Job crisis signal

Young people opting for MGNREGA work is worrying

The Indian economy is in the midst of a severe slowdown and the data suggests that a sharp recovery in the near term is unlikely. Apart from the lead indicators such as vehicle sales, which tend to grab headlines, developments on the ground are also not encouraging. An increase in the number of young workers lining up for work under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is a case in point. As a recent report in The Indian Express showed, the number of workers employed in the age group of 18-30 under the MGNREGA reached 7.07 million in 2018-19 compared to 5.8 million in 2017-18. The number had declined significantly after 2013-14. More people are seeking work under the Act in the current year as well.

 
While reasons for this shift are worth investigating, a higher enrolment of people in the 18-30 age bracket in the subsistence-level job guarantee programme prima facie means severe lack of employment opportunities. The gross domestic product data for the April-June quarter, for instance, showed that growth in the construction sector declined to 5.7 per cent, while expansion in the manufacturing sector collapsed to 0.6 per cent. Subdued activity in these sectors and their inability to absorb labour could have pushed workers to seek employment under the MGNREGA. It is also likely that distress in agriculture could have affected the demand for labour in rural areas.

 
However, there is another important aspect that needs policy attention. A 2017 discussion paper by the NITI Aayog showed that about two-thirds of income in rural India is now generated through non-agricultural activities. About half the construction and manufacturing sector output comes from rural areas. It also contributes significantly to the services sector output. It would be interesting to see if manufacturing units in rural areas are losing out because of size and greater formalisation of the economy after the implementation of the goods and services tax. Although manufacturing units in rural areas are more capital-intensive, pressure on output could have had an impact on employment.

 

At a broader level, the inability of the Indian economy to create enough jobs can have longer-term consequences. As the latest Economic Survey noted, India is witnessing a demographic transition with a significant increase in the proportion of the working-age population. The working-age population in absolute terms is likely to grow by about 9.7 million per year between 2021 and 2031. Growth will slow in the subsequent years. India cannot afford to lose this opportunity. It will not be able to take advantage of a rising workforce without creating enough employment opportunities. Clearly, as the evidence suggests, this is not happening at the moment. A trend reversal will require more investment, which will help generate jobs. In this context, the government has done well to reduce the corporate tax rate and, over the last few years, India has moved up significantly in the World Bank’s Ease of Doing Business ranking. However, as World Bank President David Malpass has rightly noted, India needs to do a lot more, particularly in areas such as land registration and contract enforcement, to attract investment. Therefore, the pace of reforms must be accelerated. Only higher investment and rapid growth can create sufficient employment opportunities. The situation forcing young workers to enrol for the MGNREGA work needs to be reversed.