India's Economic Growth: Beyond Market Forces and Employment
When Governor of the Reserve Bank of India, Raghuram Rajan, asserts that India's economic growth has stagnated primarily due to high unemployment and insufficient job creation, much is at stake. This article delves into the broader factors that contribute to economic growth in India, highlighting the interplay between consumption, local employment, and global economic trends.
The Role of Employment in Economic Growth
Job creation is a critical component of economic growth, as Raghuram Rajan himself emphasizes. Increased employment not only boosts incomes but also stimulates consumer spending, leading to further economic activity. When joblessness rises, share markets often experience declines, illustrating the direct correlation between employment levels and market stability.
Local Consumption and Economic Strength
Agreeing with Rajan’s perspective on employment, it is essential to underscore the importance of local consumption in driving economic growth. Strong local consumption contributes to the creation of good jobs within the economy. Family discretionary income plays a pivotal role in this stimulation, with factors such as female labor force participation rate (LFPR) being key indicators. Therefore, it is imperative to focus on improving social infrastructure, including education, healthcare, child care, and cost-effective transportation, to ensure that there is a conducive environment for job creation.
While Rajan’s concerns about employment are valid, economic growth is multifaceted and influenced by various factors, including energy resources, trade, and capital markets. These aspects are crucial in defining the growth of successful economies. India, however, faces challenges in these areas, which often detract from its overall growth trajectory.
Current Economic Challenges in India
Highlighting the current economic landscape in India, it becomes evident that the country is not experiencing the same growth dynamics as some other nations. Economic growth in India is predominantly driven by natural market forces, much like Bangladesh or Nigeria. However, the additional surge that propels strong economies, such as energy resources, trade, and capital market upsurges, has not been significantly realized in India.
Lack of Job Creation and Its Implications
India’s employment scenario paints a concerning picture. Despite an impressive surge in employment saturation during the period 2002 to 2010, this has declined significantly. As of today, the median time between graduation and securing a job stands at 311 days, a stark increase from 106 days just a decade ago. When we exclude big tech companies and the government sector, the real growth in salaries has lagged behind inflation, leading to a sense of uncertainty and reduced wages for the majority of the workforce.
The lack of job creation has led to a decline in consumer confidence and spending. Traditionally, educational loans were granted without stringent caveats, but now banks demand robust credit histories and father’s CIBIL reports, reflecting the high risk of non-performing assets (NPAs).
The Real Picture of Employment and Growth
Even sectors like delivery services, ride-hailing, and even repair services are providing employment to graduates, albeit on a limited scale. However, the top 10 percent of graduates continue to secure high-paying jobs, leaving the rest of the workforce at an economic disadvantage. This situation underscores the pressing need for a more inclusive and sustainable job creation strategy.
Raghuram Rajan’s insights are crucial in questioning the factors driving India’s growth beyond basic market mechanisms. Addressing these challenges and fostering an inclusive economic environment will be essential for sustained growth and development in India.