Unemployment among Indian youth is transient: RBI MPC member

Unemployment is highest for younger age brackets, but it is 'transient' as Indian youths spend more time acquiring skills and trying hands at entrepreneurship, RBI Monetary Policy Committee (MPC) member Ashima Goyal has said. There is steady improvement in job creation in the country with the strong growth recovery, Goyal added. "Youth unemployment is higher for the more qualified, but they also earn higher wages. "Therefore, youths are spending more time acquiring skills and in job search," she told PTI.

Goyal was responding to a question on the International Labour Organization (ILO) report -- which showed that in 2022, the share of unemployed youths in India's total unemployed population was nearly 83 per cent. "Unemployment is highest for younger age brackets but it is transient...While they wait, they do informal work or take risks at entrepreneurship, where a few do very well," she added.

Goyal pointed out that the ILO report also shows that youth unemployment has been falling in the recent period, it was 17.5 per cent in 2019 and 10 per cent in 2023. She said that in 2022, unemployment was highest for the age group 20-24 at 16.9 per cent but was at the aggregate average for the 30-34 age group. Noting that this period (2022) includes the pandemic-related disruptions, Goyal said there is steady improvement with the strong growth recovery. "Policy can contribute the most by increasing opportunities for youth through better health, infrastructure, insurance, education and skill acquisition facilities, not by providing permanent government jobs that offer security as well as stagnation so that no work is done," she said.

Asked why is foreign direct investment slowing down, Goyal said the re-shoring efforts in advanced economies by which they are inducing capital to come back to home countries to enhance economic security is one reason. While pointing out that there is also election-induced-policy uncertainty, she said India has been correcting investment treaties (BITS) that were biased in favour of foreign capital by giving them the ability to bring cases against Indian policies in friendly foreign jurisdictions. "This needs to be accompanied by reducing delays in Indian courts thus improving the confidence of foreign capital in the Indian legal system," Goyal said, adding that Indian courts have a reputation for fairness and impartiality, but they take too long.

Asked whether India has been able to leverage the China-plus one strategy, she noted that it is difficult for India to compete with the US Treasury or the governments of other high per capita income countries, given the kind of incentives they offer. "But, we can collaborate and use 'friend-shoring' to increase participation of domestic firms in global supply chains," she emphasised.
Goyal argued that while FDI has many benefits it also has costs, so in some ways, it is better that tax-payer resources (PLI) are used more to boost domestic firms. "So, rather than pay FDI to come here, or give it special favours, it is better to work on making it more attractive for all types of firms to produce in India," she said.

Goyal added that these types of measures include further progress in ease of doing business, regulatory simplification, policy consistency, speeding up Indian courts, lowering logistics and other costs and so on. Last year, gross FDI inflows slowed marginally to USD 59.9 billion in April-January 2023-24 from USD 61.7 over the same period a year ago, while net FDI inflows fell more sharply to USD 14.2 billion from USD 25 billion.

According to Goyal, the reason was that reparations rose as FDI sent back the large profit it earned to its home country. "According to one estimate, in 2024, there will be a net outflow of up to USD 50 billion from developing countries to advanced economies because of foreign debt repayment obligations," she said. In any case, Goyal said FDI has never exceeded 2 per cent of GDP in India, while domestic investment exceeds 30 per cent, and it is better that way. "Diversification is good, and over-dependence on any one type of investment carries risks," Goyal stressed.

According to her, many large MNCs have come in and benefited from Indian markets. She said Apple has contributed to India's reversal from being an importer of mobile phones to an exporter, while Tesla is knocking at the door. Noting that these success stories and good Indian prospects will attract others, but the process takes time, she said, "We should avoid reaching hasty conclusions based on one year's experience". FDI inflows to China have fallen dramatically from a share of 12.5 per cent in the first nine months of 2022 to only 1.7 per cent in the same period of 2023. Various countries like the US, Canada, Mexico, Brazil, Poland and Germany have witnessed significant gains in the global market share, following the decline of FDI flows to China.