Mumbai: India’s unemployment rate has fallen to about 11.6% from a high of almost 23.5% in April 2020. The fall is almost as dramatic as the rise, and that throws up some questions: What is happening in the economy? Are we fundamentally more resilient than we thought? What are the other insights, particularly from the few months we lost now, for those who have been working across the country, many of them migrant labour?
We speak with Mahesh Vyas, chief executive officer and managing director, Centre For Monitoring Indian Economy.
This is a very dramatic fall in the unemployment rate. What does this tell us?
One way of describing this is that we are a very resilient economy; we can take the shocks and come back to normalcy pretty quickly. The other way of describing this is that such a large proportion of the Indian working force is in the informal sectors that it is easy for them to get out of work and get into work. It is the second part that is more accurate, in my opinion: It is not resilience, but the informal nature of employment that causes this.
We have seen this in the data for May and I think the same thing is playing out in June as well. In April--the first full month of lockdown--the loss of jobs was 122 million. In May, 20 million of those jobs came back. If you see which jobs came back, it is predominantly street hawkers and daily wage labourers. Of 22 million jobs, 14.4 million jobs were of this category. The remaining that came back were largely in the small businesses--basically small shops, very small businesses [that] have opened up again as the lockdown was relaxed in May.
But salaried jobs did not come back. In fact, in May, salaried jobs decreased: 17.7 million jobs were lost in April, it became 17.8 million jobs [in May]. That is, 100,000 jobs additionally got lost in May. This means that if you take away the ability of a daily wage labourer to go out and earn today, [and] if you take out that restriction tomorrow, he will go back to work. It is very likely that he cannot afford to stay at home without a job. He will go out and try his luck in the labour markets and see if he can get a job.
What is heartening though is that those people are getting jobs back. There is a need today: After a very long hiatus, a plumber is in need, a street hawker is in need, and so on and so forth. But those salaried employees who lost their jobs then did not get their jobs back, apparently. And I think that the same thing is playing out in June as well.
Would April end then be the low point?
That is right. April was the low point. The worst period--where all kinds of people were hit extremely bad--is over. The unemployment rate is falling, and the employment rate is rising. That means employment is definitely increasing.
Now, we are back to a situation where the more vulnerable people are back to work, but the salaried employees are still stuck.
How would you compare this to the pre-COVID numbers?
Pre-COVID, we were at around 7-8% unemployment rate. And today, we are at around 12% unemployment rate. We had a labour participation rate, then, of around 42.5-43%. Today, it is around 40%. So, we still have a long distance to go.
At 40%, the employment rate (people who are over 14 years of age and employed) is still low. Is this something that has been traditionally low in India?
That is right. Across South Asia--Pakistan, Bangladesh, Nepal, India and [to a] lesser [extent] Sri Lanka--all these countries do have a characteristic of very low employment rate. This is something to do probably with our culture, with our education level, with many more factors that play a role in keeping women away from work.
Tell us about how these figures pan out when you split it between urban India and rural India in the context of this recovery we are seeing.
The recovery is in both urban and rural areas. Both are seeing a rise in the labour participation rate, and a fall in the unemployment rate. But the recovery is more in rural India. Urban India is taking a little longer to recover; there is recovery there too and [that] is really very heartening. But rural India is recovering better.
And the reasons are obvious: The government is spending more on MGNREGA [Mahatma Gandhi National Rural Employment Guarantee Act]. People do go into the farm sector and claim to be employed in the farm sector, which is actually disguised unemployment. But it shows up in employed people over there. So partly disguised unemployment, partly the government pumping money into MGNREGA, and partly also this is kharif sowing season.
Is the pumping of money into MGNREGA already showing in the numbers?
It is showing up in the numbers. There are reports that this is not adequate, that it is less than what was promised, etc. But that apart, if you just say what is the situation now compared to the pre-lockdown period, I think MGNREGA spending is happening.
In an earlier interview, you spoke about the loss of income and the potential damage because of that. How is the situation now? Have we managed to cap it, because a certain part of the workforce is back at work? Or is there lasting damage?
No, the situation is getting worse. The number of people who are saying that their income this time is lower than a year ago has actually worsened.
What this means--and this is systematic--and what we are seeing over here is that more people are saying that their incomes are worse than a year ago, and more people are saying that they have no hopes of the future. Whether the future is for themselves one year down the line or on the economy as a whole, there is a sense of despondency. So, on the income front, the situation is very bad and getting worse.
And this kind of ties up with the employment-unemployment data which tell us that all the employment that came back is predominantly in the lowest quality of labour, which is the daily wage earner. So, he/she is probably willing to go back to work for a lower wage rate.
It is good to celebrate that the unemployment rate is coming down, the employment rate is going up, [and the] labour participation rate is going up, but this could reflect a predominance of informal employment in India and also low and falling wage rates. We will wait for the data, but I think this is a very strong inference I draw from the data I have so far that incomes and wage rates are falling.
[Editors’ note: In April 2020, Vyas said Indian households have lost, most likely, two months of income due to COVID-induced lockdowns.]
You talked about salaried employees in urban India not getting their jobs back, or having lost their jobs. Any sense of what this can mean in the longer-term?
I think this is most distressful. Salaried jobs are being lost largely among the younger people. The cut-off point is 40 years of age: All the losses are people of less than 40 years of age and there are no losses above 40 years of age, on an aggregate basis.
But the real concentration of job losses is in those who are less than 30 years of age and salaried jobs. This means that the young cohort that came in to look for jobs in 2019 lost their jobs in early 2020. Now, this cohort is going to compete with the cohort that comes to the labour market in 2020 (when they hit the market in August-September, or even around now). But there are no jobs then, as the economy is not going to recover by then. So, in 2021, you will have three cohorts competing for jobs.
This is really distressful, because our demographic dividend--which was never quite properly exploited--is now getting into a very different kind of a logjam, has a long-term implication on India: That the youngsters were supposed to get jobs, engineer the growth rate, and do savings for the long-term, [and] all of that is kind of lost.
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