General Studies Paper 3 (Indian Economy): Underemployment


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Syllabus: General Studies Paper 3 (Indian Economy)


While low employment generation is a concern today, it is the underemployment which is becoming a sticky problem that must be tackled effectively. Elaborate. Also, provide some measures to handle this precarious situation.



Unemployment occurs when a person who is actively searching for employment is unable to find work. As per Centre for monitoring Indian Economy (CMIE) there are 31 million unemployed Indians looking for jobs. Whereas, Underemployment is a situation where there is a mismatch between the employment opportunities and the skills and education level of the employees.



NITI Aayog in its 3year action agenda has stated that not unemployment but a “severe underemployment” is the main problem facing the country.

Why low employment generation is a concern?

  • The window of demographic dividend becomes lost opportunity.
  • Unemployment significantly reduces a person’s income and this can damage the prospects of the next generation
  • Low unemployment has negative implication on both economic growth and development.


Underemployment is a sticky problem:

Reason for underemployment:

  • Low job creation-
    • Enough high level/ technical jobs are not being created leading to underuse of potential of manpower – PhD/MSc candidates applying for clerical jobs.
  • Faulty agricultural policies-
    • leading to underemployment in agricultural sector, here workers out number jobs.
  • Frequent technological upgrades-
    • Jobs being replaced by technology pushing people to low end jobs which are not replaced by tech yet. E.g. ATMs made the position of bank tellers redundant. These were entry level finance jobs, Finance grads now settle for any clerical jobs leading to their underutilization.
  • Competition for limited Jobs-
    • Too many people competing for limited jobs leading to them settling for low paying jobs.


Severity of underemployment – Sector wise impact:

  • Agriculture sector:
    • As per an NSSO survey, in 2011-12, 49% of the workforce was employed in agriculture but the sector contributed only 17% of GDP. Hence, underemployed persons are putting a huge burden on Agriculture with low outputs, lowering per capita income, high wastage of human resources, fragmentation of Agriculture land holdings, etc.
  • Services sector:
    • According to 2006-07 NSSO survey of service firms, the 650 largest enterprises accounted for 38% of services output but only employed 2% of service workers. This reflects the high underemployment prevalent in smaller firms, hence becoming stagnant and unproductive in the long run.
  • Manufacturing sector:
    • In 2010-11, firms with less than 20 workers employed 72% of manufacturing workforce but contributed only 12% of manufacturing output. Thus, high prevailing underemployment in the manufacturing sector results in low contribution to the GDP, low exports, high import dependence.


Overall impact on the economy:

  • The growing challenge of labour displacing technologies like machine learning, farm mechanization, artificial intelligence, robotics, ICT, etc. are making more and more workers underemployed.
  • Growing redundancy of skills of workforce with rising demands and complexity of the jobs in the wake of globalization and rising competition.
  • Absence of alternate jobs with gainful employment makes the problem of underemployment chronic in nature. Thus, unemployment and underemployment reinforce each other.
  • Underemployedworkersinlowpaidandlowskilledjobsresultsindemotivation which adversely affects the productivity and competitiveness of firms.
  • Impedes human development:
    • Low paying jobs result in lower spending on health, education and social security, thus, stagnating the standard of living of the people.


Government initiatives for Underemployment:

  • Creation of Coastal Employment Zones
    • Niti Aayog in its ‘Three Year Action Agenda’ recommended for the creation of a handful of Coastal Employment Zones (CEZ), which may attract multinational firms in labor-intensive sectors from China to India.
    • The presence of these firms will give rise to an ecosystem in which local small and medium firms will also be induced to become highly productive thereby multiplying the number of well-paid jobs
  • Import-substitution strategy
    • Focus on the domestic market through an import-substitution strategy would give rise to a group of relatively small firms behind a high wall of protection.
    • Import substitutionrefers to the use of domestic products to replace imported goods
    • Import substitutionpolicies were adopted by many developing nations from the 1930s until the late 1980s.
  • The Make in India initiative
    • The ‘Make in India’ campaign was initially launched to boost the deprived manufacturing sector of India.
    • The campaign thus needs to succeed by manufacturing for global markets, leading to high and low end jobs.
  • Reforming labor laws
    • India have about 85 -90 % of the workforce employed in informal sector on which these laws are not applicable. These are micro firms employing as low as 5-10 persons.
    • This includes standards on minimum wages, working conditions, overtime controls, right against unjustified retrenchment, strengthening of Labor unions, Right of worker to compensation in case of accident at work place, post-retirement benefits, Personal progress, skill development, Social security and Dignified and respectful job.         
  • Amendments in Apprenticeship Act
    • In apprentice system, trade workers, engineers (both diploma holder and graduates), 10+2 passed vocational students, need to undergo training in industry to enhance their skill.
    • Apprentice Protshan Yojana and the Effective Implementation of revamped Rashtriya Swasthaya Bima Yojana (RSBY) for labour in the unorganized sector were also launched.


Measures to tackle growing underemployment:

  • Extracting the excess workforce in agriculture sector and employ to other sectors like food processing and manufacturing sectors wherein long term gainful employment can be provided.
  • Insuring auto-congruence between job requirement and skills of the workers. Government can incentivize and provide tax benefits for periodic upgradation of skills.
  • Improving the market relevance of skill development programs.
  • With China’s ageing workforce, the NitiAayog has stressed on attracting big firms working in that country to India, which has availability of large workforce at competitive wages.
  • Coastal employment zones to boost export led labour intensive manufacturing
  • Reforming labour laws to hinder casualisation of labour force and encourage formalization to extract optimal productivity of labour.



The experience of countries that managed to transform rapidly, such as South Korea, Taiwan, Singapore and China, shows that the manufacturing sector hold the key to the creation of well-paid jobs for low and semi-skilled workers. Under the Make in India scheme, Manufacturing sector must employ the excess and underemployed labour force in other sectors, along with providing incentives like lowering Corporate tax, providing low interest loans, etc to tackle the intertwined problems of unemployment and underemployment effectively.


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