India’s growing unemployment crisis

The assumption that unemployment can be overcome only if the growth rate is accelerated is false

Jobless graduates fry pakodas on PM Modi's birthday on 17 September, which the IYC observes as 'national unemployment day' (photo: Vipin/ National Herald)
Jobless graduates fry pakodas on PM Modi's birthday on 17 September, which the IYC observes as 'national unemployment day' (photo: Vipin/ National Herald)

Prabhat Patnaik

In an economy like ours where the work-force is not neatly divided between the employed and the unemployed, and where there is massive and mounting casualisation of work, measuring unemployment is a tricky business.

Since it necessarily entails asking a person how much work he/ she got over a certain period in the past, the unemployment measure varies, depending on the period taken into account, and how much work over this period is taken to constitute employment.

The National Sample Survey (NSS) has therefore three different concepts in place: usual status, weekly status and daily status. And while it carried out its large sample survey every five years, its annual survey was based on a much smaller sample, because of which its figures were, at best, tentative.

Researchers therefore have increasingly been relying on the figures provided by the Centre for Monitoring the Indian Economy (CMIE), a non-official organisation that carries out a sample survey every month. An urban survey is conducted every week that asks people whether they were employed on the date of the survey.

The unemployment rate is defined as the ratio of the unemployed (who are willing to and seeking work) to the total labour force, comprising both the employed (i.e., the work force) and the unemployed. One may have reservations about its measure, but the CMIE provides a consistent set of figures over time that can be useful for analysing trends.

The latest CMIE figures for October 2023 showed that the unemployment rate in the country stood at 10.05 per cent; the rural unemployment rate was 10.82 per cent while the urban unemployment rate was 8.44 per cent.

The overall unemployment rate was not only higher than in the previous month (7.09 per cent), but the highest since May 2021 when there had been a sharp spike. The previous sharp spike occurred in 2020 because of the lockdown.

This has naturally given rise to much discussion about the growing unemployment crisis in the economy. However, I wish to explore another aspect altogether.

Since the CMIE-estimated unemployment rate appears to change noticeably from one month to the next, I have a specific rationale for focusing on a different aspect of the CMIE figures to establish the growing unemployment crisis.

According to the CMIE chief, India’s work-force (which is synonymous with the number of employed persons) has remained virtually stagnant at a little over 400 million over the last five years, which means that employment has not increased at all.

In October 2023, when the unemployment rate went up so sharply, the total labour force also showed a sudden increase. This rise in the labour force is the outcome of the working age population increasing without any offsetting fall in the labour participation rate. A simple calculation reveals that the absolute number of employed persons remained unchanged.

All of this explains the rise in the unemployment rate since 2019. According to the CMIE, the unemployment rate which was 5.27 per cent in 2019 rose to 8 per cent in 2020, remained at 5.98 per cent and 7.33 per cent respectively in the next two years, and went up even further in 2023.

Many commentators have attributed the stagnation in employment and the rise in the unemployment rate to the incomplete recovery of the economy from the Covid pandemic-induced fall. While GDP recovery post-pandemic has undoubtedly been slow, belying the government’s boast about ‘India being the fastest growing country in the world’, this fact alone cannot explain the stagnation in employment numbers.

Compared to 2019, for instance, real GDP has increased by about 16 per cent in 2023 (assuming a 6 per cent growth rate for 2023). If employment has not increased despite the GDP increase, this says something about the nature of the growth process itself, rather than just its pace.

What the Indian experience confirms is the invalidity of the proposition that unemployment can be overcome only if the growth rate is accelerated. In fact, it all depends on how growth is brought about. The absolute stagnation of employment is because the nature of growth has changed in the last few years, thereby generating less employment.

The small-scale and petty production sector was adversely affected by the neoliberal withdrawal of State support and exposure to unrestricted foreign competition. Its woes were further compounded by two moves by the Modi government: demonetisation, and the introduction of the Goods and Services Tax (GST).

The draconian lockdown ordered by the government in response to Covid-19 had a further devastating impact on this sector. The most employment-intensive sector of the economy is still reeling from all these factors, and it is the uneven revival of GDP growth that is responsible for employment lagging behind, to a point where its growth has actually been almost zero.

It follows, therefore, that the gamut of economic measures that the BJP government has in its kitty is incapable of generating further employment. These measures, centring around providing incentives that induce capitalists to invest more so that the GDP growth rate is accelerated, are infructuous for two very distinct reasons.

First, in an oligopolistic market, investment depends upon the expected growth in demand. Unless steps are taken to increase demand, handouts to capitalists do not raise investment—the money is simply pocketed.

What is more, in so far as the transfers to capitalists are financed by cutting government expenditure elsewhere—in order to keep the fiscal deficit within stipulated limits—there is a net shrinkage of demand which is contractionary for the economy and hence counterproductive, since the capitalists do not spend the entire amount of transfers handed out to them.

Second, even if such transfers could increase investment and hence GDP growth, the sectors where such an increase would occur are not particularly employment-intensive; government measures are not oriented towards promoting the small-scale and petty production sector where employment is concentrated.

Ironically, while doling out tax concessions to capitalists in the name of promoting employment, the government does not undertake the necessary expenditure involved in filling the large number of vacancies that exist within the government sector. The ostensible reason for this is fiscal constraint; but the fiscal constraint itself is caused, among other things, by the tax concessions given to the capitalists.

Also ironical is the fact that the government is cutting down on MGNREGS at a time when the rural unemployment rate is on the rise.

The CMIE data, while highlighting the growing unemployment crisis, also exposes the utter absurdity of the BJP government’s thinking on unemployment. (IPA Service)

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