Editorial Analysis 22 July

ECONOMICS

LIVING IN DENIAL ABOUT UNEMPLOYMENT

Source: THE HINDU

Context:  Unemployment has been a significant concern in India, with varying reports and data sources providing differing views on the state of employment. This has led to confusion and debate over the actual extent of the problem.

Conflicting Reports on Employment

• Prime Minister's Claim: Recently, Prime Minister Narendra Modi highlighted a Reserve Bank of India (RBI) report stating that 8 crore jobs had been created in the past 3-4 years. This was used to counter claims by the Opposition about high unemployment rates. Modi also pointed to infrastructure projects as a driver for future job creation.
• Financial Institutions’ Reports: Contrarily, reports from financial institutions, such as Citigroup, suggested that job creation has been inadequate. These reports indicate that while some jobs have been created, they may not be sufficient to address the overall employment challenges.

Different Data Sources

KLEMS Data	●The KLEMS (Capital, Labor, Energy, Material, and Services) database, cited by the RBI, includes measures such as Gross Value Added (GVA), labour employment, and capital stock across various industries. However, it does not estimate employment directly but relies on existing datasets such as: ○Employment and Unemployment Surveys (EUS) by the National Sample Survey Office (NSSO). ○Periodic Labour Force Survey (PLFS). ●KLEMS data is based on these official surveys, and its use of existing data means it reflects previously collected information rather than providing new estimates. Therefore, citing KLEMS as an independent source for current employment figures may be misleading. ●The PLFS and CMIE use different definitions for employment: ○PLFS: Includes anyone working, regardless of income, and counts those engaged in work without pay or those in informal jobs. ○CMIE: Follows the International Labour Organization (ILO) definition, counting only those receiving income from work. This results in lower labour force participation estimates compared to PLFS.
State Bank of India (SBI) Report	●The SBI report counters financial institution reports by claiming significant job creation, noting 8.9 crore jobs in manufacturing and services from FY14-FY23, and 6.6 crore jobs from FY04-FY14. This report also contrasts the total labour force figures from different surveys, emphasizing discrepancies.
Centre for Monitoring Indian Economy (CMIE) Data	●The CMIE reported a rise in the unemployment rate to 9.2% in June 2024, a significant increase from the previous month’s 7%. This data conflicts with the positive employment narratives and highlights the persistent joblessness issue.

Issues with Employment Data

• India’s employment data is divided between the organised and unorganised sectors:
  • Organised Sector: This sector includes formal industries and businesses with statutory data, which are relatively easier to track and analyze.
  • Unorganised Sector: This sector employs around 94% of the workforce and includes small farms, informal businesses, and various micro-enterprises. Data collection is challenging due to the sheer number of entities and their informal nature.
• Surveys like the Annual Survey of Unincorporated Sector Enterprises (ASUSE) and census data are used, but these have limitations due to their periodic nature and outdated information. The ASUSE, for instance, uses data from previous surveys, which may not accurately reflect recent economic disruptions.

Four major shocks in recent years: ●Demonetisation (2016) ●Introduction of Goods and Services Tax (GST) ●Non-Banking Financial Companies (NBFC) crisis ●COVID-19 pandemic These events have disrupted economic activities, especially in the unorganised sector. Data collected before these shocks may not accurately reflect the current situation, as many businesses may have closed, and economic conditions have changed significantly.

Recommendations

Need for Improved Data Collection

• Frequent Updates: Regular updates to data collection methods are crucial to reflect current economic conditions accurately.
• Comprehensive Surveys: Expanding surveys to cover both organised and unorganised sectors more effectively.

Transparent Reporting

• Clear Communication: Providing transparent and consistent reports to avoid misleading narratives.
• Acknowledge Limitations: Recognize the limitations of different data sources and methodologies.

Policy Response

• Address Structural Issues: Implementing policies to tackle structural problems in the labour market.
• Job Creation Initiatives: Developing effective strategies to enhance job creation and address unemployment.

Conclusion

• The confusion over unemployment data stems from the use of different sources and definitions, the impact of economic shocks, and the challenges of capturing data in a vast and complex economy. Understanding these nuances is crucial for formulating effective policies and addressing the employment challenges faced by the country.