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The three most important macroeconomic variables for a country are the foreign exchange rate, the inflation rate and the unemployment rate. The first is accurately and officially reported every working day, by the Reserve Bank of India which is also responsible for its management. The second is reported every month by the government’s Ministry of Statistics and Programme Implementation (MOSPI). The official announcement comes with a one-month lag. That means in the month of November you get to know what the inflation rate was in October.
The RBI is overwhelmed by the fiscal overhang caused by the spendthrift tendency of government
Unlike the forex rate the official inflation rate can be criticised for not being accurate or representative enough. It is based on the movement of average prices over a basket of commodities. So, the criticism is valid and inevitable. But the number is widely used to determine interest rates, the Dearness Allowance hike for government employees, and the cost escalation clause in various contracts. Keeping the inflation rate low and stable is the job of the RBI. But the RBI is overwhelmed by the fiscal overhang caused by the spendthrift tendency of government. Just this month as we swing into election mode, political parties are merrily promising freebies which will further burden the exchequer and aggravate inflation. And neither the RBI nor the government will take the blame for high inflation.
Forty percent of agriculture output is estimated to be by landless workers or small farmers who work as labourers on other farms. These workers have seasonal employment but do not have any written contracts nor benefits from their so-called employers
It is the third macroeconomic variable about which we do not have a clear picture. That is the unemployment rate. Why this fog around the true picture of joblessness? Firstly, because half the workforce in agriculture, is seen as entrepreneurial or self-employed. Forty percent of agriculture output is estimated to be by landless workers or small farmers who work as labourers on other farms. These workers have seasonal employment but do not have any written contracts nor benefits from their so-called employers.
Beyond agriculture another four fifth of the remaining workforce is in the informal or unregistered sector. These too are workers without written contracts. Many people who say they are “working” may be holding several part time jobs. Not having a full-time job can be thought of as being “unemployed” but that would be misleading. In a country where 90 percent of the workforce do not have secure jobs, the slogan from those seeking work is “mujhe naukri nahi kaam chahiye” (give me work, if not a job). The formal sector job growth is dismal either because of restrictive labour laws or because economic growth is capital intensive, labour saving or labour displacing.
How then is it possible to get the true picture and the health of the labour market? Since April 2017 the government publishes a quarterly statement called the Periodic Labour Force Survey (PLFS). The PLFS estimates three quarterly indicators only for urban areas, the Worker Population Ratio, Labour Force Participation Rate (LFPR) and the Unemployment Rate. It also provides annual estimates of unemployment in both rural and urban areas.
The formal sector job growth is dismal either because of restrictive labour laws or because economic growth is capital intensive, labour saving or labour displacing
The key findings as per the latest report up to the end of the July quarter shows the following: over the past five quarters, the LFPR for males was steady at 73.5 percent and for females rose from 18.9 to 21.1 percent. Secondly the unemployment rate has fallen from 7.1 to 5.9 percent for males, and from 7.6 to 6.6 percent for females. These are heartening improvements although the LFPR for females is still low. At this reported rate of 21.1 percent India’s female LFPR is the lowest among all G20 countries. But contrast this data with another statement published by the Press Trust of India this week, which quoted the Education Minister who said that female LFPR had risen to 37 percent during 2022-23. That is a whopping 16 percent more than what is quoted in the PLFS April to July data (albeit for urban workers only).
CMIE’s estimates paint a more gloomy picture of unemployment, especially among the youth
There has been some concern that India’s low female LFPR could be due to measurement issues. Or maybe the questionnaire is faulty. When women who work for household enterprises, are asked “are you working”, they might respond in the negative. But if asked, “are you contributing to the household product (say handicraft, or cottage industry)” they might respond in the affirmative. The International Labour Office has also agreed that Indian data collection needs to be tweaked to get the true picture of the commercial and economic value of women’s work. Despite this deficiency in the methodology the difference between 21.1 in PLFS and 37 percent is too big to explain. So, who is right?
If a worker leaves one job and joins another, the EPFO only records new entrants and does not deduct those who have left
Adding to this confusion, is the labour market data collected by the private company called Centre for Monitoring Indian Economy (CMIE). Much discussion, debate and criticism has been made around CMIE’s methodology. We won’t go into those details here. But suffice to say that CMIE’s estimates paint a more gloomy picture of unemployment, especially among the youth. In some States of India, CMIE has reported youth unemployment as high as 37 percent.
Another source of data, especially about formal sector employment comes from the Employment Provident Fund Organization. It is claimed that EPFO enrollment is showing healthy growth in employment. But EPFO captures data only on those firms complying with PF rules, that is those who employ more than 10 employees. If an organisation goes from 9 to 11 workers, the EPFO will show new registrations of 11, but actual employment growth was only 2 new jobs. Besides if a worker leaves one job and joins another, the EPFO only records new entrants and does not deduct those who have left.
The share of employment in manufacturing is stagnating or falling and is even lower than in construction or in hotels and restaurants
Data is also collated from job portals like Naukri.com and companies like TeamLease. Guessing the true picture is much like the story of the blind men and the elephant. It all depends on which part of the labour force is being “touched”. Agriculture workforce share increased from 42.5 to 46.5 percent in four years from 2018-19, before coming down a bit. That is worrying because livelihoods in agriculture are precarious, low paying and low productivity. The share of employment in manufacturing is stagnating or falling and is even lower than in construction or in hotels and restaurants. Since growth in employment is imperative and an urgent need, we need an accurate “thermometer” which is a reliable indicator of employment and unemployment in the economy.
(Dr. Ajit Ranade is a noted economist)