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PM Modi's Jobs Problem Is Growing, Government Remains Optimistic

The jobs market has been slugged by last November's shock cash ban and July's imposition of the national goods and services tax or GST.

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PM Modi's Jobs Problem Is Growing, Government Remains Optimistic

The struggle to create jobs threatens a key plank of PM Modi's push to reverse widening income inequality


Highlights

  1. Jobs market slugged by demonetisation, imposition of GST
  2. 30-40% reduction seen in manufacturing sector, says TeamLease Services
  3. Manufacturing accounts for 18% of GDP, directly employs 12% population
Prime Minister Narendra Modi has a jobs problem.

He swept to power three years ago promising India's poor and middle classes he'd restore their "dignity" after years of swelling inequality, with job creation central to his pitch. But now, the jobs market has been slugged by last November's shock cash ban and July's imposition of the national goods and services tax or GST.

And things look like they're about to get worse: India is set to see a further 30 percent-to-40 percent reduction of jobs in the manufacturing sector compared with last year, according to TeamLease Services Ltd., one of the country's biggest recruitment firms. While other surveys aren't quite so bleak, they also suggest PM Modi is a long way from creating the 10 million jobs a year needed to keep up with his young and rapidly expanding workforce.

The opposition -- in disarray since losing to PM Modi -- is dialing up its criticism as it eyes elections due in 2019.

"If India cannot give the millions of people entering the job market employment, anger will increase, and it has the potential to derail what has been built so far," Rahul Gandhi, heir-apparent to the main opposition Indian National Congress party, said in a speech at the University of California, Berkeley, on Sept. 11. "That will be catastrophic for India and the world beyond it."

Supporters Alarmed

PM Modi's backers are alarmed too. A key ally and member of PM Modi's party, Subramanian Swamy, told a TV channel over the weekend that he has conveyed concerns to PM Modi that the economy could be heading for a "major depression."

The Rashtriya Swayamsevak Sangh -- the ideological parent of the ruling Bharatiya Janata Party -- has alerted the BJP of signs of a shift in the public mood over the government's performance, though PM Modi still remains personally popular, according to a report in the Telegraph newspaper last week that cited unnamed RSS sources.

Munira Loliwala, a general manager at TeamLease, said the slowdown accelerated sharply with demonetization. Indian manufacturers, who previously preferred to cut white-collar jobs rather than factory-floor workers, are now slashing all over, she said.

"We see no option, things are not looking to improve much," Mr Loliwala said.

Mr Loliwala was referring to PM Modi's move in November to scrap 86 percent of currency in circulation, which contributed to growth in gross domestic product slumping to the lowest since 2014 last quarter. PM Modi then pushed through a nationwide goods and services tax on July 1, which is expected to benefit India in the long-run but for now is roiling supply chains.

Manufacturing accounts for some 18 percent of GDP and directly employs 12 percent of the population, government data show. Mr Loliwala said that many of those who lose their jobs stay unemployed because they lack the communication skills required for the services sector, which accounts for 62 percent of GDP.

The struggle to create jobs threatens a key plank of PM Modi's populist push to reverse decades of widening income inequality, a problem highlighted in a new study by Lucas Chancel and Thomas Piketty published this month. The top 1 percent of India's population hold an unprecedented 22 percent of the nation's wealth, while the middle 40 percent benefited the least compared with China, France and the U.S. over 1980-2014, the study found.

Another recent report underscores the magnitude of PM Modi's challenge to boost employment. India ranks 103 out of 130 countries in the World Economic Forum's Global Human Capital Report 2017, published Sept. 13. Its youth literacy rate is 89 percent, well behind other leading emerging markets, and it has the world's largest employment gender gaps.

Elsewhere, PM Modi is making inroads on policy pledges. Higher savings rates offer funds for investment; record foreign-exchange reserves of around $400 billion provide a buffer to external shocks; steps have been taken to clean up a $191 billion pile of souring loans; and a crackdown on corruption may boost treasury coffers and capture the public's imagination.

Those strengths may help explain why the government remains optimistic.

"The economic slowdown and job losses are in line with a worldwide downward trend," Finance Ministry spokesman D.S. Malik said by phone. "There may be problems in the manufacturing sector, but services are growing well. And that's why our revenue collections are doing fine." Jagdish Thakkar, a spokesman in the Prime Minister's Office, didn't answer calls seeking comment.


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