India’s infrastructure boost isn’t going to solve its job problem: Economists

India is ramping up its infrastructure spending, a government move that will create much-needed jobs.

In its annual budget announcement in February, the finance ministry said it would raise capital spending by 33% to 10 trillion rupees ($120.96 billion), as India is set to become the world’s fastest growing economy.

However, economists who spoke to CNBC were not optimistic. He said the number of jobs that could be created from increased infrastructure investment may be less than the government had hoped.

The government’s focus is “very wrong” and its policies are “definitely against the generation of the workforce,” said Arun Kumar, a retired economics professor from New Delhi’s Jawaharlal Nehru University.

“Capex is not the answer, but how capex will be spent,” Kumar said, highlighting that not enough money is being pumped into creating “labour-intensive” projects in India.

Employment in India is divided into various sectors: organized and unorganized.

Businesses in the regulated sector are often licensed by the government and pay taxes. Employees are usually full-time staff and have a consistent monthly salary. Companies in the unorganized sector are usually not registered with the government and employees work ad hoc hours with irregular salaries.

When people in India are “too poor to work,” it will lead to “cross jobs” with low incomes such as driving rickshaws, carrying luggage, or even selling vegetables on the street, Kumar said.

According to Kumar, the organized sector makes up only 6% of India’s workforce. On the other hand, 94% of jobs are in the unorganized sector – with half of the jobs in agriculture.

As India’s infrastructure sector becomes more dependent on technology and automation, the future boom in jobs will create jobs for the organized sector, Kumar said. There is a lack of investment in the unorganized sector, so many are stuck with unstable jobs with no fixed income.

Those working in agriculture are also “stuck” with low wages as inadequate investment leaves little room for upskilling, Kumar said.

High unemployment remains a challenge for India, and has been one of the biggest criticisms of Prime Minister Narendra Modi’s government.

According to the Center for Economic Monitoring of India, an independent think tank, unemployment rose to a 16-month high of 8.3% in December 2022, but fell to 7.14% in January.

CNBC reached out to the Finance Ministry and is awaiting a response.

A more technologically advanced infrastructure sector also means fewer jobs will be available for those in the organized sector, said Chandrasekhar Sripada, professor of organizational behavior at the Indian School of Business.

“The new generation of manufacturing is not labor intensive. The number of jobs that can be created at the unit level will not be as high as it used to be,” said Sripada. “In the 1950s, if we built a steel plant, we would employ 50,000 people. But today … we would employ 5,000 people.”

Sentiment in India’s labor market remains weaker than some countries in the region due to skill mismatch.

India’s labor force participation rate – or the sum of the active workforce and people looking for work – will reach 46% by 2021, according to data from the World Bank. That is lower than some other developing countries in Asia, such as 57% for Bangladesh and China with 68% in the same year.

The female labor force participation rate has also fallen from 26% in 2005 to 19% in 2021, data from the World Bank shows.

“We have seen an inexplicable decline in women’s participation in the workforce during Covid,” Sripada said. “Caregiving responsibilities on women are only increasing and many are out of the workforce, and may continue to be drunk.”

Even young people with college degrees struggle to find work.

Youth unemployment, or those in the labor force between 15 and 24 without a job, will be 28.26% in 2021 – 8.6% higher than in 2011.

Many young people living in rural areas are “semi-educated” because they have a degree but are not skilled enough to get a job, Sripada said. It is also a challenge for employers to create jobs that target them, he added.

“We have enough colleges to provide bachelor’s degrees, but those degrees … don’t prepare us with enough skills to get jobs,” he said.