India’s Manufacturing Ambitions may Stumble due to the Young People Engaged in Farming

According to The Wall Street Journal, despite having a large population and seemingly endless opportunities, India is struggling to fill manufacturing jobs, as many young people remain stuck in rural areas.

Due to the impact of the COVID-19 pandemic and India’s Prime Minister Modi’s food welfare program, the number of agricultural laborers in India has increased by approximately 60 million in the past four years. Even in 2023, when the country has recovered from the pandemic, the agricultural workforce in India increased by 13 million.

In countries with a demographic dividend, young laborers typically flock to factories, contributing to the growth of the manufacturing sector. However, in India, the situation is the opposite. The report points out that instead of rural laborers migrating to manufacturing, it seems as if they are destined to continue on the path of agriculture, hindering the country’s industrialization.

In fact, since 2019, the agricultural workforce in India has been steadily increasing. “This is catastrophic: You see millions going back to agriculture,” said Santosh Mehrotra, a development economist and visiting professor at the University of Bath. “It is the reversal of the structural change that is happening in our economy.”

India, as one of the world’s fastest-growing emerging economies, is deviating from the expectations of many economists regarding its development path. While Prime Minister Modi advocates for the revitalization of Make in India, the growth of manufacturing has not met expectations and cannot become the primary sector for job creation in the short term.

To persuade these young people to join the manufacturing sector for Make in India, what measures should be taken?

Farming is better than working in factories

21-year-old rural college student Kumar took a day and night train journey from his rural hometown to Mumbai to join his sister’s family. He aspires to move to the city and find a job in a factory to support himself.

In Kumar’s hometown, there are many young people of similar age, but they prefer to stay in their local areas and engage in farming rather than going to cities. They believe that there are not many good job opportunities in the cities, and the pay is not satisfactory.

In 2020, when the COVID-19 pandemic broke out, under the lockdown policies, a large number of Indian laborers returned to rural areas from cities. At that time, many scholars considered it a temporary interlude in India’s path towards industrialization.

Now, after four years, the impact of the pandemic has subsided, but this temporary interlude has not withered. The number of agricultural laborers in India has increased by approximately 60 million, while the proportion of employment in the manufacturing sector has continued to decline.

According to Mehrotra’s data, agricultural employment in India started declining around 2005, reaching its lowest point in early 2019 at slightly less than 200 million people. However, from 2009 onwards, agricultural employment began to soar and has now exceeded 260 million, almost reaching the peak level of agricultural laborers 20 years ago. Many of them choose to work on their family farms.

Why do these young people prefer farming in their own homes rather than working elsewhere? Scholars analyzed, as reported by The Wall Street Journal, that it is India’s food welfare program that has kept young people in rural areas.

During the COVID-19 pandemic, India implemented a food welfare program covering 800 million people, providing 5 kilograms of rice or wheat per month to the poor affected by the lockdown.

Modi promoted this program as one of the world’s largest welfare projects. To sustain this program, the Indian government has to procure more wheat and rice from Indian farmers at the promised prices. In 2023, the government is expected to spend around 2 trillion rupees ($24.06 billion).

As long as they stay in the countryside and engage in farming, the government comes to purchase their crops at suitable prices. This makes many young laborers willingly stay in rural areas.

Furthermore, with the upcoming 2024 general elections in India, Modi has announced in November 2023 that the program will be extended for another five years to attract voters.

It is difficult to find a job in the city

In the countryside, you can engage in farming, but it’s not as fortunate when it comes to finding work in the city. Despite India’s rise to become the world’s 5th largest economy, with its economic growth ranking among the highest globally, most of the new jobs in urban areas are in capital-intensive industries rather than labor-intensive ones. These jobs do not provide significant help to the labor force coming from rural areas.

According to the Indian media outlet The Wire, India’s labor force (i.e., the number of employed individuals) has remained stagnant at around 400 million over the past five years. Mahesh Vyas, the CEO of the Center for Monitoring Indian Economy (CMIE), pointed out, India’s workforce is not rising in relation to its increasing working-age population.” Another set of data also reveals that India’s labor force participation rate for individuals aged 15-64 is only 51%, significantly lower than other major economies.

In addition to the low participation rate, the education level of India’s labor force varies greatly. The illiteracy rate in India still exceeds 20%, with the highest number of illiterate people globally, and there are also disparities between urban and rural areas as well as between genders. High-end manufacturing industries, such as Apple factories, still face a shortage of skilled technicians.

India’s human capital is not being effectively utilized, stated Chandrasekhar Sripada, a professor at the Indian School of Business. Most young people who migrate to cities can only engage in low-paying jobs to sustain their daily lives.

Regarding the contradictions in India’s current job market, Pronab Sen, former Chief Advisor of the Indian National Planning Commission, pointed out that young people cannot find jobs, while companies complain about the lack of talent.

In such an environment, the unemployment rate is undoubtedly high. According to data from CMIE in October 2023, India’s national unemployment rate stood at 10.05%, reaching a two-year high. The youth unemployment rate in India for the years 2022-2023 was even higher, reaching a staggering 45.4%.

Muttreja, Executive Director of the Population Foundation of India, lamented, We must create employment opportunities for the rural population, but we lack developed infrastructure, sufficient power supply, and good industrial centers.

It seems that being capital-rich and having a large workforce is not enough to become the new world’s factory.

Will the demographic dividend last only until 2041?

Indian Prime Minister Modi has always promised to create millions of employment opportunities. Since coming to power, India has introduced several incentive measures to encourage multinational companies to set up factories in the country. However, these factories have not resulted in a significant increase in nationwide employment opportunities in India.

According to World Bank data, the manufacturing sector’s contribution to India’s GDP decreased from about 17% two decades ago to 13% in 2022.

Currently, India has a total of 65 million manufacturing jobs, which is only an increase of 5 million compared to when Modi first became Prime Minister in 2014.

The Center for Monitoring Indian Economy (CMIE) analyzed that if worker skills are not improved quickly and a significant number of manufacturing positions are not created, India may miss out on the development advantage of the demographic dividend, leading to an unemployment crisis and social unrest.

India’s population will not remain young forever. Data shows that India’s working-age population is expected to peak around 2041 and then start to decline.

In some regions of India, aging has already become a phenomenon. For example, in the southern tourist destination of Kerala, there has been a significant outflow of young people. Kerala is the only region in India that is experiencing population aging. If this wave of demographic dividend is not utilized effectively, Kerala could be a microcosm of future social problems in India.

In addition to internal concerns, India also faces external challenges, as countries such as Vietnam, the Philippines, and Bangladesh are eagerly eyeing opportunities. These countries are actively seeking investment in the international supply chain shift, capitalizing on their own demographic dividends and more stable business environments, closely following behind India.

For India, opportunities are limited, and if swift action is not taken, the large population may hinder development instead.