India's unemployment rate rose sharply to 9.1 per cent in December 2020, highest since the beginning of India's recovery from the lockdown in June, the Centre for Monitoring Indian Economy (CMIE) said on Monday. Unemployment rate stood at 10.99 per cent in June 2020. This also happens to a steep increase from the 6.5 per cent unemployment rate reported in November.
The unemployment rate rose to 8.4 per cent in the first week ended December 6, further to 9.9 per cent and 10.1 per cent in the following two weeks before moderating to 9.5 per cent in the last week, the CMIE data showed.
"It makes it much worse that the rise in unemployment comes along with high inflation, which has been in the vicinity of 7 per cent in recent months. Further, the big increase in unemployment strengthens worries regarding the recovery process," said Mahesh Vyas, MD and CEO of CMIE, in his latest post.
The rise in unemployment was attributed to a partial recovery of the labour participation rate (LPR) to 40.6 per cent in December, which had fallen to 40 per cent in November from 40.7 per cent in the preceding two months. This was the lowest LPR since the recovery began, which had reduced pressure in the labour markets as it implied that lesser people were looking for work.
"The influx of people looking for work swelled. The labour force increased from an estimated 421 million in November to 427 million in December. But, labour markets were not ready for this six-million surge in labour. It thus left them largely unemployed," the report noted.
As per the CMIE, the main problem that led to the rise in unemployment in December was the failure of the farm sector to absorb the influx of labour. "Farming is the last resort of many who are rendered jobless. But, December is not the month in which it can absorb labour. This is the month when it sheds jobs. In each of the past five years since 2016, labour employed in farming in December has shrunk compared to November. In December 2019, the job loss from farming was 10 million. In December 2020, this sector shed an estimated 9.8 million jobs," it said.
The unemployed count spiked to 38.7 million in December 2020 compared to 27.4 million in November, reporting an increase of 11.3 million. "This huge increase places the unemployed higher than it was before the lockdown. The average count of the unemployed in 2019-20 was 33.3 million. The highest count in the year was 37.9 million in March 2020 and it was below 36 million before that," the CMIE report said.
December also saw a fall in employment as it fell by 4.8 million, from 393.6 million in November, to 388.8 million during the month under review. "The increase in labour participation could not translate into a higher employment rate because the unemployment rate had shot up. Finally, a smaller proportion of the working age population found employment in December," the report said.
While urban India saw its LPR rise from 37.1 per cent in November to 37.7 per cent in December, its unemployment rate rise from 7.1 per cent to 8.8 per cent and its employment rate fell from 34.5 per cent to 34.4 per cent. Employment in urban India fell from 122.5 million to 122.4 million and the unemployed rose from 9.3 million to 11.9 million.
Rural India also witnessed rise in LPR from 41.5 per cent to 42 per cent. But, unemployment rose dramatically from 6.3 per cent to 9.2 per cent. As a result, its employment rate fell from 38.9 per cent to 38.2 per cent. Employment fell from 271 million to 266 million and the unemployed rose from 18 million to 26.8 million.
"This across-the-board deterioration in labour market conditions raises concerns about recovery process. This does not look like a problem of one sector or one region. It seems to be secular decline," the report said.
Employment has been falling consistently month-after-month since September 2020 when it was pegged at 397.6 million. As a result, employment has not only remained consistently below year-ago levels, it has also fallen far short of the two-years ago levels.