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Context

• India has witnessed significant economic growth in the past few decades, positioning itself as a potential counterweight to China.
• The country is viewed as a key driver of the global economy in the coming decades.

Challenges Ahead:

Employment Scenario:

• India's demographic makeup skews young, with a median age of around 28 years.
• The low dependency ratio, with 100 workers for every 40 dependents, presents both opportunities and challenges.

Demographic Dividend:

• India's large labor pool, coupled with an annual addition of around 10 million new workers, is seen as a boon.
• However, it also poses a challenge in effectively matching these workers to productive jobs.

Complexities of India's Labor Market:

Double-Edged Sword:

• The demographic dividend offers a short window of opportunity but also poses significant challenges in job matching.

Economic Transformation:

• India's shift from agrarian to non-agrarian sectors requires skill adaptation and geographical mobility.
• Migration from rural to urban areas for non-agricultural jobs adds complexity and costs to the process.

Current State of the Labour Market:

• The labor market is exhibiting signs of failure in its functioning.
• Key indicators such as the overall unemployment rate and specific unemployment rates among different educational groups reflect this issue.

Unemployment Statistics:

• The overall unemployment rate stands at 8 percent according to Centre for Monitoring Indian Economy data.
• Disturbingly high unemployment rates are reported among graduates (29 percent) and those with secondary or higher education (18 percent).
• CMIE estimates the unemployment rate for individuals aged 20-24 years to be as high as 44 percent.

Factors Contributing to Market Constraints:

Size of Firms:

• Indian firms are comparatively smaller in terms of employment and revenue.
• Limited growth and productivity of Indian firms reduce their demand for labor.

Skill Deficit:

• Firms, especially in the white-collar service sector, face challenges in finding workers with the required skills.
• The education system in India is criticized for not adequately addressing skill development.
• Reports like ASER highlight persistent issues with student learning, affecting the labor market by restricting the pool of skilled workers.

Impact on Hiring Patterns:

Skill Mismatch:

• Inability to find workers with necessary skills leads to reluctance in hiring.
• High unemployment rates are particularly acute among graduates and high-school degree holders in the white-collar segment.
• Addressing these issues, including enhancing firm productivity, bridging skill gaps, and reforming the education system, is crucial for revitalizing the labor market and fostering sustainable economic growth.

Clash of Aspirations:

• The labor market scenario in India reflects a clash between entrepreneurial aspirations and available opportunities.
• While some firms aim for growth and expansion, many remain small-scale, limiting their competitiveness in global markets.

Entrepreneurial Landscape:

Limited Growth Aspirations:

• Many entrepreneurs and firms opt to stay small, despite potential constraints from tax or regulatory policies.
• Lack of ambition among small entrepreneurs hampers their ability to compete effectively against larger, agile competitors from countries like Vietnam, China, and Bangladesh.

Worker Aspirations:

Growing Workforce:

• India's labor force adds around 10 million new workers annually, many of whom are more educated than previous generations.
• Young workers harbor high aspirations for meaningful employment opportunities, driven by the country's macroeconomic success indicators such as GDP growth.

Way Ahead: Need for Ambitious Solutions:

Incentivizing Export-Oriented Growth:

• Encouraging private manufacturing firms to scale up ambitions can be a self-sustaining solution.
• Export-oriented policies can stimulate growth, as evidenced by larger and more productive firms engaging in export activities.

Transforming the Entrepreneurial Mindset:

Shift from Domestic Market Focus:

• Domestic market protection tends to favor smaller, less productive firms, exacerbating labor market challenges.
• Export orientation can foster a shift in entrepreneurial mindset towards growth and competitiveness.

Addressing the Clash of Aspirations:

• Tackling the clash of aspirations between workers and entrepreneurs is imperative to leverage India's demographic dividend effectively.
• Prioritizing solutions to address unemployment and underemployment should be a key focus for the next government agenda.
• Navigating this clash of aspirations is essential to prevent India's demographic dividend from turning into a demographic curse, highlighting the urgency for proactive measures to align labor market opportunities with the aspirations of its burgeoning workforce.

MUST READ ARTICLE: https://www.iasgyan.in/daily-current-affairs/global-employment-trends-for-youth-2022-report

PRACTICE QUESTION Q. Discuss the implications of disturbingly high unemployment rates among India's youth and propose viable strategies for addressing this critical issue.

SOURCE: INDIAN EXPRESS