Mumbai: India’s unemployment rate is currently holding at about 24%, according to the Centre for Monitoring Indian Economy. On the other hand, a number of people who were not looking for jobs are back in the job market, which means that things might be improving. But that is only a small silver lining in the larger gloomy clouds that we are seeing.
The Centre had announced a stimulus package or economic response. A lot of money has been promised or is likely to be handed out in two ways: One is money that will perhaps come directly to people in the form of wages for Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) work. And the second is, money that could come through bank loans to the small and medium enterprises, who in turn likely have employed a lot of people who are perhaps out of jobs. The figure that we have catalogued earlier is 120 million people out of jobs, and compounded with this is about 70 million people who form part of the migrant workforce, a lot of whom might be unemployed.
The increased allocation to India’s rural jobs programme may help to some extent, but some of it will fund the increased wage-rate announced earlier, and only a fraction may be available to increase the mandays of work available, says Mahesh Vyas, managing director, Centre for Monitoring Indian Economy. A large part of the Centre’s stimulus package is proposing to raise the indebtedness in the country, which is “not the most wise solution”, he says, adding that the economy needs “unconditional, unilateral spending power”.
India’s unemployment rate is holding at 24%. Should we see it, in some ways, as good news or is it a peak of some sort, beyond which it cannot get worse?
In a sense, you can say it is good news that we are not getting worse than 24%. It did look, for a very short moment, that it could go higher than that. It did peak at 27%, for example. But after that, it came back to 21% and then scaled back to 23-24%, and seems to have stabilised at around 24%. And the labour participation rate--number of people looking for jobs--has inched up a bit. This had gone down to 35%, [but] has climbed back again to over 36%, close to 37%, which is a very good sign. That is, people are not as discouraged as they were earlier.
[That] people are looking for jobs even in these difficult times also indicates desperation. Who will try to go out looking for a job when there are no jobs available? Obviously, it is going to be the relatively more desperate people. You don’t want to expose yourself to a deadly disease. You don’t want to go to work in conditions which are not the best of times. So, obviously this is desperation. This is [a sign] that people cannot sustain the lockdown for too long and even in these very difficult times, are willing to go out in very adverse conditions and look for jobs. So, I think it’s a mixed bag. But, it certainly is not as bad as it could have been, which is a falling labour participation rate and a higher unemployment rate.
But, this splits into two more figures: Urban unemployment is at 27% and in rural areas, it is at 23%. So, how does one now look at it?
There has been an improvement in rural India, and that’s because this is the rabi harvest season in some parts of the country, in northern India. In some parts of the country, people are actively getting into the act of this delayed harvesting story, but in many parts of the country, they are getting ready to prepare for the farm sites for the kharif sowing, which should be due sometime in early June. So, there is activity in rural India because of the farm sector.
Secondly, there have been relaxations in rural India. There have been more green zones over there, so some local activities have begun and therefore, the unemployment rate in rural India has come down a bit and the labour participation rate has gone up a bit. But the improvement is not so much in urban India, where we don’t have as many relaxations and it isn’t easy to find the jobs that are lost.
In that sense, do you feel that this 27% is likely to remain higher relative to the average or mean unemployment rate for the country?
Urban India always has a higher unemployment rate--systematically, across time. It has never been the case that urban unemployment is lower than rural unemployment. Urban India offers better quality jobs and there are better educated people in urban India. They are not willing to take up a job which is equal to shovelling some dirt on your farm-site and claiming to be employed. A large part of the employment in rural India is actually disguised unemployment. You can’t do that in urban India. So, urban India presents the real situation of the country, that we have a very high unemployment rate like 27%.
How would this compare to unemployment rates in cities in other parts of the world, now and even otherwise?
I don’t track other countries much, but there are huge differences in the OECD countries, for example. Unemployment in urban areas in southern Europe, for example, is very high usually. Spain has a very high unemployment rate, [as does] Portugal [and] parts of Italy. But when it comes to other countries, it’s not as bad. Many of these countries, mind you, are also largely urban. Our urbanisation rate is much lower than those countries. But just to give you a comparison--that I recall from memory--the April unemployment rate in the U.S is 14%, and we have 23.5%; in urban India, it is of the order of 27%.
And what was this figure last April?
In India, last April, it was around 6.5-7%. In urban India, it was 8.5% last year, and now it is 27%.
