Government's strategies towards tackling unemployment in India

Unemployment, an important macro-economic indicator that indicates the percentage of population that is employable and is actively seeking job opportunities but is unable to find one. Unemployment exists in every economy and is usually affected by multiple macro-economic factors. Historically, due to the domestic and international macro-economic factors, India has also witnessed multiple phases of high unemployment. The global financial crisis in 2007-08, the COVID-19 pandemic, the Russia-Ukraine war and the US-China trade battle are some of the various global economic factors that India witnessed over the last couple of decades. However, the country has always managed to rebound and maintain its unemployment levels. Collaborative efforts from the government and citizens have made this possible. To aid the economic growth of the country, the government has been actively involved in implementing various measures through policy initiatives that facilitate in reducing the unemployment. 

Current scenario 

Unemployment has been one of the most common issues that countries across the globe have been battling. Several factors have contributed to this challenge in the recent past. Below are the unemployment figures of the top 15 countries as of June 2024: 

Source: CMIE

As per Centre for Monitoring Indian Economy (CMIE), the rate of unemployment of India rose sharply to 9.2% in June 2024, from 7.0% in May 2024, making it the third highest in terms of the unemployment rate for a country among the G20 pool of economies. Several domestic and international factors have been triggering this, such as highest working age population in the world, a skill set mismatch, global geopolitical tensions, and high inflationary environment in foreign economies. 

Source: CMIE, *June 2024

Between 2008 to 2019, the unemployment rate in India was sturdy and averaged between 5.3%-5.4%. However, the onset of COVID-19 raised the unemployment rates to 8.0% in 2020. Global economic disputes, viz the Russia-Ukraine war and the high inflation levels, which have been ongoing since 2021 has raised the unemployment rate even further. The unemployment rate in India rose from 6.0% in 2021 to 9.2% in June 2024. The rising unemployment rate has forced the government to deploy measures through policy reforms and incentives that are aimed at maintaining the unemployment rate of the country. 

Causes of unemployment in India 

• Large population

The large and ever-growing population of India has led to numerous challenges that the country has been facing, one of which being unemployment. Since ~70% of the total population belongs to the working class (age between 18-60), unemployment in the country has been one of the major challenges to overcome. The substantial population of India aggravates the competition levels among the working class, leading to additional pressure on the job market.

• Skill set mismatch

India is a developing country and has a majority of its population living in the rural areas. This presents a challenge for the rural population to have access to resources that help them upskill and get employed. As of February 2024, the poverty rate of India has been ~5%. Due to limited availability of monetary resources, this class of population faces limitations in affording education and skill development programmes, thereby leading to a mismatch in terms of the skills needed to be employed.

• Agriculture focused

India has been a very heavily dependent country on agriculture as a sector as it benefits from the availability of natural resources to grow crops. India has been a major exporter of various agricultural products, with each state having a special agricultural product that is grown and exported at a large scale. According to the Periodic Labour Force Survey (PLFS) conducted in 2022-23, about 45.76% of the total workforce was engaged in agriculture and allied sectors. This leads to an imbalance in terms of the variety of sectors that the population is employed in.

• Informal labour market

Due to various reasons, the number of jobs available is much lower compared to those who need them. This imbalance leads to the population being employed in the informal or unorganised sectors. As per International Monetary Fund (IMF), the informal sector employs more than 80% of the total workforce in India, which functions without a written contract of employment, paid leaves and other benefits that are usually offered by the organised sector.

• Global economic factors

Global factors have been a heavy influence on the unemployment scenario in India. Right from the financial crisis of 2007-08 to the COVID-19 pandemic, the recent Russia-Ukraine war and the spike in inflation and interest rates, the job market in India has borne the consequences. During the pandemic, it is estimated that around 40 crore individuals lost their jobs. Job loss has also been aggravated due to the high interest rates that have been set by various central banks across the globe. Therefore, this has led to several waves of layoffs across various sectors, as a measure for companies to reduce their operational expenditure.

Government strategies to tackle unemployment 

• Skill enhancement and training 

With the aim of enhancing the skills of the working age population, the government has been focused on various campaigns and programmes. Launched by Prime Minister, Mr. Narendra Modi in 2015, the Skill India Mission, promotes multiple skill-related programmes. The mission’s aim is to train 30 crore individuals in India. The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) is a skill development initiative that has been a part of the Skill India Mission. It provides sector-specific training. This initiative also provides rewards of Rs. 8,000 (US$ 95) to the existing daily wage earners. As of August 2024, there are 25,99,549 individuals who have enrolled for this initiative. These skill enhancement and training programmes provide the ammunition to the working class to grasp better employment opportunities, thereby reducing unemployment. 

