Rising unemployment worrying as the second wave of Covid hits rural and agro economy

Preliminary estimates say some 95 million people have plunged under the poverty line already in the country. Most of them had crawled above the poverty levels in recent years and it is a huge shock to these families slipping back into the grinding poverty.

In the lockdowns following the first outbreak last year, the Indian economy shrank by almost a quarter in the first three months of the last fiscal year. However, the economy had shown signs of resilience and quickly picked up pace. In the end, the GDP was estimated to have gone down by 8 per cent for the full year, which was bad but not as disastrous as the contraction of the first quarter had indicated.

Such a drastic contraction could not but have left a deep impact on employment. In India, we need expansion to provide for fresh addition to the labour force. Instead, we are witnessing unabated contraction in activity levels which will perforce shrink employment in the economy.

The latest estimates of unemployment actually shows an abrupt rise in May compared to even April this year. The latest figures show unemployment at double digits and for the whole of the month it is expected to remain in that zone. On May 21, it was estimated at about 13 per cent, which is not usual.

There is reason to believe that the second wave of infection spread is proving economically almost as bad as the first outbreak. Sporadic infections and lock-down are disruptive of normal functioning of the economy and thus hits activity at the ground level.

There are two distinct aspects of the loss of employment this time, following the second outbreak of infection. First, the loss of employment is as much in rural areas as in urban. In the first instance, the loss of employment was confined more in the urban areas. Secondly, the unemployment rate is rising as the services sectors have been particularly affected and it is services which provide the bulk of employment. Let us look into these facets of current rise in unemployment.

Agriculture sector was not much affected in the first spread and therefore the rural unemployment rates were not badly hit earlier. The farm sector was actually a saviour during the first spread last year.

What is more deleterious this time is that while in the first spread of the pandemic in the country, the incidence was more in the urban areas, this time however the spread has been to deep and remote villages where little medical facilities were available. The disruptions in activity have been therefore even more acute.

The unemployment estimates also show these trends. The divergence between rural and urban unemployment was wide earlier. Since March this year when the second wave began to spread, the rural unemployment rates also went up.

The urban unemployment rate has been on the rise since early April 2021. On April 1, the 30-day moving average urban unemployment rate was 7.2 per cent. By May 1, it had reached 9.6 per cent and then by May 23 it was 12.7 per cent.

In contrast, according to CMIE figures, the rise of unemployment in rural India is a more recent phenomenon. Its sharp ascent began in May. During April, the unemployment rate rose from 6.2 per cent as of April 1 to 7.1 per cent by May 1.

By May 23 it reached 9.7 per cent. Employment in rural India in April received substantial support from the central government’s MGNREGS. The scheme employed 341 million during the month. This was the highest since July 2020.

The Reserve Bank of India in its latest Annual Report indicated the extent to which the services sector was affected. Being in the contact intensive activities, the services sector was facing the largest contraction. The railway services were almost completely withdrawn just as airline flights or trust movement.

The services PMI witnessed its deepest contraction in April 2020, but it recovered slowly thereafter, entering into expansion zone since October and staying there for seven consecutive months. The services sector is still wounded. The outlook was brightening in Q4 of 2020-21 with multi-speed paths out of the pandemic among different sub-sectors. Unfortunately, the second wave gave another jolt to recovery.

The silver lining is therefore that the services sector had recovered quickly after the removal of first phase of lock down. The high frequency indicators showed the faster transition to normal functioning after the withdrawal of restrictions.

The sharp rise in the urban unemployment rates mimic the ways in which the services sectors were affected. Tourism and hotels suffered most, along with aviation and these had pushed up the unemployment rates in the urban areas.

Another hopeful trend which has been seen even recently is that the construction sector remained buoyant. Boosted by the emphasis on sustaining the pace of expansion of the physical infrastructure - the construction of national highways reached a new record of 13,000 kilometres in 2020-21, with around 37 kilometres of construction a day.

The pandemic ravaged the labour market, with self- employed and casual labourers suffering the biggest hits. With the easing of lockdowns and the return of migrant labour to cities, employment had started edging towards normalcy, as portrayed by data emanating from households’ surveys, pay roll numbers and new openings in the corporate sector before the second wave.

(IPA Service)

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