India’s unemployment challenge can’t be tackled by doles as usual

livemint.com:

unemployment rate when combined with the increase in population clearly shows that a far larger number of people are looking for work than in the past. What could be the cause of this seeming paradox? A conventional explanation has been that India’s demonetization of high-value currency notes in November 2016 followed by GST implementation in mid-2017 delivered a shock to the economy, particularly its informal sector. This shock is said to still persist, causing the high unemployment rate; improved GST collections are then attributed merely to improved performance of the organized formal sector.

It has also been argued that demonetization and covid both caused substantial reverse migration from urban to rural areas, and resulted in increased dependency on agriculture. However, neither of these explanations is borne out by the data. The problem with the first argument is that the number of people identifying as being ‘self- employed’ is higher now than in the past.

Students of economics know that there are three categories of self-employed workers: own account workers (i.e., those who work for themselves); employers; and workers in household enterprises. Own-account workers and employers can be considered a proxy for informal sector enterprises. In 2011-12, 52.2% of workers described themselves as being self-employed.

In 2021-22, this figure had increased to 55.8%. Moreover, this characteristic remains broadly the same across the two periods even if we restrict ourselves to those identifying as own-account workers or employers. If we take into account the increase in population between 2011-12 and 2021-22, the data suggests that there would have been a significant rise in the number of informal establishments.