Unemployment in India: Types, Causes and Solutions To Reduce Unemployment Rate

If the word demands a definition, “unemployment”, may be elaborated as a state of not finding work by an individual who is fit and willing to work. It is usually measured in percentage; the number of individuals without work out of the total “labour force” of the country or specific social groups. Labour force is the term collectively applied to the total number of individuals within the population who are willing and capable of doing work. Unemployment rate of a country is indicative of its socio-economic health.

Unemployment casts some short term ripples throughout the economy by reducing an individual’s contribution in terms of services and taxes. The unemployed also does not possess the power of purchase, thus in effect contributing to bringing down demand of goods in the market and creating more unemployment. This vicious cycle creates a cascading effect throughout the economy and trickles down to different social strata. India currently (2016) has a population of about 1.3 billion.

According to a recent United Nations Development Programme (UNDP) report, during the period of 1991 to 2013, Indian economy has experienced maximum growth and yet less than half number of Indians seeking jobs have managed to land one during this period. State wise figures reveal that Tripura has the highest unemployment rate in the country at 19.7% while Gujarat has the lowest at 0.9% in 2015-2016. On the other hand, unemployment rate is higher among women at 8.7 percent versus 4.3% among men. Women unemployment rate is higher in the rural areas than in urban sectors of the country. Experts fear that at present, India is experiencing a jobless growth with not enough jobs being created for its working age population (15-64 years). There is ample skepticism afloat about the country not being able to cash in on its demographic bonus, predicted to be 869 million by year 2020 – world’s largest.

Types of Unemployment

The most accepted classification of Unemployment recognizes two broad types: Voluntary and Involuntary Unemployment.

Voluntary unemployment arises when an individual is not under any employment out of his own desire not to work. Could be from their total apprehension towards the concept itself, or it may be that an individual is unable to find work paying his desired wages and he doesn’t want to settle.

Involuntary unemployment encompasses all those factors that prevent a physically fit individual willing to work from getting an appointment. According to John Maynard Keynes, “involuntary unemployment arises due to insufficiency of effective demand which can be solved by stepping up aggregate demand through government intervention”. Involuntary Unemployment is further categorized into subheads;

1. Structural: Such employment stems from any structural change in the economy that leads to decline of specific industries. Long term changes in the market conditions, reorganization of the same, and sudden changes in the technological sector, creates a Skill Gap in the existing workers.

2. Regional: Globalization and relocation of jobs also leads to unemployment as workers are often unable to move to the new location where the employers currently hold positions.

3. Seasonal: In some industries production activities are season best and employment occurs only in peak seasons. Agro-based industries and tourism industries are examples of this form of unemployment.

4. Technological: This type of unemployment is either generated following the introduction of technologically advanced mechanization that renders manual labour redundant, or through inclusion of technology that the current labour force is ill-adapted to.

5. Frictional: This type of unemployment happens when the labour is either transitioning between jobs or is trying to find a job more suited to their skill set. Friction is generally referred to the time, energy and cost that a person invests while searching for a new job.

6. Educated: This form of unemployment happens when people with advanced degrees are unable to procure an engagement that is suited to their level of training.

7. Casual: Some occupations can only offer temporary employment to individuals and their engagements are subject to termination as soon as the demand subsides. Daily labourers who work on a day-to-day basis are example of such types of unemployment.

8. Cyclical: This type of unemployment refers to the periodic cycle of unemployment associated with cyclical trends of growth in business. Unemployment is low when business cycles are at their peak and high when the gross economic output is low. Several external factors like wars, strikes and political disturbances, natural calamities that affect business cycle are also contributors to cyclical unemployment.

9. Disguised: This is a scenario when more people are employed in a job than is actually required for it. This is hallmark of developing economies where availability of labour is abundant. It is primarily a feature of the agricultural and unorganized sectors.

Causes of Unemployment

Unemployment is a reason for alarming concern in India today. The root of the problem can be traced to a host of reasons that contributes collectively towards this problem.

1. Economic Growth without adequate employment opportunities: India’s GDP projections for year 2017 is 7.5% but that growth does not currently translates into creating more employment opportunities for the labour force of the country. In a survey conducted among a sample of 1072 companies across the nation and across various sectors, during the financial year of 2014-2015 only 12,760 jobs were created compared to 188,371 jobs in the year 2013-2014. In the year 2016, India’s rural unemployment rate stands at 7.15% whereas unemployment rate in urban areas stand at 9.62%.

