India is one of the fastest-growing major economies, yet the International Monetary Fund keeps returning to one worry. Growth on paper is not the same as work that pays well and lasts. Creating high-quality jobs in India, and lifting productivity along the way, is where the IMF says policy effort should go.
The scale of the gap
IMF has projected India would require up to 148 million more jobs by 2030 and 324 million more by 2050 as the population increases. IMF has also projected 80 million jobs are “missing” at the current unemployment rate. This is the backlog even before taking into consideration one additional new job seeker.
IMF’s Chief Economist Gita Gopinath had expressed the same sentiment. She has pointed out India has underperformed compared to its fellow G20 countries in terms of job creation and that investments from the private sector have not matched the 7% economic growth rate. While government expenditure on infrastructure projects is progressing well, companies are not hiring as expected.
Why productivity matters
Jobs alone are not enough. India has struggled with relatively weak productivity. The IMF’s research notes that economic activity has shifted from agriculture to services, but agriculture has made limited progress in catching up to the technology frontier. Many workers remain in low-output work, which is why high-quality jobs in India are as much a productivity question as a headcount one.
In addition, according to the IMF, measures to enable more businesses to join the technological frontier rather than the large firms leading the charge would help improve productivity and jobs. The fund’s assertion further emphasises that some 15 per cent of operating Indian companies are inefficient because they cannot service interest payments from earnings.
What reforms the IMF wants
The policy prescriptions are rather wide-ranging in nature. Better education and training, labour market policies, and enhanced social protection systems are designed to increase labour productivity. Reductions in bureaucratic regulations, better access to finance, and greater trade integration are supposed to enhance business creation and investment.
Other reporting on the fund’s Article IV review adds more. It points to a high degree of informality in the job market and warns that raising import tariffs is unlikely to produce competitive producers who add value and create jobs. Without formal, better-paid employment, high-quality jobs in India will remain more promise than reality.
The PLI debate
A balanced judgment of PLI programs is given. According to the IMF, the total cost of PLI programs over several years amounts to around 0.72 per cent of GDP in fiscal year 2023 with up to 6 million job creation estimates by the government, however, it is too early to evaluate them. It further goes on to state that targeted and temporary industrial policy may help correct the market failures. More recent discussions of the IMF evaluation have been more critical.
The AI factor
A newer complication is technology. The IMF says about 26 percent of Indian workers are in occupations with high AI exposure. For 14 percent, AI could be largely complementary, raising productivity and earnings, while the rest face more risk. Since services have powered much of India’s growth, this makes the push for high-quality jobs in India more urgent.
What to take from this
The message of the IMF is not either alarmist or reassuring. It states that the movement of workers into more dynamic industries may boost GDP growth by 0.2 percent to 0.5 percent. In other words, employment can be both an economic and social objective. However, the challenge lies in the implementation, which involves a number of factors.