On the job: India's poorer states progress in creating employment

Their momentum may shape how India manages it unemployment problem

India’s poorer states, arguably, do not gain from the ‘neighbourhood effect’, the rub-on positive impact of sharing the border with fast-growing compatriots. States have often been isolated islands, leading to uneven industrial growth and scarce employment in the country.

Some poorer states may finally be adding formal jobs quicker than traditional leaders, according to data from the Employees’ Provident Fund Organisation (EPFO). Job growth in these states is based on net payroll additions, which EPFO calculates by subtracting exits from new subscribers and adding back those who rejoined or re-subscribed the pension scheme.

Two states, Odisha and Uttar Pradesh, are in the bottom quartile in terms of per capita net state domestic product. Formal employment in Odisha has grown 57.6 per cent since Financial Year 2018-19 (FY19), faster than in any other state. Kerala is next with a growth rate of 34.1 per cent, followed by Haryana (32.9 per cent) and Uttar Pradesh (30.9 per cent). Tamil Nadu, among the richest states, only makes it to number five as seen in chart 1 (click image for interactive chart).

But India’s top five states continue as leaders in terms of absolute job additions. Led by Maharashtra, they accounted for around 60 per cent of formal jobs added between FY19 and FY23. Tamil Nadu had the second highest additions to formal employment (chart 2).

Meghalaya and Mizoram, in India’s northeast, recorded a decline in job additions between FY19 and FY23.

Of the 187 industries EPFO covers, ‘trading - commercial establishments’ saw the highest employment growth of 25.2 per cent, ‘expert services’ was next with 19.8 per cent growth. This segment mostly consists of manpower and private security agencies, along with small contractors. Two major job-creating sectors were related to engineering. 

Some have raised questions on the validity of EPFO’s employment trends. For example, the independent tracking agency Centre for Monitoring Indian Economy (CMIE) has pointed to rising unemployment rate in the country since the start of 2023. In April, the rate increased to 8.11 per cent from 7.8 per cent in the previous month. Unemployment has increased for the fourth consecutive month, according to CMIE.

If poorer states truly exhibit the momentum suggested in the EPFO data, it will help ease national unemployment. Around 40 million people are expected to be unemployed in India by 2024, according to the International Labour Organization.