2. Education: Although literacy rates have risen in the last few decades, there still remains a fundamental flaw in the education system in India. The curriculum is mostly theory-oriented and fails to provide vocational training required to match up with current economic environment. The degree-oriented system renders itself redundant when it comes to producing human resources adept at fitting into specific profiles within the economy.

3. Population growth: Rapid growth of population has often been labeled as the major reason for increasing unemployment in the country. In the last ten years (2006-2016), India’s population has increased by 136.28 million and unemployment is at a 5 year high in the financial year of 2015-2016. Current survey data revealed that at the all-India level, 77% of families do not have a regular salaried person.

4. Faulty Employment planning: The five-year plans implemented by the government have not contributed proportionately towards generation of employment. The assumption was that growth in economy will automatically generate enough employment. But in reality the scenario doesn’t quite match up to the assumption and there have remained gaps between the required number of jobs and the actual numbers generated.

5. Drawback of Agriculture Infrastructure: According current statistics, agriculture remains the biggest employer in the country contributing to 51% employment. But ironically the sector contributes a meager 12-13% to the country’s GDP. The problem of disguised unemployment has turned out the biggest contributor behind this deficit. Also the seasonal nature of employment in this sector builds up recurring cycles of unemployment for the rural population. Lack of proper irrigation infrastructures and outdated cultivation methods still used renders most of the agriculture land in India usable for cultivating just one crop a year. This is another contributing factor towards seasonal nature of unemployment in the sector.

6. Alternative opportunities: There has been a definite push towards providing the people employment by the agriculture-based industries with alternate methods of employment during the lull seasons. Skill-based trainings for their employment in other sectors are lacking till date.

7. Slow Industrialization: The industrial scenario in India is still slow to flourish. Agriculture still remains as the biggest employer in the country. People are not yet keen towards self-employment, especially in the rural sector, depending on existing employment opportunities.

8. Neglect of cottage industries: For landless people in rural areas of India, one of the major means of livelihood is the cottage industries like fabric and handicrafts. But these small-scale industries are adversely affected by larger more mechanized industries which out-competes them in productivity. As a consequence, it is becoming more and more difficult to sustain the cottage industries inciting loss of employment for many.

9. Lack of Investment: Inadequacy of capital investment persists heavily in India and that has been a key contributor in not generating enough industry that in turn provides employment to the labour force.

10. Immobility of Labour: One more factor that leads to unemployment is people not being interested to move for jobs. Responsibility and attachment to family, language barrier, religion and lack of transport are key contributing factors in this regard.

Solutions to Reduce Unemployment Rate

Collective efforts directed by the Government as well as citizens towards the following points might help alleviate the problem of unemployment in the country.

1. Increased Industrialization: One of the most sure-shot remedies of the unemployment situation in India is rapid industrialization. Increased number of industries translates effectively into increased number of employment opportunities. Due to the emphasis put on agriculture in our economy, industrialization still takes a backseat, with farmers not ready to give up land for establishing industries. They need to be encouraged with better incentives and guaranteed jobs for a member of the family in the newly established industry.

2. Emphasis on Vocational and Technical Training: The curriculum pursued in universities should be altered to focus more on practical aspects of learning. More institutions need to be established that offer vocational courses that will translate directly into relevant jobs.

3. Encouraging Self-employment: Self-employment should be encouraged more with introduction of liability free loans and government assistance for funding. Incubation centers need to be promoted to cultivate original business ideas that will be financially viable.

4. Improved Infrastructure in Agriculture: Time has come for the entire agricultural infrastructure in the country to undergo a serious overhaul. Better irrigation facilities, better farming equipment, dissemination of knowledge regarding multiple crop rotation and crop management should be focused on. This will lead to year round increased production of crops, generating employment throughout the year.

5. Inviting Larger Capital Investments: Although India’s economic market is seeing increased investments from overseas investors owing to its cheap labour costs; a lot more is still need to bridge the gap of unemployment. Government as well as leading business houses of the country should seek to invite more foreign collaboration and capital investment in every sector.

6. Focused Policy Implementation: Subsequent policies have focused on the issues like poverty and unemployment, but the implementation leaves a lot to be desired. Schemes like Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and Rajiv Gandhi Swavlamban Rozgar Yojna are examples of the initiatives that the government has undertaken to address the unemployment problem. The recent Make in India initiative is another such step that has heart in the right place. The government should seek to streamline its implementation strategies so that the benefit from such schemes may be maximized.

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