Mint Explainer: The resurgence in India’s job market—and the scepticism

The rate of job creation was “sharp and the strongest seen since data collection started in March 2005", showed the survey for manufacturing.

Similarly, the survey for the services sector noted that the pace of job creation was marked and the strongest in 22 months. “Anecdotal evidence highlighted a mixture of short-term and permanent hires for junior-, medium- and senior-level positions," said the early July statement by S&P Global, which conducts both surveys.

The Reserve Bank published a provisional job report last week showing that India had created 108.9 million between fiscal years 2019-20 and 2023-24. Economists, however, are sceptical, wondering how the country managed to add jobs during the pandemic years. 

Mint explains what these findings mean for India's job environment.

How is India's job market doing?

India’s unemployment rate climbed as job creation didn't keep pace with the labour force expansion. The covid-19 pandemic led to large-scale job losses in the formal and informal sectors. 

Citigroup economists kicked up a storm when they wrote in a report that the country would struggle to provide sufficient employment opportunities over the next decade, even if its economy expanded at a rate of 7%. They wrote that with a 7% annual growth, India will manage to generate about 8-9 million new jobs every year, against the demand of 12 million.

Also read: RBI’s jobs data has economists baffled, spurs a quantity versus quality debate

However, the government rebutted Citigroup’s report, saying the Periodic Labour Force Survey (PLFS) and the Reserve Bank of India's KLEMS (capital, labour, energy, material and services) data showed that India created 80 million jobs between 2017-18 and 2021-22, meaning 20 million new jobs every year. 

The government said this was supported by an increase in the number of subscribers to the Employees’ Provident Fund Organisation and the National Pension System, as well as estimates of the Indian Staffing Federation.

Is PMI a good indicator of shifts in the job environment?

The PMI is a leading indicator of business conditions. It gives indications of changes occurring in an economy much before the release of macro indicators such as national accounts, industrial production and inflation, enabling businesses to plan for changes in demand. 

The trends are captured almost in real-time through the monthly surveys. S&P Global reaches out to a panel of 400 industrial companies and 400 service sector companies across India every month to compile the HSBC Bank-sponsored India series of the PMI for manufacturing and services.

The June surveys suggest a recovery in manufacturing and an upturn in the services sector, with the PMI for manufacturing and services rising to 58.3 and 60.5, respectively. In May, the heatwave hampered business activities in most parts of the country.

Also Read: Shrinking informal economy rings alarm bells for jobs in India

The manufacturing survey found that buoyant demand conditions spurred the expansions in new orders, output and buying levels. “Concurrently, firms raised employment at the fastest rate seen in more than 19 years of data collection," said S&P Global in a statement for manufacturing PMI.

Parallelly, there was a sustained upturn in the service sector output, with the rate of expansion quickening from May’s five-month low on a rise in new orders and an unprecedented expansion in international sales, said the statement for services PMI. It added that staffing levels increased at the fastest pace since August 2022, as short-term and permanent staff were taken on to support the new-order pipeline.

So where are the jobs?

The rise in factory employment was widespread across consumer, intermediate and capital goods sub-sectors, with consumer goods makers leading the growth in jobs, suggests additional insight shared by S&P Global with Mint from the June surveys.

In the services sector, job growth was the strongest in transport and storage, and information and communication, followed by consumer services. The rise in hiring in finance and insurance, and real estate and business services was relatively modest.

The purchasing managers alone are not reporting a pick-up in hiring. A recent employment outlook report from the staffing services provider Teamlease Services, too, found more than 6% annual rise in hirings across 23 industries in the first half of 2024-25. It surveyed 1,417 employers across 20 cities and found positive hiring sentiments—about 56% of the respondents expect their workforce to grow in the coming months, while just 21% foresaw a decline.

Employers in industries such as healthcare, pharma, automotive, manufacturing, engineering and infrastructure indicated plans to hire more hands while the largest growth in the workforce was seen in construction and real estate, travel and hospitality, and EV and EV infrastructure.

What is driving this improvement?

India’s economy grew at a rapid pace of 8.2% in real terms in 2023-24, registering a 7.8% growth in the March quarter. The RBI estimates that the economy will expand by 7.2% in 2024-25, with a 7.3% expansion in the June quarter. 

The central bank noted that the domestic economic activity was maintaining resilience, with manufacturing activity continuing to gain momentum on the back of strengthening domestic demand. India’s exports have also posted robust growth in recent months.

Also Read: Developing nations need jobs, not factories. Here’s how the state can help.

Professional forecasters surveyed by the RBI also raised their estimates—though less optimistic than those of the central bank—for 2024-25 growth. Consumer confidence, too, is elevated, with their spending expected to rise in the year ahead.

However, confidence on the employment front saw some deterioration.

What is the outlook of the corporate sector on growth?

The forecast of an above-normal South-West monsoon has raised hopes for a revival in rural demand, which remained subdued in 2023 due to below-normal rainfall. Market researcher Crisil estimates that the fast-moving consumer goods sector will grow 7-9% this fiscal. 

Companies are already reporting an improvement in rural demand for a range of consumer goods. The demand for automobiles has also improved in rural areas.

The rising demand for goods and services and consumers' willingness to spend more should result in the creation of more jobs across many sectors.