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Experts say economy is under substantial stress and unemployment is getting worse

Updated : March 07, 2019 06:55 PM IST

After the Centre for Monitoring Indian Economy (CMIE) released the unemployment rate in February, experts on Thursday said the economy is under substantial stress and the unemployment situation is getting worse.

Mahesh Vyas, managing director and chief executive officer of CMIE, said the urban unemployment rate is high compared to rural in India as latter take whatever job is available to them.

Himanshu, professor of economics at Jawaharlal Nehru University (JNU), said government’s own data on agriculture, wages and farmer prices are pointing that there is serious distress in the rural economy and it is going to have an impact on unemployment numbers.

According to CMIE, the unemployment rate in India rose to 7.2 percent in February 2019, the highest since September 2016, and up from 5.9 percent in February 2018.

Edited excerpts:

Q: My first problem was how do you put together these numbers? I mean getting employment numbers have been singularly difficult in India. We have some rural wage statistics and we have some National Sample Survey Office (NSSO) surveys. How does CMIE put together these numbers?

Vyas: You said that putting together employment/unemployment numbers is a big problem in India. Let me respond to that. CMIE has cracked that problem. To use a term used by students who were trying to appear for competitive exams. So, we cracked the problem in 2016 by setting up large machinery of people on the ground. There are 300 of them, who go out and reach out to households and ask them questions on their wellbeing. One of the questions we ask them is, are people above the age of 18 in the household employed or unemployed? We get these numbers in real time as we do this through a good technology input and we get an estimate every day based on 1,500 households including about 2,500 adults. So that is the way we have cracked the problem.

This is a household survey and many problems regarding covering the unorganised sector and informal sector are addressed. So, this is very robust and it is a large sample. It is a representative sample and that is what gives us a 7.2 percent unemployment rate, which is disturbing.

Q: Rising unemployment is one thing. But when it comes with falling labour participation that is a bigger concern. So, a lesser proportion of people coming into the labour market and even lesser proportion not finding jobs, what do you think the primary reason for this is as it goes completely against the government’s promise when it came into power?

Vyas: The economy is under substantial stress. We have not seen investments coming in into the economy at the rate at which we require them to come in for jobs to grow. For example, post-2009-2010 investment ratio has come down by the national account statistics. The number of new investment proposals according to the CMIE’s capex data has also come down.

Now, if you have seven years of slowing down of investments, then it is not a very difficult thing to imagine that jobs will have to come down. If you have jobs coming down so much, this causes what is called as discouraged unemployment.

So, people who came to the labour market seeking for the jobs did not get them for a long time, got discouraged and left the labour market. That is a bigger distressful problem compared to the unemployment rate.

Q: With your role in the Central Statistics Office (CSO) as an advisor, the scuttled NSSO report is widely believed to also have pointed in the same direction. Do you have any data that also supports this? Anything that you may have gleaned from that NSSO report that was never published?

Himanshu: The part of that is already there in the public domain. So you know the broad numbers which are there. They have more or less confirmed what has come out from the CMIE data and now there are multiple sources of data, which are giving us this same kind of information. Don't forget that labour bureau data had not been released or the quarterly service. All around the information is that the unemployment problem is becoming worse over a period of time and the number of jobs being created in the economy or added in the economy has gone down over a period of time. 2016 is certainly a trend break in that.

Forget about the employment data that is direct evidence in that sense. Even the wage data, which I tend to look at it as a much more serious data that also continues to show almost stagnation in real wages. In some cases, some occupation it is showing a decline in real wages. That is far worrying.

So, I don’t think the numbers or the quantum or the trend is something that is debatable. Now, there are multiple evidences pointing to the same direction and it gives the confidence that there is some kind of strength in what the numbers are being put up by different sources.

Q: On this NSSO data, the 45 year high that the unemployment rate is sitting at in FY18. What is your own view on the authenticity of this data? More importantly, Prime Minister Narendra Modi did say that the informal sector gives 85-90 percent of jobs. So, a lot of data people are collating is of the formal sector. So it is perhaps not the right way to look at things. What would your own view be on that?

Vyas: The NSSO survey is the one that we are talking about is a household survey. It has got a fairly representative sample of over 1,10,000 households, which is pretty good. It covers everyone who lives in households including the organised, unorganised sector, informal jobs, formal jobs, OLA cab drivers, pakoda etc. So all kinds of people from Ambani to the man on the street, they are all living in households. A household survey, which is sampled correctly is representative of all of them and the same holds for the CMIE survey. So CMIE survey is also a household survey and it is a larger sample, faster frequency sample and both of us are saying the same thing. So if the Prime Minister is claiming that these surveys do not cover the unorganised sectors in my opinion, he is misled.

