In May 2025, India’s CPI inflation eased to 2.82%, below the RBI’s 4% target, driven by an agriculture-led drop in food prices. However, unemployment rose from 5.1% to 5.6%, signaling weak job creation amid cooling GDP growth. Econometric evidence shows inflation linked to supply-side shifts, not monetary tightening—highlighting the need for dual mandates.
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India's celebration of falling inflation is misplaced as unemployment rises and growth slows.
Retail inflation dropped to 2.8% in May 2025, largely due to a slowdown in food price inflation, helped by a relatively strong performance in the agricultural sector.
The unemployment rate climbed from 5.1% in April to 5.8% May.
Slowdown in overall economic growth, with GDP growth estimates for 2024-25 at 6.5%, down from 9.2% in the previous year.
The decline in growth is spread across most sectors of the economy, with the exception of agriculture. This indicates that while the economy is expanding, it is not creating enough jobs to absorb the available workforce.
Shift to Capital-Intensive Industries => India's economic growth is increasingly driven by capital-intensive sectors, such as technology and advanced manufacturing, which use more machinery and less labor. While India's capital stock grew by 74% between 2014 and 2023, employment only increased by 36%, indicating that growth is not creating a proportional number of jobs.
Slow Growth in Manufacturing => The manufacturing sector has not expanded quickly enough to absorb a large labor force. Despite initiatives like "Make in India," employment in this sector saw only a modest increase from 57 million in 2017-18 to 62.4 million in 2019-20. The micro, small, and medium enterprise (MSME) sector, which has high potential for job creation, also faces challenges, with a significant number of new enterprises failing within their first five years.
Dominance of the Informal Sector => A large portion of the workforce, estimated at more than 90%, is employed in the informal sector. These jobs are often characterized by low wages, poor working conditions, and no social security benefits. The Economic Survey 2023-24 noted that 57.3% of the workforce is self-employed, and 18.3% work as unpaid helpers in household enterprises, highlighting the prevalence of vulnerable employment.
Skill Mismatch => There is a significant gap between the skills imparted by education and training programs and the skills demanded by the modern job market. Although programs like the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) have trained millions, the placement rate remains low, with only 18% of the 13.7 million trained candidates securing jobs.
Heavy Reliance on Agriculture => A significant part of the workforce (45.76% as per Periodic Labour Force Survey 2022-23) is still dependent on agriculture. This sector is characterized by low productivity and seasonal employment, and it cannot provide stable, year-round income for the millions who depend on it.
Skill India Mission => It includes the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) to train a large number of young people in industry-relevant skills.
Make in India and PLI Schemes => The "Make in India" initiative and the Production-Linked Incentive (PLI) scheme are designed to boost domestic manufacturing and attract foreign investment, creating jobs in sectors like electronics and automobiles.
Digital India => Focuses on improving digital literacy and infrastructure, which can open up new opportunities in the online and tech-driven sectors. The Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA) aims to make six crore rural citizens digitally literate.
Infrastructure Push => The National Infrastructure Pipeline (NIP) plans to invest ₹111 lakh crore in various projects, which is expected to generate significant employment in construction and related industries.
Promote Labor-Intensive Manufacturing => The government must create policies that encourage growth in sectors that naturally employ more people, such as textiles, apparel, leather goods, and food processing. This can be achieved through targeted tax incentives, subsidies, and easier access to credit for small and medium enterprises (SMEs) in these sectors.
Promoting Rural Entrepreneurship => Developing opportunities in rural areas to reduce the pressure on urban centers, by improving access to credit, providing training, and developing rural infrastructure like roads and internet connectivity to help local businesses grow.
Align Education with Industry Needs => Strengthening public-private partnerships (PPPs) in education can help bridge the skill gap. By involving industry leaders in designing curriculums and offering practical training, educational institutions can produce graduates who are ready for the demands of the job market.
Invest in Green Jobs => India has a massive opportunity to create employment in sustainable industries. Focusing on sectors like renewable energy (solar and wind), waste management, and electric mobility can create "green jobs" that contribute to both economic growth and environmental protection.
Accelerate Labor Code Implementation => To simplify labor laws, ensure fair wages, and provide social security benefits to workers in the informal sector, thus improving job quality and encouraging formalization.
Increase Public Infrastructure Investment => Ramping up investment in public infrastructure projects, such as transportation, healthcare, and urban renewal, can create a large number of jobs for both skilled and unskilled workers. Improved logistics infrastructure also lowers business costs, making industries more competitive and better able to create jobs.
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PRACTICE QUESTION Q. "Monitoring inflation while ignoring unemployment is not a credible way of assessing economic performance". Critically analyze. 150 words |
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