Inclusive Growth and Unemployment
Inclusive growth for UPSC — inequality measures, poverty lines and MPI, types of unemployment, UPSS/CWS/CDS, PLFS ratios, informality, labour codes and employment policy.
SyllabusGS III · Inclusive growth and issues arising from it
Prerequisites: National Income and Growth · Poverty and Developmental Issues
The Hook: Fast Growth, Thin Wallets
In 2007, during one of the fastest growth phases in India’s history, the National Commission for Enterprises in the Unorganised Sector (NCEUS, chaired by Arjun Sengupta) reported that about 77% of Indians lived on a per capita consumption of less than ₹20 a day in 2004-05, and that the overwhelming majority of workers were in the unorganised sector with no social security.
The same year, the Eleventh Five Year Plan (2007–12) took as its theme “Towards Faster and More Inclusive Growth”. The two documents together pose the question this topic answers: how can an economy grow fast and still leave most people behind — and how do we measure whether growth is reaching them?
The Core Concept
What makes growth “inclusive”
Inclusive growth is growth that is broad-based across sectors and regions, that creates productive employment, and whose benefits reach the poor and marginalised — Scheduled Castes and Tribes, women, minorities, small farmers and informal workers. It cares about both the pace and the pattern of growth.
| Plan | Theme |
|---|---|
| Eleventh (2007–12) | Towards Faster and More Inclusive Growth |
| Twelfth (2012–17) | Faster, More Inclusive and Sustainable Growth |
Dimensions of inclusion: employment and incomes; access to education, health and financial services; social protection; regional balance; gender equity; voice in governance.
Measuring inequality
- Lorenz curve: plots the cumulative share of income (or consumption) against the cumulative share of population. The further it bows away from the 45-degree line of equality, the greater the inequality.
- Gini coefficient: the area between the line of equality and the Lorenz curve, as a share of the total area under the line of equality. 0 = perfect equality; 1 = perfect inequality.
- Kuznets curve: Simon Kuznets’ hypothesis that inequality first rises and then falls as per capita income grows — an inverted U.
Measuring poverty
| Approach | Basis | Key fact |
|---|---|---|
| Tendulkar Committee (2009) | Consumption expenditure; moved from calorie norms to a broader basket including health and education | Poverty ratio of 21.9% for 2011-12 (Planning Commission, 2013) |
| Rangarajan Committee (2014) | Revised basket; separate rural and urban lines | Poverty ratio of 29.5% for 2011-12 |
| National Multidimensional Poverty Index (NITI Aayog) | Deprivations, not income: health, education and standard of living (equal weights), measured through 12 indicators | Based on the global MPI method of OPHI and UNDP; India’s version adds maternal health and bank account indicators |
NITI Aayog’s National Multidimensional Poverty Index: A Progress Review 2023 estimated that the share of multidimensionally poor people fell from 24.85% in 2015-16 to 14.96% in 2019-21 (NFHS-4 to NFHS-5), with about 13.5 crore people moving out of multidimensional poverty.
Unemployment: the types
| Type | Meaning | Typical in India |
|---|---|---|
| Open | Willing and able to work, actively seeking, but no work | Urban educated youth |
| Disguised | More people engaged than needed; marginal productivity of extra workers is (near) zero | Family farms |
| Seasonal | Work only in certain seasons | Agriculture, tourism |
| Structural | Mismatch between workers’ skills/location and available jobs; long-term | Skill gaps |
| Frictional | Short spells while moving between jobs | All economies |
| Cyclical | Loss of jobs in a downturn of the business cycle | Recessions |
| Underemployment | Working fewer hours or below one’s capacity | Informal sector |
Educated unemployment — unemployment among the educated, often higher than among the less educated — is a distinct Indian concern.
Measuring employment and unemployment
India’s official labour statistics come from the Periodic Labour Force Survey (PLFS), launched by the National Statistical Office (NSO) in April 2017. Earlier, the NSSO’s quinquennial employment–unemployment surveys served this purpose.
