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"Will slow economic growth dry jobs?"
On February 7, 2013, the Indian government announced that economic growth will fall to five percent in the current fiscal year, which will end in March 2013.
The slow economic growth is driven by a sharp decline in the manufacturing and agricultural output. Currently, India is facing a number of problems, including fiscal deficit and rising inflation. These have led to a decrease in investments in the country, affecting the job market as a result.
Investments in a country are low when the future of that country looks bleak. This is the case with India. Foreign and local investors are not pumping in more money into the economy, and experts predict that the unemployment rate in India will increase from 9.3 percent (in 2012) to 9.4 percent this year.
Studies show that between 2005 and 2010, less than three million jobs were created in India. This puts immense pressure on the employment rate because close to 12 million people enter the workforce every year, and the Indian market is unable to absorb the growing talent in the country.
On the other hand, emerging economies such as Brazil, China and South Africa have been able to transfer workers from the agricultural sector to the manufacturing sector.
In fact, China managed to transfer close to 150 million people from the agricultural sector to the manufacturing sector, but India has not been able to do so, forcing the share of the GDP attributed to the manufacturing sector to stagnate at 16 percent.
Growth of the manufacturing sector is essential for unemployment rates to fall; in fact, experts predict that for every one percent growth in manufacturing sector, around 20 to 30 million jobs are created. Sadly, the current economic slowdown in India, aggravated by the flawed redistribution of resources, has a huge impact on the country’s employment rate.
In order to make the economic growth more inclusive in nature, the government should invest money into the manufacturing sector. This can be done by eliminating the barriers to entry for new companies and by eradicating structural defects present in the sector. Since India faces both labor shortage and high unemployment, it is time for the government to come up with solutions to increase literacy rates in the country so that more people can join the workforce.
A slow economic growth in India will definitely dry the job market. However, if steps are taken by the government to boost the growth of the manufacturing sector, through the National Manufacturing Policy or by providing incentives for manufacturing companies to invest in India, we may be able to address two issues simultaneously – high unemployment rate and slow economic growth.