The other data point that you have talked of is that rural India employed 276 million people in 2019-20. That fell to 197 million in April 2020. That’s almost 80 million people without jobs. To what extent will the MGNREGA infusion, and the other kinds of infusion help?
The government’s move to infuse more money into MGNREGA is a good move. It will help to some extent, but not much. MGNREGA cannot solve all problems. It just helps a little bit. It will help raise the wage rate in rural India. I think the increase in MGNREGA allocation compared to last year is of the order of 13-14%. But there is also a wage-rate increase that they had promised earlier. So, at least a part of the allocation will go towards a higher wage rate, and only a part of it will go towards [an] increase in the head count of the people, or the number of “man days” that they will employ. I think one should expect [that] the allocation, I think, will also go a little higher as we go into the year. So, I would expect something like a 10% or 12% increase in employment under MGNREGA in the current year, but this will solve only a partial problem in rural India.
So, you are saying, of the 80 million people who are out of jobs in rural India, only 10% will get their jobs back?
It's not possible to make that comparison also, but you may take that to be a thumb rule, because the way MGNREGA is counted is [in terms of the] number of man days or jobs given, whereas I am counting the number of people employed--which is [people] employed on a regular basis. So, they are not exactly comparable. But, I would say the thumb rule is it can lead to an increase in 10% from where the employment stands today; but as you said, the fall itself was very large. So, we lost 80 million jobs. We will not get 80 million jobs back again; we will get a small fraction of that.
On the other non-direct intervention, which is loans through banks and similar efforts to basically help small and medium enterprises provide jobs or get back jobs or manage to pay income. How do you see that?
The measures taken to extend any help to the MSMEs [micro, small and medium enterprises] or anything excepting the MGNREGA and a few other things which I said, I think a large part of the economic package is actually proposing to increase indebtedness in the country--whether it is hawkers, or MSMEs or anybody else. I don’t see much merit in that. If you give liquidity or higher credit facilities, even if it is a guaranteed loan, it's going to lead to indebtedness--ultimately NPAs, which the government may pay up to the banks if they lend.
But that’s not what the economy wants today. The economy wants more spending power--unconditional, unilateral spending power. So, I don’t think raising indebtedness is the best of things to do. The uncertainty today that we have regarding the economy tomorrow, as to when we will recover, etc. is so high that anyone who takes that loan today is obviously taking it without being certain of how he is going to repay. So, I think giving loans in these conditions is not the most wise solution.
So, unless the unwritten understanding is that these loans will be either given in a very easy fashion or they may be ready to write them off.
Well, we are then in the course spoiling the customer, isn’t it? They start getting used to these loan melas, which are never going to get paid back. We had this in a big way in the past, and we have created a problem for ourselves in farm loans being repeatedly waived. If this goes out to the MSME sectors now, we are going to create a very unhealthy credit culture in the country, and I think that’s not a very good thing to do for the long-run growth of India.
So, you are saying that you would have preferred a direct cash hand-out. The figure that you used was Rs 20,000 for two months of no income, rather than this indirect way of trying to transfer, which in any case is going to increase the indebtedness.
I will increase the indebtedness of those people who can have the guts to go and get that loan today, who I will say to a large extent--not entirely--are also going to be dishonest. The honest person who is very seriously in trouble may not take that loan. So, it’s the same problem that we have in many other cases--that if you are a farmer, you can get a loan under the earlier PM KISAN facility, but if you are a landless labour, you don’t get it. So, I think it's important for us to go beyond these means of giving money, which is going to spoil the credit culture in the country.
As we look ahead, with lockdown restrictions being eased, how do you see this playing out in the coming weeks in terms of the unemployment numbers and the overall impact to the economy?
I am slightly hopeful, because [of] the number of activities that seem to be springing up and the little news that is coming. It's like it used to be two steps forward and three steps backward. Now I am seeing three steps forward and two steps backward, which is progress.
I think there is greater easing of the restrictions, there is an expectation that sometime in the foreseeable future, not too far away, we could reach some kind of acceptance of this disease and there will be some kind of resistance towards it. So, I think this is moving in the right direction, that there are more relaxations than earlier. I am told that Delhi and Bangalore are kind of effectively getting back into slightly normal working conditions. This hopefully will spread to more places. I spoke for two large cities. So, I think we cannot sustain these compartmentalised silos in which economic activity happens for too long. But, in the last few weeks, I have seen this getting a little more extended, I am a little more hopeful that if we go on in this fashion, we will be back to a different but still a better normal peacetime again.
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