Three approaches (reference periods)
| Approach | Reference period | Classification rule |
|---|---|---|
| Usual Status (UPSS) | Preceding 365 days | Principal status = activity for the major part of the year; subsidiary status = at least 30 days of work |
| Current Weekly Status (CWS) | Preceding 7 days | Employed if worked for at least one hour on any day of the week |
| Current Daily Status (CDS) | Each day of the preceding 7 days (half-day units) | Captures intermittent work and unemployment within the week |
Because CDS counts days of unemployment, it usually shows the highest unemployment rate, and the usual-status approach the lowest — it counts as employed anyone with even a subsidiary job during the year.
Key ratios
| Ratio | Formula |
|---|---|
| Labour Force Participation Rate (LFPR) | (Employed + Unemployed) ÷ Population × 100 |
| Worker Population Ratio (WPR) | Employed ÷ Population × 100 |
| Unemployment Rate (UR) | Unemployed ÷ Labour force × 100 |
Note that the unemployment rate is a share of the labour force, not of the population.
graph TD
A[Population] --> B[Labour force: working or seeking work]
A --> C[Not in labour force: students, homemakers, retired]
B --> D[Employed]
B --> E[Unemployed]
D --> F[Self-employed]
D --> G[Regular wage or salaried]
D --> H[Casual labour]Why growth has not created enough good jobs
- Structural transformation skipped a step: workers moved out of agriculture into construction and services, rather than into large-scale manufacturing.
- Informality: most workers are in the unorganised sector — unincorporated enterprises with fewer than 10 workers, as defined by NCEUS — without written contracts or social security.
- Low female labour force participation, shaped by social norms, safety, care burdens and lack of suitable jobs nearby.
- Capital- and skill-intensive growth in sectors such as IT and finance; low employment elasticity.
- Skill mismatch and low formal vocational training.
- Rigid factor markets (land, labour) and MSME constraints that keep firms small — the “missing middle”.
Policy response
| Area | Instrument |
|---|---|
| Labour reform | Four Labour Codes — the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 — consolidating 29 central labour laws. The Social Security Code recognises gig and platform workers. Labour is in the Concurrent List, so both the Centre and the States frame rules |
| Rural wage employment | The Mahatma Gandhi National Rural Employment Guarantee Act, 2005: a legal guarantee of at least 100 days of unskilled manual work per rural household per financial year; work within 15 days of demand or an unemployment allowance; at least one-third of beneficiaries to be women; social audits by the Gram Sabha |
| Self-employment and livelihoods | DAY-National Rural Livelihoods Mission (2011) through women’s self-help groups; MUDRA loans (2015) |
| Skills | Skill India and Pradhan Mantri Kaushal Vikas Yojana (2015) |
| Database of informal workers | e-Shram portal (August 2021) |
Memory Anchors
Reference periods: “Year, Week, Day — Low, Middle, High” → Usual status (365 days) gives the lowest unemployment rate; CWS (7 days) is in the middle; CDS (daily) gives the highest.
Ratios: “LFPR counts the willing, WPR counts the working, UR divides by the willing.”
Labour codes: “We Insist on Safe Service” → Wages (2019) · Industrial Relations · Social Security · Safety (OSH) — the last three of 2020.
MPI: “Healthy Educated Living” → Health, Education, Living standards — equal weights.
One-line Mains hook: “Growth is inclusive not when it trickles down, but when it reaches people through jobs.”
For Prelims
- Eleventh Plan theme: Towards Faster and More Inclusive Growth; Twelfth: Faster, More Inclusive and Sustainable Growth.
- Gini: 0 = perfect equality, 1 = perfect inequality. Kuznets: inverted U.
- Poverty 2011-12: Tendulkar 21.9%; Rangarajan 29.5%.
- National MPI: 3 dimensions, 12 indicators; 24.85% (2015-16) → 14.96% (2019-21) (NITI Aayog, 2023).
- PLFS launched April 2017 by NSO. UR = unemployed ÷ labour force.
- Disguised unemployment: marginal productivity of additional workers is zero.
- Four labour codes consolidate 29 central laws; labour is in the Concurrent List.
- NCEUS (Arjun Sengupta), 2007 — the unorganised sector report.
For Mains
- Dimensions: economic (jobs, wages, productivity), social (caste, gender, region), spatial (lagging States, urban–rural), institutional (labour laws, social security), demographic (youth bulge and dividend).
- Keywords: jobless growth, employment elasticity, structural transformation, informalisation, premature de-industrialisation, care economy, feminisation of agriculture, demographic dividend, gig economy, social protection floor.
