Government of India’s annual jobs report, or PLFS 23-24, was released this week. It portrayed a worrisome situation in the employment structure. For a lower middle income country such as India, the unemployment rate is not as meaningful an indicator as it is in the US, for example. What really matters is where are the jobs being created. That’s where there’s a problem building up.

India is the fastest growing major economy. After a contraction in GDP in FY21, following the initial outbreak of Covid-19 and a national lockdown, the economy bounced back fast. The average GDP growth rate since FY22 has exceeded 8 percent, which is impressive by India’s historical standard. However, that’s where the good news ends.

Structural change is about people

At India’s stage of economic evolution, the most critical indicator of structural change is the speed at which people can be moved from the relatively poorer agricultural sector to the better off manufacturing and services sectors.

By this measure, India has been a lacklustre performer since the 1950s as the pace of movement out of agriculture has been slow.

Despite this history, the PLFS data over the last five years is troublesome because post-pandemic, some people seem to have gone back to agriculture. The slow forward movement out of agriculture has been replaced by a reversal.

The story as told by data

In 2018-19, the last pre-pandemic year for the jobs data which is collected through a July to June survey, 42.5 percent of the workforce was engaged in agriculture. From 2021-22, that percentage kept inching up and reached 46.1 percent in 2023-24.

One way of looking at it is that now 46 people of every 100 in the workforce share the approximately Rs 14 generated by agriculture for every Rs 100 of GDP.

Agriculture’s share in GDP has been fairly stagnant. That’s why it’s implausible that there’s a voluntary large-scale drift back to a sector where there’s not just less money but also a dimmer prospect of growth.

Take a related aspect of the jobs data, self-employment. In India, the scale of self-employment is a proxy for the absence of openings elsewhere. Between 2018-19 and 2023-24, the proportion of the workforce self-employed increased from 52.1 percent to 58.4 percent.

Within this category of self-employed, there was a 6.1 percentage point increase in the workforce engaged as unpaid helper in household enterprises to 19.4 percent in 2023-24.

A job growth taking place in a category without pay. It’s the segment where a significant part of the rise in jobs for women has taken place over the last few years. And in the last year there’s been a 1.4 percentage point increase in rural men engaged as unpaid helpers in household enterprises.

Manufacturing has seen a decline in its share in the total workforce. It was 12.1 percent in 2018-19 and by 2023-24, it had declined to 11.4 percent.

It’s been building up

The structure of employment in India may have regressed in the last three years, but the signs were there for three decades.

Labour intensity (number of workers employed for a rupee of capital invested in production) has been in decline since 1990s. It’s not just organised manufacturing where labour intensity has fallen, even in the informal sector there’s been a decline.

To illustrate, Azim Premji University’s report in 2018, State of Working India, worked out the number of workers for every Rs 1 crore invested after adjusting for inflation. In 1994, a factory employed 33 workers for every Rs 1 crore invested. By 2015, it had fallen to just 8 workers for an investment of Rs 1 crore.

The trend was similar even for the informal category of own account enterprises even if more jobs are created here for every Rs 1 crore of investment.

Broken link with GDP

GDP is a measure of output. Fast growth here matters a lot because it enhances the size of the economy, puts more resources in the hands of governments and creates opportunities. The last part, opportunities, is where India has a serious challenge to overcome.

The link between GDP growth and opportunities in terms of jobs outside agriculture was always weak. However, in the last three years, the link seems to have broken down, pushing people back to agriculture. Right now, no one appears to have a convincing idea on how to set things right.