Budget & Unemployment

Jobs and gloom

Print edition : March 01, 2019

At the “Young India Adhikaar march” held by students in New Delhi on February 7, demanding that the government address the unemployment crisis. Photo: Altaf Qadri/AP

Available evidence indicates that the employment situation in India may have worsened in the recent past, and the losses have been heavy for the informal sector. The delayed release of official data on employment only makes diagnosis difficult.

This year’s Union Budget, even if truncated because of its interim nature, was widely anticipated for the manner in which it would address the question of employment. In the last week of January, two members of the National Statistical Commission (NSC) quit, citing, among other reasons, the delay in publishing the official data on employment for 2017-18. In the same week, the media reported that the unemployment rate in India in 2017-18, according to the yet-to-be released data, was 6.1 per cent, which would make it the highest unemployment rate recorded in the country in the 45 years since the gathering of such data by official agencies commenced.

The gloomy data on employment may not have surprised many. But what was shocking was the confusion around, and the delay in, the release of the official data. Thankfully, as a result of these developments, the attention of the media and observers of the Indian economy is now riveted not only on the crisis in jobs but also on the problems relating to employment statistics in India.

Data on Jobs

At the heart of the revelations in the media are the employment and unemployment household surveys conducted by the National Sample Survey Office (NSSO), which functions under the Union Ministry of Statistics and Programme Implementation. The NSSO’s household surveys on employment and unemployment and consumption expenditures are considered a reasonably reliable source of information on the enormous social and economic changes in India. Social scientists all around the world have actively participated in the analysis of, and debates surrounding, the various rounds of these surveys.

The NSSO’s household surveys are typically held at an interval of five years. The major surveys since the 1990s were held in 1993-94, 1999-2000, 2004-05, 2009-10 and 2011-12. Notably, the NSSO has not released data relating to any major employment and unemployment survey after 2011-12. This has led to a highly undesirable situation in which we are unable to measure the impact on jobs of some of the tumultuous changes that have occurred in the Indian economy after 2011-12, including a significant slowdown in investment, the demonetisation of high-value currency notes in November 2016, and the introduction of goods and services tax (GST) the following year.

In the absence of data from the NSSO, the only other official source of information relating to employment in India are the household- and enterprise-level surveys conducted by the Labour Bureau, which functions under the Union Ministry of Labour and Employment. Unfortunately, even the Labour Bureau data on employment are available only until 2015-16. For the last three years, the only source of data on job creation in the Indian economy is from a private agency, the Centre for Monitoring of the Indian Economy (CMIE), in collaboration with the Bombay Stock Exchange.

The absence of official data on employment in India for the recent past must be seen in the context of a debate centred around the notion of a “jobless growth” path that began almost a decade back. When the NSSO released its report for the 2009-10 survey, many commentators argued that despite the improvement in the growth of incomes, job creation in the Indian economy had slowed down sharply after the mid 2000s. They pointed to the meagre increase in employment in the economy (of five million) during this period, from 458 million in 2004-05 to 463 million in 2009-10.

The media discussions, however, had missed an important point by focussing on overall employment, which is the sum of employment generated in the agriculture and non-agricultural sectors. Arthur Lewis and Simon Kuznets, both Nobel laureates in economics, had argued in the 1950s that a decline in the workforce engaged in agriculture (along with its shift to non-agricultural sectors) is part of a progressive structural transformation of any economy.

As the Indian economy had been hit by drought as well as by the worldwide economic crisis in 2009-10, the NSSO conducted another round of employment survey in 2011-12. The survey confirmed that the slow growth of employment in India after 2004-05 was partly on account of a large-scale withdrawal of workers from the agricultural sector. The absolute decline in agricultural employment was, to some extent, due to “push” factors (such as the low level of agricultural incomes) but equally important were the “pull” factors. The latter included a large increase in jobs in the construction sector, especially for rural workers from States such as Bihar, Rajasthan and Uttar Pradesh; a modest improvement in agricultural growth after the mid 2000s; and the creation of employment by public works programmes, mainly the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). There was a clear upturn in rural wages in India during the second half of the 2000s as compared to the first half.

The above discussion relating to three rounds of NSSO surveys also held an important lesson. While it is a good sign that there is growing interest in the employment numbers, it is also important that these numbers are interpreted with care, taking into account the larger socio-economic context.

It is important to note here that employment generation in India in industry and services during the period from 2004-05 to 2011-12 was not adequate. Considering the increase in the working-age population and the number of workers who quit agriculture, we have estimated that the potential workforce in industry and services grew at the rate of 14.7 million a year during the 2004-12 period. At the same time, the actual rate at which employment was created in industry and services in India during the above period was only 6.5 million a year, or at less than half of the potential rate.

It is likely that the rate of growth of employment generation in the Indian economy, especially in sectors other than agriculture, may have slowed down in the years after 2011-12. First, there has been a slowdown in investment rates in the Indian economy. Gross capital formation as a proportion of the country’s gross domestic product (GDP) was 39.5 per cent in 2012-13 but declined to 33.5 per cent by 2016-17. India’s exports, too, slowed down, with a decline in global demand conditions. The change in the base year for GDP estimations from 2011-12 onwards makes it difficult to compare the rates of growth before and after that year. However, certain points are worth noting.

In the nine years between 2003-04 and 2011-12, there were only two years of deficient monsoon rainfall (2004 and 2009) and three years in which the growth of agriculture and food production was relatively slow (2004-05, 2008-09 and 2009-10). There was also a large increase in government spending on rural areas, mainly public employment programmes such as the MGNREGA, especially in the period from 2007-08 to 2011-12, which gave a boost to rural demand.

