New Delhi: India’s unemployment rate increased for the fourth consecutive month to 8.11% in April from 7.8% in March 2023, showed data released by the Centre for Monitoring Indian Economy (CMIE) on May 1.
India’s unemployment rate was at a three-month high in March at 7.8%; it was 7.45% in January and February.
It rose to 8.3% in December, the highest in 16 months, from 8% in the previous month.
‘India’s workforce not rising’
In a special interview to The Wire, Mahesh Vyas, managing director and chief executive of CMIE, said, “India’s workforce – which is usually understood as the set of people who are employed – is not rising.”
“So, while India’s population has been rising and in particular the working age population, India’s workforce is not rising,” he added.
The well-known economist added that it has largely remained stagnant at a little over 400 million in the past five years. “So, while India’s population has been rising and in particular the working age population, India’s workforce is not rising,” he said.
This is significant because how persistent it remains has wide-ranging impacts across the economy.
Separately, Vyas and Natasha Somayya, analyst at CMIE, maintain that the rise in the unemployment rate in April was due to a rise in the labour participation rate. This points to a rise in the employment rate as well, they say.
However, India still has more people but less jobs.
In addition to that, Vyas told The Wire that only 40% of people aged 15 years and above offer themselves for work. So, there are another 60% who are dependent on these 40%.
How is unemployment measured?
According to the official system in India, the unemployed are those who are unemployed (or who don’t have jobs) and are willing to work, if work is available.
CMIE – which measures unemployment in the country – calculates it by making a small modification to the above mentioned explanation by defining the unemployed as those who are unemployed, who are willing to work, and who are actively looking for employment.
“Both are acceptable definitions. The CMIE definition is more stringent than the [definition of the] government,” he said.
“The unemployment rate is the proportion of the the labour force that is unemployed where the labour force is the sum of the employed and the unemployed,” he added.
The quality of jobs
While it is possible to measure wages but what is low (salary/wage) is a subjective call, Vyas said that the quality of jobs in India is very low.
“Most jobs pay poorly and are of informal arrangements in the unorganised sectors,” he added.
In May 2022, economist Ajitava Roychowdhury had quoted the International Labour Organisation (ILO) to say that only those who are doing “decent” jobs should be marked as employed.
“Decent work sums up the aspirations of people in their working lives,” the professor of economics at Jadavpur University had told news agency PTI.
He was explaining why it is difficult to get the real picture of unemployment from the methodology used by the CMIE to get the data.
CMIE conducts monthly surveys of more than 44,000 households in urban and rural India.
“The CMIE does not differentiate between those who are in decent jobs and those who are not. If the ILO criteria of decent jobs are applied, the unemployment rate will be much higher,” he had said.
The informal sector
More than 80% of the workforce in India is engaged in the informal sector. And it is the informal sector which has suffered the adverse effects of three major structural changes in the Indian economy: demonetisation, introduction of the Goods and Services Tax and the COVID-19-induced lockdown.
For a cash-intensive unorganised sector, an unplanned demonetisation led to a loss of at least 95 lakh jobs between January to April 2017, Scroll.in reported. This also led to a reduction in the employment rate, which was followed by a steep fall in the labour force participation rate, the report said, citing projections from the United Nations World Population Prospect 2019.
But what are the challenges when it comes to measuring the informal workforce, especially the gig economy?
“Understand that all the Swiggy and Zomato delivery people, the chai vendors, and the panwaris are employed. There is no difficulty in including them in the employment data if the data is collected through a proper household survey. The delivery boys, the panwari and office goers alike live in households. All gig workers, farmers, entrepreneurs, daily wage labourers, office goers live in households. If we conduct a good household survey, we will be able to capture all of them,” Vyas said.
Jobs in the formal sector
There are a large number of vacancies in the government-run sectors, which are not being filled. For instance, as on December 1, 2022, Railways has 3.12 lakh vacancies, which are not being filled. Due to this, most have to work overtime. This is also impacting the functioning of the trains and maintenance of tracks, Hindustan Times reported.
