Coronavirus crisis adds to risks as India battles slowdown, unemployment

It is logical to believe that employment conditions in India have deteriorated quite substantially during 2019-20 eco­nomic growth has slowed down and investments show no sign of picking up. Outlook for the economy in 2020-21, and therefore also for em­ployment, is also getting increasingly difficult by the day. With capacity utilisation remaining very low at around 70 per cent, the prospects of an investments turnaround remain very bleak. As a result, the prospects for growth in good quality jobs also look very difficult.


Confidence in the financial system is getting dented with increasing regularity; government measures to prop the economy do not seem to be effective and elections now violently disrupt social harmony and increase mistrust. These scars and the apparent impotency of state capacity has a direct impact on the well-being of citizens. The most proximate and clinical impact is on employment and livelihood.


Such conditions can be expected to lead to high unemployment rates, low labour participation rates and a structural shift in favour of poor quality employment.


The unemployment rate has been rising steadily for over two years now. Till recently it looked like it would settle at a shade below 8 per cent. But now again it seems that the rate could rise to more than 8 per cent. In February 2020, the unemployment rate was 7.8 but, in three of the four weeks of the month, the rate was over 8 per cent. Now, the 30-day moving average of the unemployment rate during most of the first week of March 2020 was over 8 per cent and the week ended with an unemployment rate of 7.71 per cent.


Nevertheless, in India there is, apparently, a limit to the increase in the unemployment rate. After a point, people get so discouraged by not finding jobs that they exit the labour markets. This can have a rather incongruous impact of a fall in the unemployment rate. If people who cannot find jobs stop looking for jobs, they are quitting the labour markets and in doing so, they are reducing the count of the unemployed and thereby reducing the unemployment rate.


But this decline in the unemployment rate is not a good sign. On the contrary, it is worse than an increasing unemployment rate. This is what has been happening in India. The labour participation rate has been falling. And given the poor prospects of growth, this is likely to continue to happen.


The labour participation rate in February was 42.6 per cent. In the last week of the month it had dropped to 42 per cent. The 30-day moving average labour participation rate has been falling since February 20. In the first week of March 2020, it was 42.14 per cent.


The labour participation rate has been consistently below 43 per cent since October 2019. If the unemployment rate continues to rise, then the likelihood of the labour participation rate falling further increases.


There is an additional reason why the labour participation rate may decline. This is because the quality of employment is deteriorating. The emerging composition of employment indicates a decline in good quality jobs and an increase in risky employment choices.


During 2019, there was a big increase, of 8 million, in the count of self-employed entrepreneurs. At the same time, salaried jobs declined by 1 million.


A salaried job is arguably, the most preferred kind of employment. When these jobs decline, labour has few choices. It may either drop out of the labour force or may turn into becoming entrepreneurs. But, everyone cannot become an entrepreneur. Those who cannot, will drop out of the labour force. So, we are seeing an increase in entrepreneurs, but no increase in salaried jobs and a fall in the labour participation rate.


During 2019, there was also an increase in the number of farmers.


Farming is risky business, which has required additional support from the central government and several state governments. Farming is not the first choice for employment of any young graduate. It can be either disguised unemployment or a compulsion. While some may make such a choice, many others would rather choose to not do anything. In technical terms, remain out of the labour markets and thereby bring the labour participation rate down.


New risks have emerged in the form of the Covid-19 virus. This threatens to shutdown economic activity in many pockets of the world. This could disrupt some supply chains in India and it has started to impact tourism and hospitality industries which are significant providers of employment. This new risk only adds to the economic cholesterol that India has accumulated over the past few years.


The economic slowdown must be seen in terms of its impact on households, human beings and their well-being. A continuation of this economic slowdown, the erosion of trust in financial institutions and the new risks to social harmony, mutual trust and health that India faces have a much greater impact on the well-being of the average Indian than the GDP growth numbers can measure.


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