There has been a continuing effort by government economists to spread disinformation and misinformation about India’s ‘great’ performance on employment, and the latest is the India KLEMS report claim that employment grew by 8 crore (80 million) between 2020-21 and 2022-23 – the years of COVID! Dutifully, the SBI Chief Economist echoed these claims; the prime minister did the same, since the government and its favourite economists live in an echo chamber.
However, several questions arose about this claim.
How come India saw an increase in employment during COVID, just when the ILO said East and South East Asia saw employment stagnate?
Second, the Periodic Labour Force Survey shows an increase of only 3 crore (30 million) in employment over that period (54 to 57 crore); so how come KLEMS is claiming 8 crore?
Third, the fact is that KLEMS uses a flawed methodology to get to the 8 crore employment number. To arrive at an absolute number, one has to apply the PLFS ratios to a multiplier to arrive at employment in the total population. No actual population estimate exists since 2011, as Ramkumar/Mohanan point out. So using data from different sources for projecting PLFS ratios, KLEMS researchers apply two different sources for the years for which they arrive at the multiplier (Economic Survey and Ministry of Health and Family Welfare projects). We have no idea why they don’t use the same source. Worse, both sources ignore the sharp fall in fertility rates since 2011. Hence, KLEMS arrives at an exaggerated number for jobs created, because their multiplier is wrong.
Tragically, KLEMS researchers ignored the fact that PLFS shows that the employment structure has changed sharply for the last decade. A positive structural change was underway since 2003 in India (with agriculture workers falling in absolute terms for the first time in India’s post independence history). The manufacturing share was increasing. And manufacturing’s contribution to Gross Value Added was stable at between 16-17%. Unfortunately, the government’s policy-induced shocks to the economy have caused manufacturing jobs to collapse for five years after 2016. The share of manufacturing in GVA fell to 13% for the same five years, before recently recovering.
Another KLEMS claim of rising jobs is founded on the premise of a rising female labour force participation rate (LFPR). That too ignores the fact that the LFPR of women rises in agriculture mainly due to a rise in Unpaid Family Labour (UFL). UFL rose from 1999 to 2004 from 77 million to 100 million; then fell every year, as non farm jobs grew rapidly, until 2013; and then fell to 55 million by 2018-19. But thanks to the COVID lockdown shock at four hours’ notice, 60 million workers were added to agriculture, including millions of women as UFL (actually 40 million in rural areas). The official view is that the rise in female LFPR is partly on account of new livestock production. However, that ignores the reality that animal husbandry, after the rise, is still only 15% of total agriculture employment. Over 70% is still in crop production.
Another favourite theme of government economists is to show that both NDA regimes – Vajpayee and Modi have done better on jobs than the UPA of Manmohan Singh. That comparison does not hold up to closer scrutiny for either NDA regime.
It is said, for example, that the period 1999-2000 to 2003-4 saw 60 million jobs created, while the UPA hardly created any. This ignores the fact that the Vajpayee years saw an increase of 22 million in farm employment, when the UPA years saw a sharp fall in farm jobs – which to any development economist is a good thing.
Second, it is true that the entire period from 2000 to 2012 did see, on average, 7.5 million new non-farm jobs created for a good 12 years – both regimes did well in this regard.
However, the third big issue is that agricultural jobs were falling in absolute terms after 2004 – and the opposite happened during NDA governments. In other words, when government economists claim total jobs grew under the NDA and grew slowly under the UPA, they are ignoring the reversal of structural change during both the Vajpayee and Modi regimes. They also ignore the fact that both periods saw an increase of non-farm jobs to the tune of 7.5 million per annum, as we saw between 2000-2012.
Besides, while the official unemployment rate was only 2% during 2004 to 2012, it shot up to 6.1 % by 2017-18, the highest rate in India in 45 years. Also, government economists forget that since non-farm jobs were growing rapidly under the UPA, real wages rose, as workers leaving agriculture for non-farm jobs meant that rural labour markets tightened. However, if employment in agriculture rises, as in the Vajpayee and Modi periods, the labour markets is not tight; hence, real wages stagnate, which is what happened from 1999-2004 or between 2016 to 2023.
Yet another fact ignored by ‘bhakt’ economists is the following.
The Annual Survey of Unorganised Enterprises (ASUSE), released recently for 2021-22 and 2022-23, helps us to compare the normal period in the Indian economy from 2010-11 to 2015-16, with unorganised sector enterprise performance over 2016 to 2023. Thus, the government narrative about the loss of jobs in the unorganised sector is the following.
Also read: The Latest ASUSE Reports Show How Deep in Trouble the Informal Sector Is
Jobs fell mainly due to the second COVID delta wave in 2022, then recovered massively in 2022-23. This again neglects three crucial facts. First, a comparison of the data for enterprises/jobs for the period 2010-11 to 2015-16 (these were the previous ASUSE conducted by NSO), with the period between 2015-16 and 2022-23, tells us that while 6 million units were created in the first half of the last decade, the potential units lost over the recent (Modi) shocks to the unorganized sector were 5 million potential units NOT created. Second, two million actual jobs were lost in the recent period, while jobs were being created in the earlier period; as a result, some 8 million potential new jobs could have been created in the recent period, which were not – due to demonetization, GST and the Covid lockdowns. And finally, the hired workers establishments fell in number in the recent period, while they were growing in the earlier period.
Why were these developments occurring? The foundational reason lies in the slower growth rate in the Modi regime of 5.8% p.a. over 10 years, versus 7.8% p.a. over 2004-14. This happened as all four drivers of growth were not firing in the last 10 years.
• Private Consumption, the first growth driver, has seen tepid growth, at half the rate of the GDP growth. Consumption was maintained by cuts in household savings, down from 24% to 17% of GDP, before recovering. It has risen slightly, but at the cost of retail debts rising. Private consumption expenditure of upper/middle classes cannot compensate for the rest of the economy. Non-farm jobs are growing, but slower, much slower than needed. The unorganised sector has barely recovered, which gives us a K-shaped recovery, meaning low private consumption.
• Gross Fixed Capital Formation i.e. investment – the second driver – has been 26-31% of GDP over 2014-24. But from 2004-14 it was 31-38% of GDP; recent public investment can’t compensate for low private investment, as capacity utilisation remains less than 75% most sectors; MSME investment is also not rising.
• Exports is the third driver of growth. Goods exports as a percentage of GDP rose from 10% to 25% /GDP between 1991-2008. But it was lower for four years after 2015 than it was in 2013-14. Services exports can offset this fall, but there are limits (with de-globalisation).
• The Fourth Driver is government investment/revenue expenditure. This can be raised but where is the fiscal space? Debt/GDP has risen sharply from 58% to 82%, leaving limited funds – and less space for discretionary spending by government.
No wonder non-farm jobs have grown at a slower pace in the past 10 years, than they were growing between 2004-14.
Santosh Mehrotra was professor of economics at JNU till 2020.
This piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been updated and republished here. To subscribe to The India Cable, click here.