• Make in India 

The initiative was launched by Prime Minister, Mr. Narendra Modi in September 2014. The initiative’s focus is to urge global companies to develop, manufacture and assemble their products in India. These companies are incentivised for the dedicated investments into manufacturing. The Make in India initiative covers 25 sectors in India. It provides a favourable environment for these sectors to set up their operations in India. This helps to attract more foreign direct investment (FDI) and private sector participation. In the manufacturing sector, total employment increased from 57 million in 2017-18 to 62.4 million in 2019-20, as per the Economic Survey 2021-22. Thanks to the Make in India initiative that has put the manufacturing sector in India on a positive path. 

• Promoting digitalisation 

To better the digital infrastructure of India, the government launched the ‘Digital India’ campaign in 2015. Digital infrastructure has been one of primary factors to be considered in unemployment as it enhances the learning and skill upgradation. The main aim was to promote digital literacy, e-governance and improve the digital infrastructure of India. This campaign has been a major supporting component of the various other programmes that are dependent on technology as a medium for exchanging information and knowledge. It points toward providing high-speed internet connectivity to the rural areas in particular. It has enabled the citizens to leverage technology and upgrade their skills. With the same vision of Digital India, the ‘Pradhan Mantri Gramin Digital Akshara Abhiyan (PMGDISHA)’ was launched. It had the aim to make six crore citizens in the rural areas, digitally literate. It aims at reaching around 40% of rural households by covering one member from each household. Various individuals have gained access to training and vocational programmes. 

• Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) 

MGNREGA is a social welfare scheme that was launched in 2005. It had ‘right to work’ as a vision and aimed at improving the livelihood of rural households. This was done by providing at least 100 days of guaranteed wage employment. This scheme is applicable to every rural household whose adult members take up unskilled manual work. MGNREGA recognises the importance of strengthening the livelihood resources of the underprivileged by reaching severely underdeveloped sections of rural areas that comprises of scheduled tribes, scheduled castes, women-led households, and other marginalised groups. As of August 2024, the total number of active workers that have benefitted under this scheme stands at 13.11 crore. 

• Strengthening the agriculture sector 

India has been an agriculturally dependent economy for decades now. Due to the easily available natural resources in the country, India has been the major producer of crops and vegetables in the world. The agriculture sector had 45.76% of the total workforce during 2022-23, according to PLFS. The government has provided support by offering crop insurance to farmers through the ‘Pradhan Mantri Fasal Bima Yojana (PMFBY)’ scheme. This scheme was launched in 2016, that aims at providing a comprehensive insurance that primarily covers crop failure. This stabilises the income of the farmers and facilitates employment in the sector. 

• Additional measures in the Union Budget 2024-25 

Held in July 2024, the Union Budget had employment and skilling as its theme and as one of the nine priorities for the fiscal year. The Finance Minister of India, Ms. Nirmala Sitharaman revealed five special schemes under the Prime Minister’s package, and initiatives that aim to facilitate employment, skilling, and other opportunities over a five-year period for 4.1 crore youth with a central outlay of Rs. Two lakh crore (US$ 23.94 billion). The government will implement three schemes for ‘Employment Linked Incentive’ and will be focused on recognition of first-time employees, enrolment in the EPFO, and support to both, the employees, and employers, as part of the package. There are namely three schemes under this package that are described below: 

Scheme A: First Timers: This scheme provides direct benefits such as payment of one-month salary in three instalments that are up to Rs. 15,000 (US$ 178.77) to first-time employees registered in EPFO.

Scheme B: Job creation in manufacturing: As per the EPFO contribution, an incentive will be provided directly to the employee and the employer, in the first 4 years of employment.

Scheme C: Support to employers: This scheme aims to provide reimbursement to employers up to Rs. 3,000 (US$ 36) per month for 2 years for each additional employee towards their EPFO contribution.

As part of the skilling programme, a new centrally sponsored scheme has been launched. This is the fourth scheme under the Prime Minister’s package. It is launched in collaboration with state governments and industries. In the programme, 20 lakh youth will be trained, and 1,000 industrial training institutes will be upgraded over 5 year tenure. As part of the fifth scheme, the government will launch a scheme to provide internship opportunities to the one crore individuals in top 500 companies. 

Wrapping up

The demand and supply drivers of the labour market need to be considered, while looking at the challenge of unemployment in India. The government has noted the rising unemployment in India and has taken steps to inverse it, such as the Prime Minister’s package of five schemes and initiatives to facilitate employment in the recent Union Budget 2024-25. The broader economic strength and growing private investments along with these steps, are expected to better the employment situation in the country. Collaborative efforts and adaptive strategies are essential in the near future to meet the demands of the Indian economy and ensure that employment is accessible to the growing workforce of India.