the unorganized sector. Nor are employment opportunities in the manufacturing and service sectors growing. In India, young people are withdrawing from the labor force for the sake of education (Rangarajan, 2011).

In 2016, India’s GDP growth rate was 8.26%, a 0.26% increase from 2015. However, the GDP growth rate has been declining continuously since then (it was 5.024% in 2019). 1 Numerous reasons have been stated for the declining economic growth, ranging from demonetization to declining demands and rising NPAs. On the other hand, the unemployment rate stood at 23.4% in April 2020, which is the highest since 2016. This dramatic increase could be attributed to the COVID-19 pandemic and the subsequent lockdown, nevertheless, the rates stabilized in October 2020 and stood at 6.98%. Unemployment in India has always been a major issue and with the prevailing COVID crisis, it can become more challenging.

There has been evidence in the past about how a recession affects the workforce. During the global financial crisis of 2008–2009, an estimated 22 million people lost their jobs, according to the International Labour Organization (ILO).

The recession due to COVID-19 appears to be more serious than what we faced in the 2009 recession. The ILO has estimated that up to 25 million people might become unemployed worldwide due to the impact of COVID-19, ranging between 5.3 million job losses on a ‘low scenario’ and 24.7 million on a ‘high scenario’ (ILO, 2020).

There is a fear that COVID-19 recessions in India can take an extraordinary human toll that extends well beyond temporary earnings losses for unemployed workers. The studies on earlier recessions suggest that job loss during a downturn sometimes results in long-term unemployment and wage setbacks, deteriorating the health of unemployed workers and increasing poverty. These impacts are most troubling for low-income households, which are less well-positioned to cope with earnings losses during a recession, have no alternative earnings, and have no social security available (Papademetriou et al., 2010).

The threat of recession is particularly important for India, as the pandemic came at a time when the country was already facing a problem of economic slowdown. Sectors such as tourism, aviation, hospitality, and trade will be severely affected, and these sectors will be the first to face the impact. According to the International Monetary Fund (IMF), micro-, small- and medium-sized enterprises (MSMEs) and the services sectors are likely to be among the most affected due to reduced consumer spending. Fitch has cut the GDP growth forecast for India to 2 percent for the fiscal year ending March 2021, which would make it the slowest growth in India over the past 30 years (Business Today, 2020, April 3).

Economists considering the economic effects of demographic change have been more interested in Adam Smith, and his narrative of the power of the market, than in Thomas Malthusís dire predictions about population. Most economic analyses have examined the statistical correlation between population and economic growth and found little significant connection. Though countries with rapidly growing populations tend to have more slowly growing economies, this negative correlation typically disappears (or even reverses direction) once other factors such as country size, openness to trade, educational attainment of the population, and the quality of civil and political institutions are taken into account.

In other words, when controlling for other factors, there is little cross-country evidence that population growth impedes economic growth.

Studies suggest that the unemployment rate and real GDP growth rate are negatively correlated, this is by Okun’s law, which simply states that since there is a positive relation

Output and employment; as the output depends upon the amount of labor used in the production process, there will be a negative relation between output and unemployment because Total unemployment = Labor force – Unemployed. (Edward S. Knotek, 2007)

However, other studies have shown that Okun’s law need not necessarily hold well at the time of economic crisis. (Cazes, Verick, & Hussami, 2013) . Therefore, it’s possible that even if India witnesses a strong economic growth post-COVID-19 crisis, the unemployment rate in the country would still be higher, indicating a jobless recovery.

India’s development is considered to be capital and knowledge-intensive, and thus, requires inclusive growth. All-round economic growth is important to reduce illiteracy, poverty, and malnutrition.

(Mukherji, 2009) . There exists a relationship between these variables and unemployment, thus, improvement in one would have a significant impact on another.

Though there is ample literature discussing countries' experiences of demographic transition and its impact on growth and unemployment (, Bloom and Williamson (1998) and Bloom and Canning (2004)),

There is little literature on differences in demographic transition across regions within a country which leads to increased youth unemployment among the nation.

This research paper will be covering mainly How this regional demographic transition impacts the growth of the country and creates many barriers to economic development by increasing youth unemployment, poverty, illiteracy, crime, mental issues, and brain drain following various social issues considering the current pandemic and past trends.