The latest news on the unemployment front is a cause for concern for the Modi government, long criticised for jobless growth after making it a key electoral promise in 2014. According to data compiled by the Centre for Monitoring Indian Economy (CMIE), the unemployment rate rose to 7.2% in February 2019, the worst in 28 months. Meanwhile, the labour force is down 25.7 million since September 2016 and the number of employed persons has declined by 18.3 million in the same period.
While the unemployment rate has shot up from 5.9% in February 2018 and is marginally higher than in January (7.1%), the labour participation rate - the proportion of the working age population, comprising those over 15 years of age, that is either employed or unemployed but actively looking for a job - has ironically been falling.
According to Mahesh Vyas, head of the Mumbai-based think-tank, the falling labour participation rate implies that lower proportion of the working age population is willing to work. The total number of employed persons in February 2019 is estimated at 400 million against 406 million in the year-ago period and 407.5 million employed in February 2017.
There is a significant decline even on a monthly basis. The labour participation rate fell from 43.2% in January 2019 to 42.7% in February. "In every month of 2018 and in the months of 2019 so far, the ratio has always been lower than it was in the corresponding month of the previous year. This was also the case in 2017. But, that could be attributed to demonetisation. The continued y-o-y fall in the labour participation rate even in 2018 and 2019 indicates a deeper or a more sustained problem ailing India's labour markets," said Vyas.
What's more, the CMIE data released yesterday shows that for the last one year, India has seen "the dreadful phenomenon" of falling labour participation rates and rising unemployment rates. This worrying combination has led to a falling employment rate - the proportion of working-age population that is employed. The key statistic has been dipping since November 2017 when it stood at 41.8%. By December 2018, it fell to 39.5% and further to 39.7% last month.
All this is pretty bad news for the Modi government ahead of the looming general elections. The CMIE numbers are based on a survey of tens of thousands of households across the country. The figures are regarded by many economists as more credible than the EPFO payroll data that is often quoted by the government to support its case of new job creation. According to Reuters, in December it had withheld a batch of data because officials said they needed to check its veracity, but the figures leaked to a local newspaper a few weeks ago revealed that India's unemployment rate rose to its highest level in at least 45 years in 2017-18.
Given that the working age population grows by an estimated 23 million a year, even if we assume that only 42-43% will join the labour force, Vyas reckons that we need to find 8 lakh new jobs on a net basis every month. Else, unemployment will rise, at least initially.
However, he believes that the falling employment rate is bigger problem for India than the unemployment rate. "At the core of the problem is very low job opportunities [which] compared to the size of the working age population have reduced wages in the private and unorganised sectors to a point where only the desperate are willing to take up such jobs," he said.