Unemployment rate fell 1.3 percentage points in July amid uptick in hiring

Unemployment rate stood at 7.9% in July, down from 9.2 per cent reported in previous month

India’s unemployment rate (UR) dropped by 1.3 percentage points in July from an eight-month high of over nine per cent in the previous month. The UR fell to 7.9 per cent in July from 9.2 per cent in June, according to the Consumer Pyramids Household Survey. The survey, conducted periodically by the Centre for Monitoring Indian Economy (CMIE), covers 1,78,000 sample households.

Experts attribute the decline in UR to the sowing season and the progress in hiring of workers. 

In absolute terms, the number of unemployed declined to 35.4 million in July from 41.4 million in the month before, according to an estimation made by the survey based on its sample. Unlike in June, the UR stood higher at 8.5 per cent in urban areas in July against 7.5 per cent in the rural parts. In June, the urban parts saw this rate at 8.8 per cent, while the rural areas had it at 9.3 per cent. As such, the decline in UR was higher in rural areas at 1.8 percentage points compared to 0.3 in urban areas over this period (chart 1).

 

The numbers may indicate some mitigation in the rural distress but are unlikely to give relief to the government striving hard to engage the private sector to hire more people, amid elevated joblessness in urban areas which is the hub for formal jobs.

Sowing typically starts around June, but a delayed monsoon led to an uptick in hiring in the farm sector in July, Bank of Baroda chief economist Madan Sabnavis said, adding that it is also the month when the new hands join organisations. The private sector hiring usually happens after campus placements, he adds. 

Naukri JobSpeak Index, which tracks new job listings and job-related searches from recruiters, saw an increase to 2,877 in July from 2,582 the month before  (chart 2).

The UR measures the number of people who are unemployed out of those in the labour force actively looking for a job.

The male unemployment rate decreased from 7.8 per cent in June to 7.1 per cent in July. For females, it dropped from 18.6 per cent to 13.2 per cent. Despite this larger decline among females, their unemployment rate remains higher than the national average.

One of the reasons could be restrictions imposed by various states on female participation in some factory activities. The Economic Survey 2023-24 said that a total of 139 prohibitions across 10 states in India restrict women from participating “in factory processes such as electroplating, petroleum generation, manufacturing of products such as pesticides, glass, and rechargeable batteries.” 

Uttar Pradesh had the highest restrictions on 18 activities, followed by Andhra Pradesh (17), Tamil Nadu (16), Maharashtra (15) and West Bengal (14).

Meanwhile, the labour participation rate (LPR), which shows the proportion of working-age people (above 15 years) willing to work, declined from 41.3 per cent in June to 41 per cent in July, according to CMIE. This indicated a rise in the number of people not actively seeking work. 

The LPR for males declined to 67.7 per cent in July from 68 per cent in the previous month, while it remained the same at 11.2 per cent for females.

Data from the Employees’ Provident Fund Organisation (EPFO) indicated job growth in the formal sector in May. There were net additions of two million compared to 1.6 million a month before. It was 0.9 million in May 2023 (Chart 3). Nearly 45 per cent of the net additions in May were among those aged 25 years or younger. 

 Finance Minister Nirmala Sitharaman announced various schemes in the Budget to enhance employment opportunities. One such scheme was for first-time employees based on enrolment in the EPFO. The effect of the scheme would be known in the coming months since the Budget is yet to be passed by Parliament.

With the overall economy expected to perform well this year, the demand for labour is likely to go up, Sabnavis said, adding that it may be moderated because of higher use of technology such as artificial intelligence in certain sectors. “On the whole, however, the situation will improve,” he says.