Chennai: India’s transformation from a rural-based economy to a services-led economy is incomplete. As the population continues to grow, India will need to create up to an additional 148 million jobs by 2030 and 324 million jobs by 2050, finds the IMF. In order to realise gains from its demographic dividend, India needs to implement wide-ranging structural reforms.
India’s strong growth in recent decades has lifted millions of people out of poverty and transformed the economy from mainly rural-based towards an important global, services-led economy. The transformation is not yet complete and important reforms will be needed to further lift India towards upper middle-income status.
Its structural transformation remains incomplete. Economic activity has shifted from agriculture to services, but agriculture remains the predominant employer. Catch-up to the technological frontier has been uneven, with limited progress in agriculture, construction and trade, which have grown the most in terms of employment.
At its 2022 unemployment rate, the IMF estimates that there were 80 million missing jobs. “We find that India will need to create 148 million jobs by 2030 and 324 million by 2050 and while doing so workers shifting towards more dynamic sectors could boost GDP growth by 0.2-0.5 percentage points. Structural reforms can help India create high-quality jobs and accelerate growth,” IMF said.
Further, skill mismatch is large in India, with most of the labour force having less formal education than what it would be desirable for the current occupation. Underemployment also remains an important problem. India has faced relatively weak productivity.
In order to realise gains from its demographic dividend, India needs to implement wide-ranging structural reforms. Improving labour productivity, employment, and labour market function will require strengthening education and skilling, advancing labour market reforms and strengthening social safety nets. To boost business creation, productivity, and investment will require removing red tape and obstacles to private sector growth, facilitating access to credit, and fostering trade integration. A continued publish investment push will also help support lowering logistics costs and crowding in private investment.
Talking about the Production Linked Incentive scheme, the IMF said that the multi-year cost of the existing PLIs assuming full implementation is relatively low at 0.72 per cent of FY2023 GDP and the authorities estimate they may help create up to 6 million jobs. While it is too early to assess these schemes and the data is not available yet, targeted and temporary industrial policy could help address market failures. The scheme has to be subjected to rigorous cost-benefit analysis, to keep their time-bound, and to ensure competition is fostered. PLIs do not replace broader market reforms, which should continue to be prioritized.
