India’s Unemployment : Truth Unveiled

Unemployment is the most important indicator of the economic activity in a country alongside GDP; and in a country like India, where 64% of the population is below the age of 35, unemployment rates are considered as direct indicators of the economic scenario and living standards. In the previous general elections, there had been heated discussions on rising unemployment in India due to measures such as demonetization and GST. There were so many kinds of data flung by various people confusing the voters to their core. There was the five yearly National Sample Survey Organization (NSSO) data, the International Labour Organization (ILO) data, the household survey from Centre for Monitoring Indian Economy (CMIE), Employees’ Provident Fund Organization (EPFO) data, youth unemployment data and also numbers manufactured by the foreign media.  Also, in the current COVID-19 pandemic, salaried job losses and urban unemployment are major issues India must deal with; but the question is that is data in India credible enough to reach to a conclusion? This is a very big question, and it needs to be answered now.

There are so many methodologies in which unemployment rates are calculated in India but none of them are credible enough and it is very difficult to reach to a logical conclusion.

The most popular methodology is the NSSO survey that happens once in 5 years. Measuring unemployment once in 5 years since independence clearly states the ambiguity of data analytics present in India. NSSO gave it’s data for 2017-18 declaring 6.1% unemployment for that financial year: a 45 year high; but there are many questions that arise with this data. Estimating unemployment after five years does not give us any monthly, quarterly, or yearly data, which is a very bad situation indeed. It could simply mean that this was just a bad economic year with less economic activity. Since, it was the year succeeding demonetization, it was obvious. 5 yearly data does not give us year on year (YoY) growth numbers. We cannot analyze whether the government’s policies were good enough or not.

Secondly, many renowned economists have termed this figure as a statistical embarrassment. The reason being this figure has got many things wrong. 85% of India’s employment lies in the unorganized sector and there is no proper way established to survey the unorganized sector. The govt. did give out a statement saying that lack of job data not lack of jobs is the reason for this statistic. Secondly, there is plethora of govt data in public domain that shows various self-employment opportunities have been created that have not been accounted for. Most of the data was from the MUDRA loans which is considered as one of the most successful microeconomic policies in India for self-employment and India’s infrastructural growth which directly translates to more employment in the unorganized sector.

The unemployment generated due to demonetization was cyclical unemployment that lasted temporarily and was compensated in other sectors. The job losses were later recovered as the economic activity picked up. Since the data is five yearly, there is no way we can show the subsequent pick up of jobs in following quarters. For example, the MSME sector was assumed to be hit the worst but later it showed 13% growth in jobs as activity picked up, but we do not have any employment data for subsequent months.

Centre for Measuring Indian Economy (CMIE) came up with a new system since absence of yearly and quarterly data is a problem; but their data was completely mismatched with NSSO.

International Labour Organization, the labour body of the United Nations also gives out the yearly unemployment data of India, and as per data modelled upon ILO’s figures, India’s unemployment has reduced on a YoY basis for the past 6 years after attaining peak in 2013. Even the data of FY 2018 was less than FY 17 and was low and completely opposite to the NSSO data. Since ILO computes data based on international standards and gives out yearly data, it can be considered as the most credible source of figures; but again, there is a catch here as well. ILO is not directly involved in surveying the Indian market, it merely compiles data provided, it will be wrong to assume that the data might not be based on real market scenario and should not be completely relied on. The difference between ILO data and NSSO data shows that there is something seriously wrong with India’s data collection.

Now, there is another very important factor that is used in determining employment. It is Labour Force Participation Rate (LFPR). The LFPR gives us the workforce of a country. Now India’s LFPR has been constantly declining for the past 30 years and even more. In 2007, India’s unemployment reduced to one of the lowest rates. The real reason is that the LFPR dropped sharply in that year, which means number of people eligible for employment reduced drastically. For the past six years, the rate at which LFPR is going down, is slowing, and has begun to show a U curve which when accompanied by data showing increase in jobs in various sectors indicates that India is showing real job growth.

The one very genuine and factually correct concern is the youth unemployment. Youth unemployment is also increasing since 1980s. This means that people in the age group of 15-29 years have high rates of joblessness. This trend has continued even in the NDA government and is a worrisome situation for a young country like India. Arresting rising youth unemployment must be the government’s priority and weakening consumer demand for the past 2 years is not going to help.

To sum it up, whether the demonetization was necessary or whether it was successful is a debate for another day. From employment point of view, it did result in 2 million job losses; but it was expected since India went through a structural change in the way transactions happened in the economy. The full truth is that those losses were compensated to an extent in other sectors that remain unaccounted. Also, the unemployment was mostly cyclical in nature, which means recovery did happen as the activity picked up. Coming to India’s employment scenario, unemployment in India remains largely unknown. The government, in 2017, announced that data collection in India will undergo a major revamp but these changes take a lot of years. Currently, all we know is that some sectors saw growth, and some saw decline, and that is not all enough to assess the economy.


India’s unemployment: truth unveiled.

Dhruv Tomar


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