magazinelogo

Journal of Humanities, Arts and Social Science

ISSN Online: 2576-0548 ISSN Print: 2576-0556 CODEN: JHASAY
Frequency: monthly Email: jhass@hillpublisher.com
Total View: 6655956 Downloads: 1955360 Citations: 437 (From Dimensions)
ArticleOpen Access http://dx.doi.org/10.26855/jhass.2024.10.008

Impact of Capital Expenditure and Economic Growth on Unemployment in India

Jitendra Kumar Sinha

Retired Sr. Joint Director & Head, DES, Bihar 695033, India.

*Corresponding author: Jitendra Kumar Sinha

Published: November 04, 2024

Abstract

This study investigates the impact of government expenditure—disaggregated into capital and recurrent expenditure—along with private investment on the unemployment rate in India from 1990 to 2023. Utilizing an econometric model, unemployment is analyzed as a function of government spending (both capital and recurrent), the real GDP growth rate, Gross Capital Formation as a percentage of real GDP, and private investment. The stationarity of the time series data was assessed using the Augmented Dickey-Fuller (ADF) test, ensuring robustness in the model. An error correction model (ECM) was employed to capture both short- and long-term dynamics between unemployment and explanatory variables such as capital and recurrent government expenditure, private investment, real GDP growth rate, and Gross Capital Formation. The results confirm that capital expenditure significantly reduces unemployment in both the short and long run, while recurrent expenditure shows no statistically significant effect. Private investment and real GDP growth also positively correlate with employment generation. These findings suggest reallocating resources from recurrent to capital expenditure, stimulating private sector investment, and effectively designing sector-specific incentives to reduce unemployment. Key statistical results include a significant negative relationship between capital expenditure and unemployment, with the study making several actionable policy recommendations: (i) systematically reduce recurrent expenditure to reallocate resources towards capital spending, thereby generating employment; (ii) eliminate price controls and structural rigidities to foster competition and stimulate private sector investment; (iii) implement sustainable subsidies to encourage private sector investment; and (iv) design comprehensive incentive packages targeting key employment-generating sectors such as agriculture, transportation, energy production, telecommunications, and manufacturing & mining, to substantially reduce unemployment.

Keyword

Unemployment; Capital Expenditure; Recurrent Expenditure; Real GDP Growth Rate; Private Investment

References

Bosworth, B., & Collins, S. M. (2008). Accounting for Growth: Comparing China and India. Journal of Economic Perspectives.

Bruckner, M. & E. Pappa. (2012). Fiscal Expansion, Unemployment, and Labor Force Participation. International Economic Review, 54(4), 1205-1229.

Friedman, M. (1969). The natural rate of unemployment. Chicago, Aldine.

Ghose, A. K. (2019). India’s Informal Sector and Economic Reforms: Growth without Jobs. Development and Change.

Goel, M. (2019). Automation and Employment in Indian Manufacturing: Impacts and Policy Responses. Economic & Political Weekly.

International Labor Organization (ILO). (2018). India Labour Market Update.

International Labour Organisation. (2001). Key Indicators of Labour Market (KILM), 2001-2, ILO-UNDP.

Islam, M. (2002). Macroeconomics. A handbook for the department of finance, www.academia.edu/1749565/macroeconomics.

Kannan, K. P., & Raveendran, G. (2009). Growth sans Employment: A Quarter Century of Jobless Growth in India's Or-ganized Manufacturing. Economic & Political Weekly.

Kannan, K.P. & Raveendran, G. (2019). From Jobless to Job Loss Growth, Gainers and Losers During 2012-18. Economic & Political Weekly, 38-44.

Krueger, A., & Kumar, K. B. (2004). Skills, education, and the rise of services: the case of India. National Bureau of Economic Research (NBER).

Mazumdar, D., & Sarkar, S. (2013). Manufacturing and Employment in India: Re-examining the "Jobless Growth" Hypothesis. Asian Development Review.

Mehrotra, S., Gandhi, A., & Sahoo, B. K. (2014). Why a Jobs Crisis Exists in India. The Economic Times.

Michael, E.O., Emika, A. & Emmanuel, E.N. (2016). The Relationship between Unemployment and Economic Growth in Nigeria: Granger Causality Approach, Research Journal of Finance and Accounting, 153-162.

Padder, A.H. (2018). Changing Pattern of Economic Development and Employment in India: An Interstate Analysis. Social Sciences and Humanities Internationals, 1-29.

Papola, T. S. (2012). Structural Changes in India’s Labour Market: Dimensions and Implications. Indian Journal of Labour Economics.

Rodrik, D., & Subramanian, A. (2004). From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition. IMF Staff Papers.

Rosin, P., & Rosin, G. (2014). Economic Growth and Unemployment: A US Perspective. American Journal of Economics.

Schelarek, A. (2007). Fiscal policy and private consumption in industrial and developing countries. Journal of Macroeconomics, 29, 912-939.

Sinha, J.K. (2023). Dynamics of Investment, Economic Growth, and Employment in Contemporary India: Analyzing Patterns and Future Potential. Politi Sci Int, 1(1), 52-60.

Sinha, J.K. (2024). Unraveling the Enigma of the Indian Economic Slowdown: Exploring the Underlying Determinants. Archives of Humanities & Social Sciences Research, 1(2), 1-10.

Sinha, J.K. (2024a). Deciphering Economic Growth: Analyzing Influential Factors on Gross Domestic Product in India. Open Access Journal of Economic Research, 22 May 2024.

Sodipo, O.A. & Ogurinola, O.I. (2011). Employment and Economic Growth Nexus in Nigeria. International Journal of Business and Social Science, 2(2), 232-239.

Someshekhar, N.T. (2003). Development and Environmental Economics, New Age International Private Ltd. Publication, New Delhi.

Steiner, H. & Sparrmann, V. (2012). Do Government purchases affect unemployment? www.sv.uio.no/esop/english/research/publications working paper, 2012.

Walterskirchen, E. (1999). The relationship between Growth, Employment, and unemployment in the EU. European Economists for an Alternative Economic Policy (TSER NETWORK) Workshop in Barcelona.

Copyright

© 2024 by the author(s).
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives (CC BY-NC-ND) license, which permits non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited and is not modified or adapted.
https://creativecommons.org/licenses/by-nc-nd/4.0/

How to cite this paper

Impact of Capital Expenditure and Economic Growth on Unemployment in India

How to cite this paper: Jitendra Kumar Sinha. (2024) Impact of Capital Expenditure and Economic Growth on Unemployment in India. Journal of Humanities, Arts and Social Science8(10), 2271-2286.

DOI: http://dx.doi.org/10.26855/jhass.2024.10.008