New Delhi, Sept. 9 -- India, the seventh-largest country in the world by land area, has now become the most populous nation, surpassing China, with its population estimated to reach nearly 1.5 billion in 2025 (State of World Population 2025, UNFPA). One of the significant implications of an increasing population would be rapid growth in the labour force, underscoring the challenges of creating matching employment opportunities within the economy. India can benefit from the young labour force and encash the 'demographic dividend' only by creating sufficient employment opportunities and preparing the labour force for the changing demands of the labour market.
However, several challenges emerge in generating adequate employment to match the rapidly increasing aspirations of the young population, risking the transformation of this demographic advantage into a 'demographic burden'.
In the economic literature, the correlation between output and unemployment can be found in the empirical studies of American economist Arthur Okun, who first proposed the relationship between economic growth and unemployment in 1962, which is famously known as Okun's Law.
Theoretically, Okun's Law states that a 1% increase in unemployment is associated with a 2% drop in output or gross domestic product (GDP) from its potential level. The dwindling growth estimated in 2024-25 in the Gross Value Added (GVA), led by the manufacturing sector, along with the financial, real estate, and professional services sectors, does not bode well for employment. This is concerning, as the secondary and tertiary sectors help absorb seasonal unemployment resulting from the primary sector, particularly agriculture.
The Periodic Labour Force Survey (PLFS) released by the Ministry of Statistics and Programme Implementation (MOSPI), Government of India (GoI), for 2024, indicated that no significant gains have been achieved in improving the labour force participation rate, worker population rate, or in bringing down the unemployment rate during 2024. The unemployment rate at the all-India level increased from 3.1% in 2023 to 3.2% in 2024.
The PLFS for May 2025 reveals that the unemployment rate in the Current Weekly Status (CWS) rose to 5.6% in May 2025 from 5.1% in April 2025, primarily due to seasonal agricultural patterns, among other factors. This would further have negative implications, as a reduction in disposable income or purchasing power leads to a lower level of consumption and investment expenditure. Furthermore, this could have led to a lower level of inflation as a result of dwindling consumption demand, as evident from the subdued consumption expenditure share in GDP.
Also, the EPFO data indicated that the net payroll recorded a -5.07% and -1.29% growth rate in 2023-24 and 2024-25, respectively, highlighting an underwhelming outcome in increasing the formalisation of the job market in the organised sector. It also suggests a failure to create quality jobs that ensure job security and other social benefits. Despite employment in the informal sector growing by 10% during the period October 2023 - September 2024 (Annual Survey of Unincorporated Sector Enterprises (ASUSE) Results for 2023-24), there would be limited consumption capacity due to lower and unstable income, fewer social security measures, and lack of access to easy credit facilities.
In this context, it is essential to increase labour productivity through upgrading the skill sets of employees and the effective utilisation of technology to meet the rising and rapidly changing demands of the job market. Institutional focus on optimising available technical, financial, and labour resources should also be encouraged to achieve the desired objectives. Necessary and adequate reforms in labour laws, without undermining the rights of workers, along with ensuring protection from unfair labour practices, would be helpful in improving workplace standards and the quality of employment.
According to Keynesian theory, an increase in government spending to reduce unemployment leads to higher incomes, which in turn boost consumption and investment. This drives economic growth through the multiplier effect. Various schemes proposed in the Union Budget 2025-26 would be instrumental in creating employment opportunities. The budget focuses on increasing investment in the infrastructure sector in 2025-26 by allocating more than INR11 lakh crore through capital expenditure. Capital expenditure directed towards acquiring long-term fixed assets, building public utilities such as roadways, hospitals, and bridges, and other expenses towards research and development, defence and security, and energy infrastructure has huge potential for generating formal and informal jobs.
However, the pruning of capital expenditure by 8.34% in the revised estimates (RE) of 2024-25, over the budget estimates (BE) of 2024-25 is a worrisome factor. Besides, a reduction in expenditure on the revenue account by more than INR11,000 crore as per the RE of 2024-25 over the BE of 2024-25 indicates limited prioritisation by the government towards generating large-scale employment in the public sector going ahead. That said, it would be pertinent to pursue rapid economic growth while eschewing the curse of 'jobless growth', which increases inequality and fosters poverty.
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Published by HT Digital Content Services with permission from TechCircle.