Indian Youth Unemployment during COVID-19?

The Indian economy was working its way to becoming a 5 trillion economy by FY 2024-25 when it suffered a catastrophe in the form of COVID-19. The atrocity bestowed itself as the 4th recession in India after its independence and 1st since India’s liberalization.

The pandemic ushered India to an abysmal state of low economic growth due to the imposed lockdown. The lockdown worsened the already low economic growth level for the 1st quarter of 2020, which stood at 3.2%. It also exasperated the high level of Non Performing Assets(NPAs), and the level of unemployment (the highest in 45 years)

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The COVID-19 pandemic had a 2-way repercussion on both the supply side and demand side.

Impact of COVID-19: Supply-side

The supply-side impact of COVID-19 represented a low level of economic activities due to the imposition of national lockdown. Many businesses were closed down, and trade disrupted. The remaining functional firms had to employ half their workforce, keeping in mind the social distancing formula.

The first month, following the imposition of lockdown, witnessed an industrial output contraction of 55.5%. It was the highest contraction in the last two decades in April.

The graph above shows the contraction in the output levels of different sectors for March and April 2020 compared to 2019.

The graph above shows the contraction in the output levels of different goods for March and April 2020 compared to 2019.

According to Bloomberg, the significant reduction in the industrial output corresponds to the nationwide imposition of lockdown. 

The country suffered from a demand shock as the income of the households dropped drastically. The fall in the household income was more than 45%, and the culprit was the retrenchment of employees from the transportation sector, the hospitality sector, and other corporate sectors.
Nationwide lockdown resulted in the seizing of transportation, resulting in a loss of 95% revenue by Ola Cabs, Uber, and so on, indicated by Liver mint. The tourism industry suffered a loss of INR 15,000 crores, reported by the Hindustan Times. According to the Economic Times, the Live events industry saw a loss of INR 3,000 crore due to a lack of demand.

Impact of COVID-19: Demand-side

The country suffered from a demand shock as the income of the households dropped drastically. The fall in the household income was more than 45%, and the culprit was the retrenchment of employees from the transportation sector, the hospitality sector, and other corporate sectors.

National lockdown resulted in the seizing of transportation, resulting in a loss of 95% revenue by Ola Cabs, Uber, and so on, indicated by Liver mint. The tourism industry suffered a loss of INR 15,000 crores, reported by the Hindustan Times. According to the Economic Times, the Live events industry saw a loss of INR 3,000 crore due to a lack of demand.

Keyne’s law suggests that demand creates its supply. The Keynesian aggregate demand theory indicates that changes in aggregate demand will affect the real GDP and employment level of any country. Hence, a drop in aggregate demand resulted in a drop in real GDP and employment level.

This 2-way impact caused by the COVID-19 has led to an increase in the Indian unemployment rate.

The above unemployment graph indicates that the unemployment rate rapidly increased after the imposition of lockdown. It was only after the relaxation of lockdown that the unemployment rate started falling.

However, the most severe impact was on youth employment. A staggering rise in the unemployment rate among the youths aging between 20 and 30 years has been seen. A report by the Centre for Monitoring Indian Economy announced that around 27 million youths of the age group 20-30 lost their jobs in April 2020.

People of the age group 25-29 years constituted 11.1% of the total employed workforce in FY 2019-20. However, in April 2020, 14 million of them lost their jobs, contributing to 11.5% of the unemployed. Thirty-three million people belonging to 30-39 years were among the significant job losers. Out of which 86% were men and the remaining women.

The early loss of jobs will drastically affect the youths exacerbating their careers. A direct repercussion of this will be a postponement of their careers for at least a year. Furthermore, the workforce competing next year will be adding up to the competition with fresh 10-12 million youths. With a scarcity of jobs and such high job seekers, the unemployment rate is bound to be high, impacting the youth mentally and economically.

Adding to the misery is debt delinquency. The term describes a situation where the households cannot pay their previous debts due to a lack of income and savings caused by the loss of jobs. Lack of savings will further have implications like low demand, low investment, and low employment. All together contributing to the vicious cycle of poverty.

Role of the Government in curbing the unemployment rate?

• The economic package of 20 lakh crores announced by the Finance Minister, Nirmala Sitharaman, included 40,000 crores to the MGNREGA scheme to employ the rural people to develop the rural economy. It is expected that there would be an employment surge of around 10-12% because of this initiative. 
• Indian Prime Minister Narendra Modi introduced the Garib Kalyan Rojgar Abhiyan (GKRA) to employ the rural and migrant workers of 116 districts of the six states viz. Bihar, Madhya Pradesh, Uttar Pradesh, Rajasthan, Jharkhand, and Odisha. He stated that the rural talent who migrated to the urban areas for work has returned. Providing them employment near their place will lead to a reduction in employment rate and result in the development of rural villages. 
• The stimulus package announced as a part of the economic package in the form of loans to MSMEs and other enterprises aims to boost entrepreneurship and create urban jobs. Young entrepreneurs will benefit from this scheme. As these entrepreneurs grow more jobs will be created in the country. 
• The announcement of the PSUs’ privatization will further lead to the acquisition of new and intellectual talents in the form of youths in India.

These measures are intended to curb youth unemployment in India caused by the pandemic COVID-19. 

Suggestion – Road Ahead

The effects of a pandemic last even after it is over. It might not be possible to employ all the people who have lost their jobs due to COVID-19. The problem of debt delinquency will continue to exist, and the only way to eradicate this is to provide relief to the loan bearers for at least a year. It will help them to accumulate some income, hence reducing the possibility of a debt trap.

Meanwhile, the government could reimburse funds to the jobless youths to sustain their living and consequently propel the economy’s aggregate demand. Also, reducing the income tax for the middle-class youths will increase purchasing power and, ultimately, greater aggregate demand. This will have a multi-fold increase in employment generation.

Accompanying the stimulus package, the government should also conduct vocational training and entrepreneurship programs, which will serve as a catalyst for employment creation and skill development among the youths.

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