Explained | How will the bleak employment conditions impact the recovery prospects of the Indian economy?

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What do the data indicate about unemployment in rural and urban areas? Did the salaried class escape unscathed?

The story so far: Hit by a relentless second wave of COVID-19 infections, India has seen localised lockdowns across several States. With activity restrained, job losses have climbed. This has dampened family incomes and consumer sentiment, setting the stage for lower-than-anticipated economic growth and belying the nation’s hopes of racing back to activity this year on a low base last year.

How have lockdowns affected jobs?

Among the first effects felt from a region’s lockdown is the loss of jobs. According to the Centre for Monitoring Indian Economy (CMIE), the unemployment rate was 6.5% in March but rose to around 8% in April, the month when several States began to prepare for or had already imposed lockdowns. With 73.5 lakh job losses in April, the number of employees (both salaried and non-salaried) fell from 39.81 crore in March to 39.08 crore in April for the third straight month. In April 2020, which was the first full month of the national lockdown last year, the unemployment rate had zoomed to 23.5%.

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What do the data indicate about unemployment in rural and urban areas?

At 7.13%, the rural unemployment rate for April 2021 is lower than the urban figure of 9.8%. The month of May has seen the rates rise further at the national level. As of May 21, the 30-day moving average for overall unemployment was 10.3%, with the relevant figures for urban and rural areas at 12.2% and 9.4%, respectively.

The labour participation rate (LPR) for April 2021, at 40%, remained lower than the levels seen before last year’s lockdown. Labour participation helps measure the section of the population that is willing to take on jobs. Unemployment is a subset, which helps in giving a measure of those who are willing to take on jobs but are not employed.

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Women tend to face a double challenge, with lower labour participation and a higher unemployment rate for females compared with males (for ages above 15). For the January-April 2021 period, urban female LPR was 7.2% compared with the urban male’s 64.8%, while urban female unemployment was 18.4% against the urban male unemployment rate of 6.6%, CMIE data showed.

 

How has the agriculture sector fared?

Agriculture was the saving grace during the first wave, but it is not so during the second one. April 2020 saw this sector being the only one to add jobs — the count of those employed in the agriculture sector had gone up by 6 million or 5% compared with the average count in FY20, according to CMIE data.

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In April 2021, agriculture shed 6 million jobs compared to a month earlier. This figure ties in with reports of the hinterland being far more affected by the pandemic this year compared with last year.

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A migrant labourer talking to a relative over his mobile phone at Nizamuddin Bridge.

 

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Daily wage labourers and small traders saw a loss of employment in the order of 0.2 million in April. Some of these agricultural and daily wage labourers may have found work in the construction industry as the sector saw an increase of 2.7 million jobs during April. But, as the CMIE posits, most of the 6.2 million people released from agriculture and daily wages jobs could well have ended up remaining unemployed during the month. This is a clear indication that the jobs scenario is weakening even before recovering from last year’s onslaught.

The Mahatma Gandhi National Rural Employment Guarantee Act data showed that April saw an uptick in the demand for jobs — 2.7 crore households signed up for work in April 2021, rising from 1.3 crore a year earlier — as reverse migration of labour picked up, resulting in availability of hands in the rural parts.

Did the salaried class escape unscathed?

No. The cumulative loss of salaried jobs since the pandemic began is pegged at 12.6 million, according to CMIE data, and the trend continues with April 2021 seeing this coveted category drop 3.4 million jobs from the level in March 2021.

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Which States have been hit the hardest?

Haryana recorded the highest unemployment rate in April 2021 at 35%, as per CMIE data, followed by Rajasthan at 28%, Delhi at 27.3%, and Goa at 25.7%. Significantly, Gujarat, which, like the above States, also witnessed the ferocity of the pandemic’s second wave, saw unemployment at an appreciably lower level of 1.8%.

 

What are the economic consequences of rising unemployment?

Obviously, job losses have a telling effect on incomes. CMIE’s managing director and CEO, Mahesh Vyas, said that 90% of Indian families have seen their incomes shrink over the course of the past 13 months. Loss of income naturally dampens consumer sentiment and lowers economic demand.

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The RBI’s monthly bulletin published earlier this month acknowledged that the biggest toll of the pandemic’s second wave was in terms of “a demand shock — loss of mobility, discretionary spending and employment, besides inventory accumulation”.

In an article titled ‘State of the Economy’ in the bulletin, RBI officials pointed out that aggregate demand conditions had been impacted, “albeit not on the scale of the first wave”. They highlighted the fact that e-way bills, an indicator of domestic trade, recorded double-digit contraction at 17.5% month-on-month in April 2021, with intrastate and inter-state e-way bills declining by 16.5% and 19%, respectively.

This is an ominous sign for the Goods and Services Tax (GST) collections in the coming months. Collections in April 2021 were the highest-ever at ₹1.41 lakh crore since the new tax regime was introduced. The authors of the RBI bulletin article said the contraction in e-way bills could point “to a moderation in GST collections in coming months”. However, despite the decline over March 2021, total e-way bills remained above the pre-pandemic baseline of February 2020, “indicating that domestic trade has remained resilient on the back of digitisation of sales platforms”.

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The RBI officials asserted that the second wave has so far had only a limited impact on industrial activity, citing the 8.1% growth in electricity generation in April over the pre-pandemic base of April 2019.

Would the situation improve if the current lockdowns were to end today?

Food insecurity is a key welfare issue in the months following an economic shock. A report from Azim Premji University’s Centre for Sustainable Employment, titled ‘State of Working India 2021, One year of COVID-19’, showed that on average, households lost about 22% of their cumulative income over eight months ended October 2020. Also, poorer households lost a larger proportion of their already low incomes. This not only led to increased poverty levels, the researchers said, but also that the ways in which households coped with this shock was by borrowing, largely from informal sources, selling assets, and cutting back on food consumption. This means that even after a lockdown is lifted and employment begins returning close to the earlier levels, consumer spending, the lifeblood of any economy, may remain muted.

 

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The report cited a couple of surveys — the University’s own ‘COVID Livelihoods Phone Survey’ (CLIPS) and Hunger Watch — to highlight the problem of the low-income population cutting back on food intake. The Hunger Watch survey showed that 66% of surveyed households had less to eat even five months after last year’s lockdown.

The researchers argued that incomes lost during the months when economic activity is more severely affected “leave a long-term impact either as depleted savings or as incurred debt, which must be built back or paid back, by curtailing future consumption and investment”. The CLIPS survey showed that the poorest households took the largest loans relative to their earnings.

Also read | An issue of lives versus livelihoods

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How are governments addressing these issues?

The Central government has announced that it will distribute 5 kg of rice and wheat for free to ration card holders across the country. Individual States have added to this. Bihar, for example, has announced that it would add an equal measure to the Centre’s distribution from the State’s resources for free distribution via the Public Distribution System. Tamil Nadu has announced a ₹4,000 handout per ration card and has begun distributing the first tranche of half that amount. Kerala has promised that no family would go hungry in the State. Last September, the Kerala government announced free food kits for 88 lakh families for four months; this May, it decided to continue with the distribution in view of the second wave.

Karnataka has announced a ₹1,250-crore relief package, through which farmers, auto, taxi and maxi cab drivers, construction workers and other informal sector workers will receive varying amounts in the form of a one-time dole.

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