India's low youth employment rate

by Mahesh Vyas

Youngsters in the age group 15 to 24 years hold the greatest promise as the source for economic growth of a nation. This is the age when people graduate from education and step into the labour markets to chart a career or at least make a living. People usually complete high school (12th standard) by 18 years of age, graduation by 21 years and post-graduation by 23 or 24 years. The transition from education to employment begins at different stages for different people during these years. In India, most people seem to make this transition after high school. Education may never end, but in the modern world, employment must begin somewhere between 15 and 24 years of age.

This transition from a world of education to a world of employment is a modern social norm in which education determines employment and employment determines our status in society. Unemployment can be a stigma, a source of social ostracization and even mental stress. In India, unemployment is still not recognised as a macro-economic problem. As a result, it is mostly seen as a personal failure and therefore a source of various forms of social isolation.

The transition from education to employment is critical in the life-cycle of a modern citizen. It carries anxieties as much as it carries hope. Just as the age-group 15-24 years is crucial to the individual, the youngsters in this age group are also crucial to an economy. An economy needs to be prepared to offer jobs to the fresh annual cohorts of hopeful youngsters who are in this transition phase. A young, energetic and freshly educated population, if harnessed well can deliver growth and savings and pave the path to prosperity. If not harnessed for long they could become a source of social tensions.

According to World Bank data, in North America, over half of the population in the age group 15-24 years is employed. The ratio of employed persons to the corresponding total working age population is called the employment rate. The average employment rate for North America was 50.6 per cent. For OECD countries it was almost 42 per cent and for the European Union it was 33 per cent. The same World Bank data places the employment rate for the 15-24 years age group for India at 23 per cent. The ratio has risen from 20.6 per cent in 2018 to 20.7 in 2019 and then to 23.2 per cent in 2020. But the ratio was much higher at 29.3 per cent in 2012 and 32.4 per cent in 2010. It was 40.5 per cent in 2005 and 43.4 per cent in 1994. This is a dramatic fall from 43.4 per cent in 1994 to 23.2 per cent in 2020.

The World Bank data provides useful comparisons between nations. It is interesting to note that China does not provide such data. This is probably the reason why the World Bank is unable to produce a world estimate for the youth employment rate. But we know from the World Bank data that in Pakistan, 38.9 per cent of the 15-24 year olds were employed and in Bangladesh, 35.3 per cent were employed. In Sri Lanka, only 24.1 per cent were employed. In the neighbourhood, therefore, India has the worst record in employing its youth.

While World Bank data are generally comparable, they are based on official statistics which have a rather relaxed definition of employment, following ILO guidelines. CMIE’s CPHS follows a more stringent definition of employment. This therefore shows a much worse employment rate for the youth. While the World Bank shows that in 2020, 23.2 per cent of the Indian youth was employed, CMIE’s CPHS shows that only 10.9 per cent of this age group was employed in fiscal 2020-21.

What is most worrisome is the very sharp fall in this ratio in the CPHS dataset during the last five years. In fiscal 2016-17, the employment rate among the youth (15-24 years of age) was 20.9 per cent. This fell to 17.9 per cent in 2017-18 and then to 15.5 per cent in 2018-19. Just before the pandemic, in 2019-20, the youth employment rate fell a little more to 14.7 per cent. Then, in the first year of the pandemic, 2020-21, India’s youth employment rate fell dramatically to 10.9 per cent. It slipped a little again in 2021-22 to 10.4 per cent.

Employment conditions are quite adverse for the youth. The 15-24 year age group has a relatively low labour participation rate (LPR). Between 2016-17 and 2021-22, while the average was 42.6 per cent, the LPR for the youth was much lower at 22.7 per cent. Yet, the youth face a much higher unemployment rate. While the overall unemployment rate averaged at 7 per cent, the youth experienced an unemployment rate of over 34 per cent.

No wonder then that the LPR for the youth is falling faster than the fall in the overall LPR. Apparently, the high unemployment rate dissuades them from joining the labour force. This is particularly true for women.

India has the world’s largest youth population. This is the demographic dividend on offer. India also has among the lowest youth employment rate. There is no dearth of capital in the world today. Ideally, India should be grabbing this rare opportunity of easy availability of labour and capital to fuel rapid growth. However, it seems to be missing this bus.

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.5 +0.1
Consumer Sentiments Index
Base September-December 2015
78.9 +0.7
Consumer Expectations Index
Base September-December 2015
77.3 +0.4
Current Economic Conditions Index
Base September-December 2015
81.5 +1.1
Quarterly CapEx Aggregates
(Rs.trillion) Dec 21 Mar 22 Jun 22 Sep 22
New projects 4.03 8.48 4.39 3.27
Completed projects 2.77 1.32 1.20 1.14
Stalled projects 0.08 0.43 0.27 0.06
Revived projects 1.98 0.32 0.29 0.07
Implementation stalled projects 0.66 0.09 0.29 0.03
Updated on: 06 Oct 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Sep 21 Dec 21 Mar 22 Jun 22
All listed Companies
 Income 27.5 23.4 20.8 40.3
 Expenses 26.7 21.3 19.9 41.7
 Net profit 55.7 35.4 30.6 20.4
 PAT margin (%) 9.6 9.0 8.8 7.3
 Count of Cos. 4,705 4,754 4,656 4,572
Non-financial Companies
 Income 35.7 29.2 24.8 50.3
 Expenses 36.1 28.8 25.7 53.4
 Net profit 58.0 19.2 9.8 7.8
 PAT margin (%) 8.7 7.5 7.6 5.9
 Net fixed assets 4.9 2.0
 Current assets 11.1 15.2
 Current liabilities 0.9 11.9
 Borrowings 12.2 3.6
 Reserves & surplus 12.6 11.2
 Count of Cos. 3,398 3,443 3,382 3,354
Numbers are net of P&E
Updated on: 06 Oct 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.0 25.9
 Expenses 0.4 -3.2 24.4
 Net profit -6.2 73.6 62.9
 PAT margin (%) 2.0 4.3 8.6
 Assets 9.0 9.9 9.6
 Net worth 4.8 12.0 14.2
 RONW (%) 3.3 6.8 12.4
 Count of Cos. 32,743 31,040 6,560
Non-financial Companies
 Income -1.1 -2.0 32.4
 Expenses -0.9 -3.9 31.9
 Net profit -22.5 61.2 59.8
 PAT margin (%) 2.2 3.9 7.4
 Net fixed assets 11.4 2.3 1.9
 Net worth 2.1 10.3 14.7
 RONW (%) 4.6 7.6 13.8
 Debt / Equity (times) 1.2 1.0 0.7
 Interest cover (times) 1.9 2.4 4.7
 Net working capital cycle (days) 82 87 54
 Count of Cos. 25,923 24,408 4,771
Numbers are net of P&E
Updated on: 05 Oct 2022 12:29PM