Q: Is this largely because of rural distress that we are seeing such large numbers of unemployment? Or is it more because the infrastructure has taken such a beating in the past 4-5 years as the problems of bad loans? Where would you point the finger?

Himanshu: Rural distress is certainly something which is a big factor and that is something simply because of the scale of it. Remember, two-thirds of our population is still there in the rural area. A large number of people are still engaged in agriculture whichever whatever level of income they are getting and there is a distress that is now coming from multiple sources.

Even government’s own data on agriculture or on wages or on farmer prices that data is now more or less converging to a single statement that there is serious distress in the rural economy and that is going to have an impact on unemployment numbers. Forget about all the surveys, you may question the surveys, you may question the data, you may question the sample size which is what NITI Aayog was doing and also such things but these are all irrelevant.

The people in the three agricultural communities, the Patels, Jats and the Marathas are on the street demanding jobs in the government, which government’s own minister is saying that there are no government jobs to be given. So, here is something which is a fairly strong kind of evidence. The government’s own effort to provide reservation or something like that is basically pointing out that they are also not saying that there is no job crisis as such.

However, the rural crisis is certainly something which has given the kind of magnitude that we are talking about. But the second thing again for the rural crisis is linked to a number of things. The demand deflation that has happened in the rural areas not just because of agriculture, it is because of the slowing down of the economy over a period of time. Now, the Q3 data that comes out and February again points out that we are actually slowing down despite all the numbers and doubts that are there on the gross domestic product (GDP) data.

So, there is an issue of infrastructure deficit and demand deflation. The construction sector at least in the rural areas has virtually collapsed. There is not much of activity that is happening as private income was the one, which was driving the construction sector which employs a large number of people in the rural areas and that is not firing. Non-agricultural sector and overall manufacturing are not firing.

Lack of investment, infrastructure, demand and export sector basically is not firing. So all the drivers or engines, which should be firing, all of them have collapsed at the same time. That I think is the real worry.

Q: I couldn’t lay my hands on those numbers. But some of the economists had looked at payroll numbers, NPS data, provident fund data and they had concluded that those filings – people filing in EPFO and in NPS are rising. Have you taken a look at that argument?

Himanshu: The best statement on this is by the chief statistician of India. He is on record saying that the data that is coming from EPFO or NPS all these are basically a measure of formalisation, not a measure of total creation of the jobs in the economy. Even the NITI Aayog reporting unemployment and employment that they had – they also made it very clear that this is a measure of formalisation, not a measure of employment creation.

In the sense, the formal sector basically is covering around 15 percent and let us assume that whatever the number they are saying is fine. Suppose 7 million jobs are being created every year in the formal sector, which is 15 percent, but there is no way to ascertain what is happening to 85 percent.

One thing that we know about 85 percent, which is there in the public domain, which is there on the data that has been put out is that roughly 7 million people are moving out of agriculture every year. So, even if you are not looking at any other part of the 85 percent of the unorganised sector, you have zero addition in the workforce as the 7 million loss in the agriculture is being counted by the 7 million positive in the formal sector. That is why the good measure of that is the household surveys and that is why the NSSO data is something where the government is so worried about. It has now finally set up all sorts of committees to find who has leaked the data and all that rather than basically bringing out the data in the public domain.

Let people analyse, which are the sectors where people have lost jobs, which are the sectors where people have got jobs. All this will be very clear as the organised sector, the EPFO and the NPS is also covered by the NSSO data as well as the informal and the agriculture sector where the jobs are being lost.

So, I think we will have a complete picture only when the NSSO data is released or the NSSO full report is released. Without that, any kind of assumption based on 15 percent organised sector saying that 7 million has increased is not going to cut any ice as far as the employment numbers are concerned.

Q: What about the prognosis now? We have spoken about the problem at hand and you have started off by saying that the root cause of the problem is that there is no increase in investments. Seven years of a slowdown in investments has resulted in a lack of jobs, but what do you think the way forward could be? Are we looking at any improvement in investments at all and hence in jobs?

Vyas: I don’t see that happening in the near future. At least in 2019-2020, there is no indication that there will be a pickup in investments as capacity utilisation is still quite low even at 74 percent. We require this to cross 80 percent before we can start believing that industry will start investing. The environment is not very conducive towards aggressive investment at this point in time. Plant load factor (PLF) of thermal power plants is around 60 percent. That is very low and if you have these low capacity utilisation, the private sector will not invest, the government itself doesn’t have a budget yet, which is credible for 2019-2020 and we have to see what the new budget will be. The promises are way out of the line of the reality and we see in the actual numbers put out even for 2018-2019. So, if the private sector and public sector don’t have any indications to show that they are going to pump up investments, I don’t see how investments can be seen coming up in 2019-2020. If that is the case, we will be seeing job losses, wages being depressed for at least one more year.

