In the past five years, one issue that has become contentious is the issue of employment-unemployment situation in the country. The leaked NSSO report suggests four-decade high unemployment of about 6.1% in 2017-18.
While the report is still not official, the concerns raised by the report appear to be serious. Further, there are also reports that suggest that there is a sharp decline in the labour participation rate from over 47% in early 2017 to about 43% in two years time.
This is expected to pose a serious challenge to the new government.
What caused such a crisis in the employment situation and what needs to be done to revive the jobs in the country?
The survey that was done in 2017-18 is the first one that covers the impact of two major shocks that the economy faced in the form of demonetization and the implementation of GST. While the results may not be strictly comparable with the previous survey (2011-12) as there are some changes — due to these two shocks — it would not be surprising that it resulted in a permanent shock to employment situation, especially in the informal sector.
Keeping aside the GDP growth numbers, which showed the highest growth during the demonetisation year — making it much more controversial and leading to the questioning of the credibility of GDP figures — it would not be surprising to know that post-demonetisation and GST, there is a sharp decline in economic activity across the regions and sectors. But sharper decline was expected in informal sector, which contributes significantly to jobs in the country.
The recent ILO report suggest that nearly 81% of jobs are in the informal sector, and hence, any major shock to economic activity is felt immediately on the informal sector jobs, which are not being captured by any official statistics till now.
Recent data on GDP also suggest that there is a slowdown in growth and appear to have started since 2017-18. This was not accepted by the government until the recent Monthly Economic Report by the Ministry of Finance came out, that suggested the economy is entering a slowdown phase. This only suggests that there could be much more job losses in the coming period.
On a positive note, while there is decline in the overall employment, in my view, the employment due to government’s social welfare program should have increased. Our own studies done for major housing schemes of the government (Prime Minister Awaas Yojana — both Grameen and Urban — and the Swacch Bharat Mission) based on the completion rate, suggest that it would have generated substantial number of person days. However, it is very small proportion of jobs that is lost in the recent period.
There is also the Mudra scheme, which was expected to help revive industrial activity, and hence, the jobs. However, the initial indications do not appear to be encouraging. Rather, there are apprehensions that this could pose additional challenge to the banking sector in the form of NPAs. This could further cripple the industrial sector, which is finding it difficult to generate working capital.
While the official numbers, as and when they release, should suggest a slowdown in employment, what is important is to how to revive the jobs situation.
One way is by reviving the economy. For this, upfront, it is important to recognize that the economy is facing a structural slowdown right now. One of the main reasons, in my view, is the flawed fiscal consolidation roadmap that was adopted — which removed the revenue deficit concept — would shift the demand from investments to consumption and is certainly not expansionary.
There is a need to rectify this ill-advised policy if one needs to revive the investments in the economy.
Indeed, there is a need to relax the fiscal targets in order to provide stimulus to a slowing economy that is in distress. Added to the existing crisis, this year, if the predictions on the monsoon, which is expected to be below normal, turn out to be true, the distress in the rural segment could worsen and lead to an alarming situation.
Overall, while the government keeps waiting for the official numbers, it is clear from all the existing indicators that there is a severe crisis in the employment situation. It would be wiser if the government acknowledge this and take precautionary measures before it worsens further.