
Arvind Panagariya, the former Chairman of the Finance Commission, believes that India’s main challenge is not job creation, but rather the reallocation of capital to more labor-intensive sectors. He argues that too much capital is tied up in industries that do not hire many workers, particularly in manufacturing. Panagariya emphasizes the need to redirect capital to sectors that can generate more jobs per unit of investment.
Panagariya points out that while there is sufficient capital in the market, it is concentrated in sectors that are not labor-intensive, such as machinery, pharmaceuticals, and petroleum refining. These industries absorb a significant amount of capital but do not employ enough workers. He suggests that the focus should shift towards industries that can generate more jobs relative to the capital invested.
According to Panagariya, job creation is closely linked to the composition of industries, particularly in manufacturing. He believes that creating good jobs should be a priority, and the industrial structure should evolve towards sectors that employ more workers relative to the capital invested.
Unemployment as a Key Issue
The lack of jobs has been a significant concern in India, particularly during the recently-held Lok Sabha elections. The opposition has consistently criticized the BJP government for the rising unemployment rate in the country.
However, Panagariya disagrees with the notion that unemployment is the primary issue. He argues that the problem lies not in the availability of jobs but in the under-employment and low labor productivity per worker. He believes that the economy has been growing robustly, and the issue of jobs should be seen as an ongoing project rather than a discontinuity.
Challenges and Concerns
A recent survey conducted by ET Online highlighted the primary challenges for the next NDA government. The survey revealed that job scarcity is the most pressing unresolved issue, followed by a prevailing sense of inequality and concerns about inflation.
Former Chief Economic Advisor Kaushik Basu has also expressed alarm about India’s high youth unemployment rate. He emphasized the urgent need for government intervention to address this issue.
The quality of jobs in India has also become a major concern. There has been a decrease in formal employment opportunities, and the adoption of short-term contract soldiering in the Armed Forces has further diminished stable job prospects for the youth. These changes affect a demographic with a median age of around 30 years.
Current Unemployment Rates
According to the National Sample Survey Office (NSSO), the overall unemployment rate for individuals aged 15 years and above in urban areas slightly declined in the January-March 2024 period. It stood at 6.7 percent, down from 6.8 percent in the same period the previous year. The unemployment rate has remained relatively stable in recent quarters.
In conclusion, Arvind Panagariya believes that India’s main challenge is the reallocation of capital to more labor-intensive sectors. He emphasizes the need to redirect capital to industries that can generate more jobs per unit of investment. While unemployment is a concern, Panagariya argues that the issue lies in under-employment and low labor productivity per worker. The upcoming budget is seen as a critical policy statement and a significant test for Finance Minister Nirmala Sitharaman.