India's labour market distress

Implications for growth story will be severe

While the effects of the two most devastating waves of the Covid-19 pandemic in India recede into the rear-view mirror, the threat of new variants, including Omicron, continues to hang over India’s economic trajectory. The question is to what degree India’s employment situation has been scarred by the pandemic so far, and whether it is robust enough to endure another such wave. The recent data from the Centre for Monitoring Indian Economy (CMIE), as discussed in this newspaper by Mahesh Vyas, has some disquieting implications. The data suggests that, while new jobs have indeed been created in recent weeks, the labour participation rate may have slipped for consecutive months, in a pattern that has been observed repeatedly in the recent past. The CMIE’s conclusions are that the pandemic has wrought a structural transformation in India’s labour participation rate, bringing it down by 3 percentage points to 40 per cent. This is well below comparable levels, including in other middle-income developing economies.

Not only the number of jobs being sought, the quality available is of concern too from the point of view of India’s long-term trajectory. The CMIE data suggests that job growth in recent times has been concentrated in rural areas, and salaried jobs have been falling. There were great hopes till relatively recently that the formalisation of India’s economy would gather pace, and salaried urban jobs would be the focal point of future growth. While there is no doubt that aspects of formalisation — such as participation in social security systems — continue apace, it does not seem that salaried urban jobs are indeed the engine of prosperity as was hoped.
 

This is particularly disappointing, given the aspirations of India’s youthful workforce for such jobs. This long-term insight fits in with the broader trend of the recent data. The government data from the Periodic Labour Force Survey, or PLFS, for example, noted that the proportion of the non-agricultural workforce in the informal sector went up to nearly 70 per cent; that there has been a notable increase in those who are working without pay for household enterprises; and that workers in agriculture had, for the first time in recent memory, increased. The most recent quarterly estimates under the PLFS, for January to March 2021, did not alter this conclusion materially — though, unlike the CMIE, they did show a movement in the worker participation rate in urban areas to close to the pre-pandemic level.

The fact is that the data gauges, especially from employment surveys, are loudly proclaiming that India’s growth model is in trouble. While the increase in welfare measures and social protections can postpone the inevitable and somewhat protect living standards — especially as measured through recent efforts such as the multidimensional poverty index — the fact is that sustained increases in productivity, wages, and job security for the vast mass of Indians are the only sure foundation upon which to build economic growth and secure livelihoods. A movement of the workforce towards agricultural jobs, rural jobs, and unpaid or insecure work reveals not just that recent growth trends have not been broad-based but also that future growth might not be built on a sustainable foundation. Of all the government’s pressing economic concerns, this must surely be the most vital.