Inflation Falls but Not Unemployment

Based on The Hindu Editorial – June 2025
Source: The Hindu (credit only

Context

While India’s retail inflation (CPI) has eased significantly—falling to 4.3% in May 2025—the unemployment rate remains high, especially among youth and informal sector workers. This divergence signals deeper structural issues in India’s growth model and calls into question the inclusiveness of the economic recovery.

Main Issue: Why is falling inflation not leading to employment generation?

Despite macroeconomic stability (controlled inflation, strong forex reserves), the labor market remains weak. This editorial highlights the disconnect between price stability and job creation, warning that GDP growth alone cannot ensure welfare if it lacks employment intensity.

Key Economic Trends

Editorial Highlights & Analysis

1. Falling Inflation ≠ Economic Well-being

• Inflation drop largely due to weak consumer demand (especially in rural areas), not robust production or wage growth.
• A low inflation rate driven by demand suppression may reflect economic distress rather than success.

2. Jobless or Job-light Growth

• Growth has been capital-intensive, with rising productivity and automation replacing labor in formal sectors.
• MSMEs and informal jobs—the largest employment generators—remain under stress from pandemic shocks, credit crunch, and regulatory burdens.

3. K-shaped Recovery Continues

• High-end sectors (e.g. IT, finance, large manufacturing) have rebounded strongly.
• Labor-intensive sectors like construction, textiles, retail, and hospitality are lagging.
• Youth, women, and rural populations are the most affected.

4. Mismatch in Skill and Demand

• India produces over 12 million new job seekers annually, but job creation lags behind.
• Lack of coordination between education, skilling programs, and industry needs leads to unemployable graduates and underemployment.

What the Editorial Suggests

Policy Recommendations:

1. Dual Focus on Inflation and Jobs: RBI and government must balance inflation control with active employment targeting in fiscal policies.
2. Reboot MSMEs: Ensure access to credit, reduce compliance burden, and promote cluster-based employment hubs.
3. Boost Labour-Intensive Sectors: Increase public and private investments in construction, green energy, and textile exports.
4. Urban Job Guarantee: Expand job schemes beyond MGNREGA to cover urban unemployed, especially youth.
5. Social Protection and Skilling: Link skill development with local employment ecosystems and support with portable social security.

UPSC & Academic Relevance Prelims:

• CPI, WPI, inflation targeting framework
• CMIE, NSO, PLFS indicators

Mains – GS III:

• “Discuss the structural challenges in India’s labor market despite macroeconomic stability.”
• “Growth without jobs is unsustainable. Comment with reference to recent trends in inflation and employment.”

Conclusion

The editorial effectively reminds policymakers that falling inflation alone cannot ensure economic justice. Without strategic interventions to create decent, inclusive, and sustainable jobs, India risks falling into a low-demand, low-growth, high-unemployment trap. Tackling jobless growth is not just an economic need, but a social imperative.

Credit: Editorial originally published by The Hindu (June 2025)
Website: https://www.thehindu.com

Here is the infographic showing Inflation vs Unemployment Trends in India (2019–2025). It highlights the divergence: while inflation has decreased in recent years, unemployment has continued to rise—underlining concerns about jobless growth and economic inclusivity