Q: I wanted to pose the same question to professor Himanshu as well, but before that in your analysis in the CMIE survey, can you all give us any colour about where the unemployment is severe either state wise or region wise or sector wise, where does the shoe pinch the most?

Vyas: The best way of finding out where the shoe pinches the most is to see this by age and gender. Here we see that women are suffering the most, their labour participation rate is falling and their unemployment rate is rising. The younger people till recently, we believed the problem is only up to the age of 25. But now, we see that stress has gone up to age 30. So there is a falling labour participation rate and rising unemployment till age 30. The unemployment rate of the age bracket 25 to 29 is of the order of 12 percent. So that is very high.

The urban unemployment rate is high compared to rural as in rural India people take whatever job is available to them. In urban India, they are a little more choosey. If you have done an engineering course or MBA, then you don’t take a low wage job, which is what people in rural India are willing to take apparently. But in urban India, where people are not willing to take low wage jobs, you see a higher unemployment rate, a lower labour participation rate, more distressed unemployment, so the problems are in women, in young people and in urban India.

Q: Tomorrow, we will be celebrating a lot of women who have achieved successes. This would be a very pertinent point to keep in mind that for the large mass of women in India, the participation as well as unemployment, the participation is falling and unemployment is rising. What is your projection of how this problem will pan out? Does it get worse before you see a solution? I wanted your thoughts on even one more point that an economist was making that lately construction, which was such a big magnet for rural surplus labour has ceased to be that not just because there isn’t enough construction happening, but also because construction has stopped to becoming labour intensive as you have prefabricated concrete structures that are being used, your comments on both? Where do you see this problem and whether construction is a salve at all?

Himanshu: Let me reiterate what Vyas has already pointed out. As of now, I don’t see much is happening. All the issues that you talked about capacity utilisation, surplus inventory build-up and also things are already there and there is no way we are getting out of it unless there are some proactive steps taken by the government to build up demand in the rural economy. I keep coming back to it simply because that is where the problem lies. As a run-up to the election, there is going to be some money flowing to the rural economy, whether it is income transfers or it is loan waivers or something else. So there is going to be some improvement in the rural demand. There is no doubt about it and this normally happens during the election year. Whether that is sustainable or it is sufficient to take it forward for the next four-five years is something that we will have to see, because we will have to see how it basically builds up into and spills over to the other sectors. So, there is a large number of ‘if’s and ‘but’s which we will have to be factored in before we say. But as of now, there is not a very positive kind of a sign that I see.

During 2004, the construction sector has seen an increase in employment at least in the rural areas. Almost 90 percent of that was private construction, not the big kind of construction, they are not building flats or real estates like in Mumbai or Delhi, these are people who are upgrading their kutcha houses to pucca houses. So, this is all labour intensive, but there is not much of machinery or capital intensity that goes into building those houses and these are kind of poor people and they are upgrading the kutcha to pucca kind of houses. Yes, they will go into it and the technology and the quality of housing in rural India is also improving. People are going into those kinds of things, but still, a large volume can be absorbed in the construction sector simply because that is still labour intensive. You cannot have built a house without using a good amount of labour, that still continues to be the most labour intensive activity in the rural areas. So, there is still a possibility and a lot of scope of construction absorbing labour. At least, the labour that is coming out from agriculture to the non-agriculture sector as that is something which is there on the field. That I think is where we should push.

Q: You fleetingly mentioned this income transfers in rural areas. I wanted you to come in on this. Is it too simplistic to assume that all of these transfer of payments by the government or the dolls or the freebies, the loan waivers etc, all of this is helping people remain unemployed and sort of dissuading people from participating in the labour markets?

Vyas: You are absolutely right. These transfers are dissuading people from coming into the labour markets. We are starting to see this in our survey. There are many anecdotes that have come in over the last one to one and a half years that the amount of doles that people get whether this is support for one calamity or one problem or the other is large enough and even pensions. So, pensions are a fairly big factor in dissuading youngsters from joining the labour force. We are now collecting this data more systematically to see how much of a role do these transfers play. But, transfers are prima facie very clearly telling us that they are playing a big role, you are absolutely right, in dissuading people from joining the labour forces.
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