CONTEXT– The Centre for Monitoring Indian Economy (CMIE) Report of August 2021 shows that the unemployment rate has increased from approx 7% in July to 8.3% for August 2021.
Sector-wise analysis shows that most of the jobs lost were farm jobs( fell by 8.7 million) ; while non-farm jobs did increase(non-farm jobs increased by 6.8 million) to absorb some of these, but the quality of new jobs generated is a matter of concern.
The manufacturing sector shed 0.94 million jobs. Therefore, much of the labour shed by agriculture has been absorbed in low-end service activities.
During normalcy, agricultural labour gets accommodated in the construction sector. But currently, the construction sector itself is shedding jobs, forcing workers to find employment in the household sector and low-end services. This non-availability of sufficient jobs in manufacturing and higher end services could be the dampener for economic recovery in the subsequent quarters of the current fiscal year.
Elementary economic theory suggests that raising the level of investments is the key to output and employment growth. While public investments are important, especially in the current context of sluggish aggregate demand, there is a need to complement public investments with even more private investments.
While inward FDI does generate jobs both directly and indirectly through an increase in production activities (which increases demand for labour), the magnitude of employment generated especially in the manufacturing sector, needs closer scrutiny.
Further, the sustainability of increased employment is often threatened as it depends on the business avenues which other competing economies open up leading to corporate restructuring at the global level and firm exits from erstwhile locations.
While inflow of FDI in India creates jobs, the magnitude and quality of job generation needs to be scrutinised.
An exit and disruptions-
There is a decline in employment growth in the manufacturing sector. Though, some sub-sectors within the manufacturing sector have generated both direct and indirect employment by attracting FDI and entering into global networks of production. For ex.- auto sector.
As per, some information, the automobile sector employs 19.1 million workers, both directly and indirectly. Presently, more than 70% of the auto component companies are small and medium enterprises. It is generally expected that by 2022, the employment in the auto sector will touch 38 million with a higher generation of indirect employment.
However, 3 factors have created roadblocks to the expansion of the sector:-
Firstly, due to the covid pandemic, followed by lockdown, aggregate demand in the economy is low, that is reflected in vehicle sales.
Secondly, the shortage of semiconductors continues to impact production even when customer sentiments are slowly turning positive.
Third, the recent exit of Ford from the Indian market would release a large number of employees, who will be in search of jobs, difficult to find.