- Value-addition: NCEUS (2007) on the unorganised sector; Eleventh Plan’s inclusive growth framing; NITI Aayog’s MPI (2023); the Social Security Code’s recognition of gig and platform workers; the Lewis model of surplus labour moving from agriculture to industry as the benchmark India has not fully followed.
Common Traps
In the News
- August 2021 — e-Shram portal launched to build a national database of unorganised workers.
- July 2023 — NITI Aayog released National Multidimensional Poverty Index: A Progress Review 2023.
See Current Affairs for the latest PLFS releases.
Practice
Prelims
Which of the following approaches to measuring unemployment in India usually yields the highest unemployment rate?
Solution
Current Daily Status counts each half-day of the reference week, so it captures intermittent days without work and generally gives the highest rate. The usual status approach classifies a person as employed if they worked for the major part of the year or for at least 30 days in a subsidiary capacity, so it gives the lowest rate. The approaches use different reference periods, so they do not give the same rate.
Answer: C
Consider the following statements:
- The Labour Force Participation Rate is the share of persons in the labour force in the total population.
- The Worker Population Ratio is the share of employed persons in the total population.
- The Unemployment Rate is the share of unemployed persons in the total population.
Which of the statements given above is/are correct?
Solution
Statements 1 and 2 are correct. Statement 3 is wrong — the unemployment rate is unemployed persons as a share of the labour force, not of the population.
Answer: B
“Disguised unemployment” generally means that:
Solution
In disguised unemployment, more people work on a task than needed, so withdrawing some of them does not reduce output — their marginal productivity is zero or near zero. Option B is seasonal unemployment, C is cyclical, and D is frictional.
Answer: A
Mains
India’s growth has not translated into adequate productive employment. Examine the reasons for this and suggest measures to make growth more employment-intensive and inclusive.
Solution
Introduction: Inclusive growth requires that growth create productive jobs. In India, the shift of workers out of agriculture has been slow, and much of it has gone into low-productivity informal work rather than manufacturing.
Body:
- Reasons: services- and capital-intensive growth; manufacturing share stagnant; dominance of the unorganised sector (NCEUS, 2007); MSMEs stuck small (“missing middle”); skill mismatch; low female labour force participation; rigid land and labour markets; regional imbalance.
- Consequences: disguised unemployment in agriculture; underemployment; educated unemployment; weak social security; inequality.
- Measures:
- Labour-intensive manufacturing — textiles, apparel, leather, food processing, electronics assembly — through PLI, logistics reform and cluster development.
- MSME credit and formalisation (MUDRA, Udyam registration).
- Skilling aligned with industry (PMKVY, apprenticeships).
- Implementing the four labour codes with social security for gig and platform workers.
- Women’s participation — childcare, safe transport, flexible work.
- Rural non-farm jobs: food processing, SHG-based enterprises (DAY-NRLM), rural infrastructure.
Conclusion: Employment is the bridge between growth and inclusion. A strategy that combines labour-intensive manufacturing, skills, and social protection can turn India’s demographic dividend into an economic one.
Quick Revision
| Point | One-liner |
|---|---|
| Inclusive growth | Broad-based, job-creating, reaches the marginalised; 11th Plan theme |
| Gini | 0 equal, 1 unequal; from the Lorenz curve |
| Kuznets | Inequality rises then falls with income |
| Poverty 2011-12 | Tendulkar 21.9%; Rangarajan 29.5% |
| MPI | 3 dimensions, 12 indicators; NITI Aayog |
| PLFS | NSO, April 2017 |
| UPSS / CWS / CDS | 365 days / 7 days / daily; CDS gives highest UR |
| UR | Unemployed ÷ labour force |
| Labour codes | 4 codes, 29 laws; Concurrent List |
| NCEUS | Arjun Sengupta, 2007; unorganised sector |
Key Takeaways
- Inclusive growth is judged by who benefits — jobs, access and social protection — not by the growth rate alone.
- Learn the measurement rules: UPSS, CWS, CDS, and the denominators of LFPR, WPR and UR.
- India’s employment challenge is less open unemployment than underemployment, informality and low female participation.
Related Topics
- Inclusive Growth and Employment — quick revision
- Inclusive Growth and Employment — practice questions
- Financial Inclusion
- Population and Associated Issues
- Social Justice and Welfare Schemes