The Relationship between Economic Growth and Unemployment in India

Abstract

Purpose: The objectives of the study are to investigate the statistical correlation between economic growth (measured by GDP growth) and the unemployment rate in India and to analyse the direction and strength of causality between economic growth and unemployment, thereby determining whether one variable significantly influences the other.

Design/methodology/approach: This study employs a quantitative research methodology, utilizing time-series data from 1991 to 2024 based on the data from the World Bank, International Monetary Fund (IMF), Forbes India and Ministry of Statistics and Programme Implementation using Correlation Test and Granger Causality test to examine the correlation between GDP growth and unemployment rate and the causality between them with the help of EViews Statistical Software.

Findings: The findings revealed a negative correlation between economic growth and the Unemployment rate in India. There is no Granger causality between Economic Growth and the Unemployment rate in both directions. This study delves into the nuances of how economic expansion impacts employment trends and vice versa.

Research Implications: The implications derived from this analysis are pivotal for designing effective policies that can foster inclusive growth and address unemployment challenges in India.

Social Implications: This study highlights the need for inclusive economic policies that not only promote growth but also generate employment opportunities. Addressing unemployment is essential for reducing inequality and improving living standards in India’s rapidly transforming economy.

Originality / Value: The novelty of this study lies in its extended data range from 1991 to 2024, which addresses gaps in previous research. It also applies both correlation analysis and Granger causality tests, offering a deeper understanding of the dynamic relationship between economic growth and unemployment in India. This dual-method approach, combined with updated data, provides fresh insights and strengthens the empirical foundation for policy and academic discussions.