Unemployment in India

Unemployment in India

Unemployment in India is a very major challenge required to be managed by any government which hopes to stay in power. Continuing in our series of ‘Economics made Easy’ this blog by Aviral Bharadwaj studies the above topic.

What is Unemployment?

A person who is willing and able to work and is actively seeking work but does not get a job is considered as unemployed. Unemployment rate is the ratio of the number of unemployed persons divided by the total labour force. All countries strive to ensure low rate of unemployment because a high unemployment rate can cause serious social problems, including a rise in the crime rate. Central governments and the central bank make efforts to reduce unemployment. As per latest available data unemployment rate in India is 4.9%.India has a very large and young population which is capable of fuelling India’s growth at a rapid rate. This aspect is often called as ‘India’s demographic dividend’. However, if jobs are not created at a pace needed by the population then India can suffer serious problems.

Major Causes of Unemployment


Seasonal Unemployment

This is a type of unemployment created by seasonal nature of work. Examples:
Farming has the cropping and harvesting seasons when the employment of labour is high. At other times the labour requirement is much lower.
Tourism in hill stations flourishes in the spring and summer seasons. The need for services like hotels and taxis is high only in the tourist season.

 Frictional Unemployment

It takes a fresh educated person some time to get a job- the process of applying for a job, interview and placement. The reason for the person being unemployed is called frictional unemployment. It also includes persons who shift jobs.

Structural Unemployment

Structural unemployment occurs when there is a mismatch in the skills of the workers and that required by the employers.  Examples:
When BPO jobs came to India from US, the persons performing the jobs in US became jobless and had to learn new skills to get employed. Automation has reduced certain jobs. Cheap Chinese electrical goods have finished the jobs of workers in such industries in India (which closed down).

 Disguised Unemployment

Often in developing countries where the GDP growth is low there is disguised unemployment. It means that work force is engaged but production is zero. In India 49% of the population is engaged in agriculture sector, contributing only 16% to the GDP. At least 39% of the population can be easily shifted to other sectors with no fall, or maybe even increase in output! This is the biggest problem confronting India, resolution of which will increase rural income and accelerate GDP.

Mahatma Gandhi National Rural employment Guarantee Act-2005 (MNERGA)-Highly Inefficient but Effective 

The Government of India has taken several steps to lower unemployment. One very effective scheme is the MNREGA which guarantees a 100-day employment to an unemployed person in an year. It has been implemented in 200 districts and is to be further expanded to 600 districts. In keeping with the trend of Congress policies MNERGA provides great scope for corrupt politicians-bureaucrats to make black money. Despite that it is the single biggest policy which has helped check rural unemployment. With reduction in corruption it can be even more successful.

Measures to Reduce Unemployment

Some measure suggested to reduce unemployment are:
Improve education and skill level of the population to become employable in manufacturing and services.
Massive government expenditure is needed on infrastructure to create more jobs.
Promote establishment of industries and services to create more jobs. The present government is focused on the issue.
Improve ease of doing business by improvements in the following:

  • Land acquisition law.
  • Labour laws.
  • Taxation policy.
  • Improve infrastructure and bureaucratic red tape to attract FDI.
  • Promote tourism, improve internal law and order situation and improve relations with neighbours to promote business growth.


By 2022, the average Indian’s age would be 29, compared to 37 for China and the US, and 45 for Western Europe. Indians would be in a position to provide the work force not only for India but for the world. This ‘demographic dividend’ can only be reaped if India takes the above actions fast!

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp

Leave a Reply

Your email address will not be published. Required fields are marked *

Post comment