Alternative pathways to more jobs

New markets and stronger demand from lower-income households can drive productive employment

Education and employment have become major areas of focus in recent times. The NITI Aayog’s report “Reimagining skilling for Viksit Bharat: 2047” provides a timely and structured framework for addressing concerns about employability in the country. 

Two problems documented in the report highlight critical challenges facing India.  First, only a small proportion of educated youth find work in areas in which they have acquired their primary qualification — barely 8.5 per cent. The second data point of consequence is the significant presence of people classified as NEET — Not in Education, Employment or Training. The report says there are 87 million young Indians in the age group of 15-29 who fit this category. The large presence of this group suggests that there are challenges in achieving a smooth transition from education to employment. The report proposes skilling and upskilling as the route to improving employability. 

The report identifies five challenges to expanding the reach of skilling programmes. Apart from physical access, financial costs, and the availability of programmes aligned with available jobs, the report identifies one critical challenge — inadequate information about available programmes and the likely employment prospects related to the same. It emphasises the need for a “robust database for evidence-led counselling and guidance”.  

The report lays out a set of core reforms to address these identified challenges. Key among these reforms are an outcome-linked focus on support for programmes, as well as efforts to build a support network for guidance and awareness about skilling. 

While these are vital measures at re-imagining skilling in India — the need for which is re-enforced by the rapidly changing technology, especially in the context of artificial intelligence (AI) — they need to be visualised in the context of the larger challenge of generating adequate employment in the economy. It is well recognised that the country’s ability to reap the benefits of demographic dividend relies on creating adequate numbers of new and productive jobs to engage its youth. This challenge of creating adequate employment opportunities can be broken down into two components: A demand-side problem and a supply-side problem. 

The supply side of the employment problem relates to the idea that the present education and skilling system does not provide skilled manpower suitably aligned with the needs of the economy and at its present level of technological evolution. In other words, there can be a mismatch between the available skills and those required for economic activity in the country. This mismatch can be addressed by reimagining education and skilling, with the help of timely inputs from the employers. The report does address this aspect quite well. 

The demand side of the problem relates to creating new jobs at scale to absorb additions to the labour force. Economic growth and the choice of technology can be one set of drivers determining the level of employment in the economy. But changing technology and rapid growth in automation have meant limited employment potential from the existing growth path. Two alternative sources of expansion in employment potential are often explored: 

Creation of new products and new markets: New and emerging products can create demand for labour. There can be two broad sources for the emergence of new products and markets. The first source relates to changes in technology. Some of these innovations result in the obsolescence of old technologies but others could create new products and markets that expand the scope of consumption.  

Green technologies often serve as substitutions that replace legacy, carbon-heavy technologies. On the other hand, the rise of mobile phones and the accompanying digital content creation ecosystem represent entirely new markets that expand aggregate consumption. Unlocking these opportunities requires significant public and private investment in research, development, and system-wide innovation.   

The second source could be through the commercialisation of untapped sectors. Demand can also be generated by transitioning historically domestic, unpaid activities into formal, marketable services. Two examples to consider here are the cooking of food moving from domestic kitchens to the marketplace and, in recent times, the emergence of care-giving as a marketable formal service.  

Expanding consumption and demand in the economy: Public investment and consumer demand are well-recognised engines for expanding economic activity. Expansion in these, however, could have fiscal implications. On the other hand, mechanisms for expanding the incomes and consumption of lower-income deciles could be a useful tool. The marginal propensity to consume is higher among lower deciles of the population. Because lower-income households must spend a larger proportion of any incremental income they receive on basic, immediate needs (such as food, clothing, and local services) rather than saving it, transferring or expanding incomes in these segments can yield a substantial consumption multiplier. By actively expanding the incomes and purchasing power of these lower deciles, the economy experiences a direct surge in consumer demand. This demand is typically directed towards essential, locally produced goods and services, which, in turn, acts as a powerful stimulus for local businesses and drives localised employment creation.  

In recent times, the expansion of targeted welfare programmes has likely played a significant role in injecting critical liquidity into these lower-income deciles. However, to fully harness this demand-side lever and transition from passive relief to active economic integration, it is crucial to rigorously analyse the impact of such welfare programmes on local-level consumption and employment patterns. Only by understanding how welfare distributions circulate through local markets can policymakers design interventions that maximise long-term productive employment. This could be a question for the NITI Aayog and for other researchers in the country to explore.

The writer is director, National Institute of Public Finance and Policy. The views are personal