Skewed Employment Opportunities, Income Inequality and Demand-Constrained Economic Growth in India

Abstract

This study examines India’s long-run economic growth potential and the constraints on its path to faster economic and social progress, and suggests policy pathways to expand domestic market size and facilitate inclusive growth. Using various secondary data sources, we argue that India needs to broaden its internal domestic market, which can remove significant demand constraints at a crucial juncture when the world economy is witnessing a major economic and political upheaval. Although the demand-constrained economic growth can be overcome through significant policy interventions, the key is to broaden the job ladder at the top rungs (formal jobs) and narrow down the job opportunities at the bottom rungs (informal jobs) to reduce income inequality. Additionally, this can be achieved by generating inclusive and fair employment opportunities for the most disadvantaged households. This would result in an increase in their income levels and the economy's overall demand, which would in turn generate virtuous cycles of rapid economic growth and further expand the market size within the economy. Therefore, the study concludes that the bottom strata of households need to have equality of opportunities in terms of access to quality education, health facilities, employment, and income, which would enhance social and economic upward mobility. Otherwise, it can exacerbate macroeconomic instability if inequality worsens further.