Last year, there were even protests by railway job aspirants. And defence job aspirants protested against the government’s Agnipath scheme. This clearly shows desperation for jobs among the youngsters.
However, in January this year, the ruling Bharatiya Janata Party cited the monthly data from the Employees’ Provident Fund Organisation (EPFO) to say that the formal sector employment is growing in India.
However, as per economists, the EPFO monthly data is flawed. They say it captures only a small portion of the formal sector employment.
When asked why the government is not able to recruit people, Vyas said that the government faces (or perceives) a fiscal challenge in providing jobs directly.
Jobs in the agricultural sector
Interestingly, Pronab Sen, former chief statistician and former chairman of the National Statistical Council, in an interview to the Financial Express had pointed out, “As a country, we were used to an unemployment rate of around 3%. We now seem to have permanently moved up to 6.5%-plus. This may simply be a reflection of the fact that agriculture no longer absorbs so many people. But the data is telling us something different. Today, agriculture is absorbing more people than it did in the past.”
The Indian Express reported, citing NSSO’s latest annual Periodic Labour Force Survey report for 2021-22 (July-June), that the farm sector’s share in the country’s employed labour force stands at 45.5%.
“That’s down from 46.5% in 2020-21, but still higher than the 2018-19 low of 42.5%. Clearly, the effects of the pandemic-induced economic disruptions, which had forced a reverse migration to the farms, haven’t fully subsided,” it said.
It added that since 2011-12, the share of agriculture in employment has not been falling fast enough. And, in fact, it has been rising since 2018-19. That indicates there’s not much labour transfer happening from farms to factories.
Although the government’s focus has been on public investment, and it’s doing more to attract private investment, to stimulate demand and generate jobs, Sen had pointed out that “if you don’t create space for savings, even if investments want to come in, there won’t be space.”
He added that “we are not being able to absorb our labour force productively enough.”
The basic function of growth is to provide employment, he had said.
Note here that financial savings are at a 30-year low, indicating people may be spending their savings for buying basic necessities.
During the COVID-19 pandemic, rural household incomes were wiped out. And, the government cut budget allocation for the MGNREGA scheme which offered jobs to the rural workforce during the COVID-19 pandemic.
Note that rural jobs allow people to escape poverty.
However, on being asked whether rising rural unemployment has a major impact on India’s poverty numbers as well, Vyas told The Wire, “It is not advisable to see rural India as one big homogeneous group which is impacted equally by factors such as MGNREGA funds, income changes and inflation. Farmers have gained immensely from the increase in prices of commodities, for example. And, people at the bottom of the pyramid have gained from government (central and state) transfers.”
“Separately, poverty cut-offs are quite low. These can reflect extreme poverty. Government transfers could have addressed some of the problems here. But, the larger problem of vulnerability of the less privileged remains. Poverty numbers have become contentious. But, I feel vulnerability, particularly to economic shocks remains quite high in India,” he said.
In their column for Business Standard, Vyas and Somayya noted that “rural employment rate peaked at 40.4% in April from 37.9% in March.” “This employment rate in rural India is the highest witnessed in the past three years,” they said.
On the other hand, “the urban unemployment rate increased to 9.8% [in April], compared to 8.5% in the previous month. This was mainly due to a rise in the labour participation rate in April to 38.75%,” they added.
Wide-ranging impacts on the economy
A country’s unemployment rate doesn’t just impact those people who don’t have a job, in fact, how persistent it remains and the factors of unemployment have wide-ranging impacts across the economy.
In an analysis, Statista said that “unemployed workers also lose their purchasing power, which can lead to unemployment for other workers, creating a cascading effect that ripples through the economy. In this way, unemployment even impacts those who are still employed.”
It further explained this with an example that when companies are cutting costs, they often reduce their workforce as one of the cost-saving measures. “Those workers who are left to do more work after a company lays off part of their staff are not likely to receive any additional compensation for the extra hours they are working,” it added.
Moreover, unemployment can also have a negative impact on the mental state of those who are still employed. The Wire had reported that mental health is one of the issues that is hurting the Indian economy.