Self-employment leads to drop in unemployment in India

The International Labour Organisation (ILO) report highlights significant shifts in India’s employment landscape, revealing a noteworthy rise in self-employment and a consequent decline in unemployment. This trend raises the question: Is this surge in self-employment driven by a genuine entrepreneurial spirit or merely a coping mechanism for job loss?

Long-Term Employment Trends and Recent Improvements

Between 2000 and 2019, India experienced long-term deterioration in the labour force participation rate (LFPR), workforce participation rate, and unemployment rate. However, post-2019 data indicate a positive reversal. The India Employment Report 2024 by the ILO and the Periodic Labour Force Survey (PLFS) show an uptick in self-employment and a corresponding decline in unemployment rates.

NIPFP professor Lekha Chakraborty suggests, “The PLFS indicates that unemployment has declined due to an increase in self-employment. We need further analysis to determine if this is due to coping mechanisms or a rise in entrepreneurship.”

Impact of Self-Employment

The India Employment Report 2024 reveals that nearly two-thirds of incremental employment post-2019 comprises self-employed workers. For instance, the urban unemployment rate decreased to 6.7% in January-March 2024 from 6.8% the previous year, and the female unemployment rate dropped to 8.5% from 9.2%. Furthermore, the national unemployment rate fell to a multi-year low of 3.2% in 2022-23, with a significant increase in self-employment.

A senior analyst at India Ratings and Research noted, “There has been an uptick in the self-employed category, and employment in the agriculture sector remains higher than pre-pandemic levels.”

Labour Force Participation and Economic Growth

The LFPR in urban areas rose from 48.5% to 50.2% between January-March 2023 and the same period in 2024. Female LFPR in urban areas also increased to 25.6%. Between 2000 and 2012, India’s employment grew at 1.6% annually, while gross value added (GVA) grew at 6.2%. This disparity intensified between 2012 and 2019, with GVA growing at 6.7% and employment growth stagnating at 0.01%. Post-2019, employment growth has outpaced GVA growth, particularly in agriculture.

Sectoral Employment Trends

From 2019 to 2022, employment and GVA in manufacturing grew by 3% and 3.5% annually, respectively. The service sector emerged as the major employer of youth in 2022-23, with a 32.7% share, followed by agriculture at 32.4%. The construction and manufacturing sectors also saw substantial youth employment.

The CEDA of Ashoka University highlights that young men are more engaged in construction, while young women are more likely to work in services and manufacturing compared to their working-age counterparts.

India’s workforce is predominantly self-employed or casually employed, with nearly 82% engaged in the informal sector and 90% informally employed. The ILO report indicates that the share of informal sector employment has increased due to recent employment growth patterns.

The estimated total employment in nine selected sectors, including manufacturing, construction, trade, transport, education, health, accommodation & restaurants, IT/BPOs, and financial services, reached 3.185 crore during April-March 2022, marking a slight increase from January-March 2022.

This evolving employment landscape underscores the need for deeper analysis to discern whether the rise in self-employment reflects a resilient entrepreneurial trend or a survival strategy amid economic challenges. The continued monitoring and support for both self-employed individuals and broader employment sectors will be crucial for sustained economic growth and stability in India.