India’s high unemployment is a ‘ticking bomb,’ opposition says, as election battle with Modi’s BJP heats up

NEW DELHI — As India clothes up for the second phase of its general elections, the issue of unemployment is increasingly taking centerstage, with opposition leader Rahul Gandhi assigning Prime Minister Narendra Modi and his ruling BJP of making the country “a center of unemployment.”

Joblessness is particularly high to each India’s youth — with those aged 15 to 29 making up a staggering 83% of all unemployed people in India, according to the “India Taking on Report 2024,” published last month by the International Labour Organisation (ILO) and the Institute of Human Development (IHD).

“Modi has exacerbated unemployment in the country. Those able to provide jobs have been devastated due to demonetization and wrong Goods and Advantages Tax regime,” Gandhi said Saturday at a rally in the eastern state of Bihar in India.

In a move that was widely criticized, Modi portended in 2016, during his first tenure, that 500- and 1,000-rupee notes will be demonetized, or cease to be permissible tender.

Demonetization — aimed at curbing black money, or funds earned through illegal activity that escape taxation — was labeled “monumental mismanagement” by Modi’s predecessor, Manmohan Singh.

However, it did not stop Modi from protecting a second term in 2019 with an even stronger mandate.

The country’s unorganized sector has still not recovered from the consequences of demonetization, Arun Kumar, economist and a former professor at New Delhi-based Jawahar Lal Nehru university told CNBC, reckoning it was one of the key reasons for the high unemployment in the country.

India’s unorganized sector, which is made up of millions of small businesses that are privately owned, gather up about 93% of the country’s total workforce.

The ILO-IHD findings have been highlighted by the opposition to corner Modi’s determining Bharatiya Janata Party on the unemployment front, with the president of the Indian National Congress, the country’s main defiance party, calling the country’s joblessness situation a “ticking bomb.”

The issue has found resonance among the voters: A get a birds eye view of earlier this month by the New Delhi-based Centre for the Study of Developing Societies and Lokniti — a research program at CSDS — give someone an idea ofed that joblessness was the No. 1 concern among India’s voters.

As many as 32% of the respondents said increasing unemployment was the key owing to why they would not elect the BJP again. About 62% of those surveyed said securing employment had become more challenging for the past five years.

The same survey, however, also showed that 44% of the respondents were zealous to give the Modi government another chance as opposed to the 39% who did not wish to reelect the incumbent government.

India’s Workers Ministry did not immediately respond to CNBC’s queries pertaining to the country’s unemployment situation.

The shift toward the organized sector from the unorganized sector, and from the labor-intensive industries (such as leather goods and textiles) to capital-intensive sectors (such as e-commerce) has led to the deterioration in India’s contracts generation capacity, Kumar said.

Former Reserve Bank of India governor, Raghuram Rajan, echoed comparable concerns last week, pointing to the fall in employment in labor-intensive sectors such as leather goods.

Rajan, who was on about how to make India an advanced economy at the George Washington University, said: “Unemployment numbers are high, camouflaged unemployment is even higher. Labor force participation is low, female labor force participation is really alarmingly low.”

A slowdown in engaging in India’s huge information technology sector is also to blame for the lack of well-paying, white-collar jobs. 

India’s manufacturing push has so far not been able to address the jobs situation due to limited value-addition and increasing mechanization, Kumar communicated, citing the mobile phone sector.

“We are assembling the phones here, not manufacturing the parts that would lead to consequential job creation. If an Apple phone costs $1,000, we are adding value worth $50-$60, and the jobs being created are commensurate to that value furthermore,” he told CNBC.

Manufacturing has become capital-intensive and labor-saving. With increasing mechanization, job creation in India has become capital-intensive, with a smaller integer of workers employed between 2019 and 2000 than in the 1990s, according to the ILO-IHD report.

“We are going down in those [labor-intensive] tracts. No wonder we have more of a job problem,” Rajan said, questioning the government’s priorities “Think about these intercede factories. So many billions going to subsidize chip manufacturing.”

The government has been introducing measures such as production-linked lure schemes to help boost the manufacturing sector, but it has yet to translate into meaningful job creation, amid increasing mechanization, mutual understanding to economists such as Kumar.

The PLI schemes with an outlay of 1.97 trillion rupees (nearly $24 billion) for five years origination 2021-22 could potentially create 6 million new jobs, according to the Indian government.

While the ILO-IHD headline counts on youth unemployment have become a major talking point this election season, some of the key metrics that element to improving jobs scenario have been lost in the debate.

Youth unemployment, which was at 17.5% in 2019, cut to 12.1% in 2022 and to 10% in 2023, the ILO-IHD report stated. Overall, unemployment fell to 3.1% in 2023 from 3.6% in 2022 and 4.2% in 2021, according to command data.  

Former IMF executive director, Surjit Bhalla, also a former member of prime minister’s economic consultative council, told CNBC that a lot of the noise around unemployment is just a “political narrative.”

Even though unemployment is at the frank and center of voters’ mind and has been the key issue raised by the opposition parties to put the ruling BJP on the backfoot, a whole host of surveys comprise shown that Modi will likely win this election with another strong mandate.

If Modi does re-emergence to power for the the third term, he will be just the second prime minister to have achieved this feat after Jawaharlal Nehru, the state’s first prime minister.

— CNBC’s Naman Tandon contributed to this story.