India will fail to plug jobs gap even with 7% growth, says Citi

India will struggle to create enough jobs for its growing workforce over the next decade even if the economy grows at a rapid pace of 7%, Citigroup Inc. said, suggesting the world’s most-populous nation will need more concerted steps to boost employment and skills.

Citi estimates India will need to create about 12 million jobs a year over the next decade to absorb the number of new entrants to the labor market. Based on a growth rate of 7%, India can only generate 8-9 million jobs a year, the bank’s economists Samiran Chakraborty and Baqar Zaidi wrote in a report this week.

The quality of jobs being created in India is another challenge, the economists said. An analysis of the official data showed about 46% of the workforce is still employed in agriculture, even though the sector contributes less than 20% to gross domestic product. Manufacturing accounted for 11.4% of total jobs in 2023, a lower share than in 2018, the figures show, a sign that the sector hasn’t bounced back since the pandemic.

Also, fewer people are employed in the formal sector now than before Covid — the share was 25.7% in 2023, the lowest level in at least 18 years, Citi said. Only 21% of the workforce — or about 122 million people — in India have jobs that pay a salary or wages, compared with 24% before the pandemic. More than half of the 582 million workers in India are self-employed, the figures show.

India’s joblessness, especially among young people, was a key concern among voters in recent elections and was cited as a reason for the drop in support for Prime Minister Narendra Modi’s ruling party.

The official unemployment rate of 3.2% underestimates the scale of the problem, with most economists relying instead on data from the Centre for Monitoring Indian Economy, a private research firm, which put the jobless rate at 9.2% in May, the highest in eight month. For those aged 20-24, the rate is more than 40%, according to CMIE figures.

Citi’s economists propose a series of measures to boost jobs in India, such as strengthening the export potential of manufacturing sectors, extending incentives to attract foreign companies and filling up about 1 million government vacancies. The government also needs to consolidate multiple employment generation programs for better impact, the economists said.