DECEMBER 2024 GS3 DAW
Q2. How does the slow pace of economic growth contribute to the persistently high levels of
unemployment in India, and analyse the negative consequences of this trend on the country's
overall economic health. (150 words, 10 marks)
Approach
Introduction: Write contextual introduction on economic growth.
Body:
• Explain how does the slow pace of economic growth contribute to the unemployment in India.
• Explain the negative consequences of this trend on the country's overall economic health.
Conclusion: Conclude appropriately.
Introduction: Jobless economic growth refers to economic growth that does not lead to a proportional
increase in employment opportunities, and this condition leaves the unemployment persistently high
despite expansion. In India, unemployment remains a pressing issue, with recent data highlighting this
trend.
• Data:
o According to the Centre for Monitoring Indian Economy, the unemployment rate rose from
7.4% in March 2024 to 8.1% in April 2024.
o NSSO's Periodic Labour Force Survey (PLFS) for 2023 reported a decline in
unemployment to 3.1%, the lowest in three years, reflecting contrasting insights into India's
labour market.
Slow pace of economic growth contributes to the high levels of unemployment in India:
• Reduced public spending: Slow growth limits government revenue, and reduces investments in
infrastructure and industries that could generate large-scale employment.
o According to IMF, a 1% rise in high-quality public investment can boost GDP by 2.7%,
provided private sector response isn't limited by debt burdens.
• Weak consumer demand: Lower economic activity leads to stagnant demand for goods and
services, which discourages businesses from expanding and creating jobs.
o The World Bank reports that consumer demand in India grew by only 3.1% in 2023,
compared to 7.4% in 2019, which indicates a significant slowdown
• Stagnation in small businesses: Micro, small, and medium enterprises (MSMEs), which are
key job providers, faces challenges like reduced demand and limited access to credit during slow
growth.
o According to International Labour Organization (ILO), MSMEs along with own workers,
account for 70% of employment worldwide
• Decline in private investments: Slow growth makes private firms hesitant to invest in new
ventures, leading to fewer employment opportunities.
• Limited opportunities in manufacturing: The slow growth of the manufacturing sector prevents
the absorption of unskilled and semi-skilled workers.
• Limited skill development: Sluggish growth reduces investment in education and training, which
leaves workers unprepared for modern industries and widening the skill gap.
• Reduced entrepreneurial activity: Economic stagnation makes it harder for startups and small
businesses to access capital, and limits their ability to create jobs.
• Reduced Foreign Investment: A slow-growing economy attracts less foreign direct investment
(FDI), which could otherwise boost job opportunities in various sectors.
o According to the UNCTAD World Investment Report, Foreign Direct Investment (FDI)
inflows to India saw a significant decline of 43% in 2023
• Weak growth in exports: With sluggish economic growth, India's export sector struggles to
compete globally, which results in fewer employment opportunities in export-driven industries.
o According to the WTO, India's export growth rate in 2023 was significantly lower at 2%,
compared to the 8% growth rate observed in 2019.
• Wage Suppression: In a sluggish economy, employers cut costs by reducing wages or halting
recruitment, which creates underemployment.
Negative consequences of jobless growth trend on the country's overall economic health:
• Increased income inequality: Jobless growth widens the gap between high-income earners and
the unemployed or underemployed. This condition leads to social and economic disparities.
o The top 1% received 22.6% of the national income, as per the World Inequality Database
(2022-23).
• Weakened consumer spending: With fewer people earning, household consumption reduces,
and slows down overall economic demand and further affects the growth.
• Higher public debt: Slow pace of economic growth and unemployment increases reliance on
welfare programs, and puts pressure on government finances and raises public debt levels.
o India's public debt has been rising, with the government's fiscal deficit reaching 6.9% of
GDP in FY 2022-23
• Stagnation in industrial output: A lack of job creation reduces workforce participation in the
economy, and this limits industrial and manufacturing sector productivity.
• Decline in tax revenues: Fewer jobs result in lower income tax collections and reduced economic
activity, and it affects government revenue generation.
• Brain drain: Skilled workers may migrate abroad for better opportunities, and this leads to a loss
of talent that could have contributed to domestic growth.
• Limited technological advancements: Slow economic growth and job creation discourages
investments in research and development, which reduces innovation and global competitiveness.
Conclusion: As consumption and investment have been the main drivers of growth in India in recent
times, the country’s economic revival will depend on demand generation through direct government
fiscal intervention, as well as government-aided relief and support in regulatory, fiscal, and monetary
policy areas.