Opposition blames Modi’s BJP for high jobless rate

NEW DELHI — As India prepares for the second phase of its general elections, the issue of unemployment is increasingly taking center stage, with opposition leader Rahul Gandhi accusing Prime Minister Narendra Modi and his ruling party, the BJP, to make the country “a center of unemployment”.

Unemployment is particularly high among India’s youth, with those aged 15 to 29 accounting for 83% of all unemployed workers in India, according to the “India Jobs Report 2024”, released last month by the International Labor Organization (ILO) and the Institute of Human Development (IHD).

“Modi has worsened unemployment in the country. Those who are capable of providing jobs have been devastated due to demonetization and poor Goods and Services Tax regime,” Gandhi said on Saturday at a rally in the State of Bihar, in eastern India.

In a widely criticized move, Modi announced in 2016, during his first term, that 500 and 1,000 rupee notes would be demonetized or cease to be legal tender.

Demonetization – aimed at reducing black money, or funds earned through illegal activities that avoid taxes – was called “monumental mismanagement” by Modi’s predecessor Manmohan Singh.

However, this did not stop Modi from securing a second term in 2019 with an even stronger mandate.

The country’s unorganized sector has still not recovered from the impact of demonetization, Arun Kumar, an economist and former professor at New Delhi’s Jawahar Lal Nehru University, told CNBC, adding that it was the one of the main reasons for high unemployment in the country.

India’s unorganized sector, made up of millions of small, private businesses, accounts for about 93% of the country’s total workforce.

The ILO-IHD findings were highlighted by the opposition trying to corner Modi’s ruling Bharatiya Janata Party on the unemployment front, with the president of the Indian National Congress, the country’s main opposition party, calling the country unemployment situation is a “time bomb”.

The issue resonated with voters: a survey earlier this month by the New Delhi-based Center for the Study of Developing Societies and Lokniti – a research program of the CSDS – showed that unemployment was the number one concern among Indian voters.

Up to 32% of respondents said rising unemployment was the cause main reason why they would not re-elect the BJP. About 62% of respondents said finding a job had become more difficult over the past five years.

However, the same survey also showed that 44% of respondents were willing to give the Modi government another chance, compared to 39% who were not keen to re-elect the incumbent government.

India’s labor ministry did not immediately respond to CNBC’s questions about the country’s unemployment situation.

The shift from unorganized to organized sector and from labour-intensive industries (like leather goods and textiles) to capital-intensive sectors (like e-commerce) has led to the deterioration of capacity of India’s job creation, Kumar said.

Former Reserve Bank of India Governor Raghuram Rajan echoed similar concerns last week, highlighting falling employment in labor-intensive sectors like leather goods.

Rajan, who was speaking on how to make India an advanced economy at George Washington University, said: “Unemployment figures are high, disguised unemployment is even higher. Labor market participation is low, women’s participation in the labor market is truly alarming.

The slowdown in hiring in India’s huge information technology sector is also to blame for the lack of well-paying white-collar jobs.

India’s booming manufacturing sector has so far failed to address the employment situation due to limited value addition and increasing mechanization, Kumar said, citing the mobile phone sector.

“We assemble the phones here, not make the parts which would lead to more job creation. If an Apple phone costs $1,000, we add $50 to $60 in value, and the jobs created are proportional to that added value “, did he declare. told CNBC.

Manufacturing has become capital-intensive and labor-saving. With increasing mechanization, job creation in India has become capital-intensive, with fewer workers employed between 2019 and 2000 than in the 1990s, according to the ILO-IHD report.

“We are declining in these (labour-intensive) areas. No wonder we have more employment problems,” Rajan said, questioning the government’s priorities. “Think about these chip factories. So many billions are going to subsidize chip manufacturing.”

The government has introduced measures such as production-linked incentive programs to help boost the manufacturing sector, but this has not yet translated into significant job creation, amid increasing mechanization, according to economists such as Kumar.

The PLI schemes, costing 1.97 trillion rupees (nearly $24 billion) over five years starting 2021-22, could potentially create 6 million new jobs, according to the Government of India.

While ILO-IHD youth unemployment figures have become a major talking point this election season, some of the key indicators that suggest an improving employment scenario have been lost in the debate.

Youth unemployment, which was 17.5% in 2019, fell to 12.1% in 2022 and 10% in 2023, the ILO-IHD report said. Overall, unemployment fell to 3.1% in 2023, from 3.6% in 2022 and 4.2% in 2021, according to government data.

Former IMF executive director Surjit Bhalla, also a former member of the prime minister’s economic advisory council, told CNBC that much of the noise around unemployment is just a “political narrative.”

Even though unemployment is at the forefront of voters’ concerns and has been the key issue raised by opposition parties to put the ruling BJP on the back foot, a range of surveys have shown that Modi is likely to win this election with a another strong score. mandate.

If Modi returns to power for a third term, he will be only the second prime minister to achieve this feat after Jawaharlal Nehru, the country’s first prime minister.

— CNBC’s Naman Tandon contributed to this story.