On the other hand, of the six years between 2012-13 and 2017-18, there were four years in which the rainfall that the country received was less than normal (2012, 2014, 2015 and 2017), and three years in which the growth of incomes from agriculture and allied activities was below 2 per cent. It is clear that the growth of incomes and demand from rural areas has clearly been lagging behind during the recent years.

The sharp reversal in the fortunes of the construction sector after 2012 may also have adversely affected employment generation in the country. The construction sector grew at fast rates and generated 24 million new jobs in the country between 2004-05 and 2011-12, which was almost half of all jobs created outside agriculture in that period. On the other hand, the growth of GDP from the construction sector was noticeably slow during the years between 2012-13 and 2017-18, and this sector has been hit hard by demonetisation. The growth of employment in the manufacturing sector, especially in micro and small industrial units, was not impressive even in the pre-2011 period. The growth of small industries has been constrained by severe infrastructure bottlenecks such as power shortages. With the multinationals and large Indian companies increasing their dependence on imported components, small units have fewer opportunities to succeed as suppliers of ancillaries. The absence of credit from banks and other institutional sources of finance has been another major hurdle.

Demonetisation and GST

As is well known, the demonetisation of high-value currency notes in November 2016 and the introduction of GST in July 2017 have been landmark events with serious implications for the economy and labour markets. The adverse effects of these policies have hit small units in the informal sector especially hard. While these units have been compelled to join the formal sector in the wake of demonetisation and GST, many of them may have perished, causing severe loss of employment.

The State of Working India 2018 report, prepared by Azim Premji University, which examined evidence from the Labour Bureau and other sources, has concluded that the growth of employment in India has clearly slowed down after 2011-12.

The CMIE data, which are based on a survey of a sample comprising 1.7 lakh households, show that the employment situation in the country has worsened after 2016. According to the CMIE’s sample, the labour force (persons who are employed and unemployed) as a proportion of the working-age population, which was 46.1 per cent in 2016-17, fell to 43.5 per cent in 2017-18 and to 42.7 per cent in the first quarter of 2018-19.

During this time, however, subscriptions to social security schemes of the Employees Provident Fund Organisation (EPFO) increased impressively, by approximately eight million between September 2017 and September 2018. Citing this evidence, some have argued that the employment situation has actually improved after 2016, supporting the government’s claims in this regard. However, there are problems with this reasoning. For instance, firms come under the ambit of the EPFO only if they employ 20 workers or more. If a firm that was already employing 18 workers adds two more, the number of EPFO subscriptions will increase by 20—although the new employment created here is only two.

Dr Pronab Sen, former Chairperson of the NSC, has pointed out that the official statistical agencies in India need greater strengthening. This is to tackle the challenges thrown up by the growing size and complexity of the Indian economy.

According to government sources, the NSSO has already launched Periodic Labour Force Surveys, which will provide data on labour and employment on a quarterly basis for urban areas and on an annual basis for rural areas. This implies that labour surveys are going to be carried out at a much greater frequency compared with the earlier practice of conducting employment surveys once in five years. While this is indeed a welcome step, it also means that the NSSO will require far greater resources, including human resources, so that the surveys can maintain high standards of quality along with the increase in the frequency of data collection.

There are several areas in which labour and employment data in India need significant improvement. One of them relates to measuring the size and nature of temporary or short-term migration of workers. In recent years, there has been a large increase in such migration of workers from States such as Bihar, Uttar Pradesh, Odisha and West Bengal to far-off regions, including Maharashtra and Kerala. These workers may be engaged as agricultural labourers in their own villages for a part of the year, and as migrant construction workers during the other part. Only highly trained investigators can record such labour movements with a degree of finesse.

Women’s work

Another area that needs significant improvement relates to measuring work performed by women. Female labour force participation rates in India are extremely low according to the NSSO. However, there have been concerns that official statistical agencies systematically under-report women’s work in rural areas, such as women’s participation in animal rearing.

It is clear that the above-referred challenges can be addressed only by improving the coverage and the quality of data collected. However, the sample size of the NSSO’s employment survey in 2011-12 was only 1.01 lakh households. According to P.C. Mohanan, who recently quit as NSC member, this sample size is hardly adequate to capture the increasingly complex labour market changes in the country, especially at the State level.

To conduct surveys with a bigger sample, the NSSO or other agencies will have to hire more investigators. It is learnt that the NSSO has only around 1,000 field investigators to carry out its various surveys across the country. The Labour Bureau’s employment survey in 2015-16 covered a sample of 1.6 lakh households across the country. To carry out the fieldwork required for this study in around half of the States, the Labour Bureau depended on a total of 400 investigators and 120 supervisors, all engaged on a contract basis.

Finally, the most important concern is whether statistical agencies will be able to retain their professional independence. Regarding the controversy around the NSSO’s yet-to-be released survey for 2017-18, Mohanan says that the NSC should have the independence to release the data it collects and parses.

There are clearly no magical solutions to the problem of slow job growth facing India. What is needed are sustained and long-term investment and policy attention in strengthening the productive sectors and in building human capabilities and skills. The proposals in the interim budget try to alleviate some of the symptoms of distress but fail to address the more fundamental issues. While the Indian jobs scene may appear gloomy, ironically, some good may yet come out of the heightened awareness about the problem and how we measure it.

Jayan Jose Thomas is Associate Professor of Economics at the Indian Institute of Technology Delhi.

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