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One of the biggest challenges facing India, since even before the pandemic, is the state of unemployment in the country. While the unemployment rate in the country has been gradually increasing since 2017, it came to the attention of the media and the public eye amidst the pandemic when countless migrants lost their jobs and were forced to walk back to their villages.
A McKinsey Report on Economic Agenda to Spur Growth and Jobs in 2020 stated that India needs to create at least 90 million non-farm jobs to absorb the new entrants and adapt to the structural transformations in the economy, that is, people moving from unproductive farm sectors to the productive non-farm sectors. A boost of 8.5% to the GDP of India will be required to achieve this goal, especially, in manufacturing, construction and labour intensive sectors.
The unemployment rate surged to 23.52% in April 2020 and 21.72% in May 2020. Since then, it has come down to 6.98% in October 2020. As the lockdown eased, the unemployment numbers also declined. It is interesting to note that the rural unemployment rate was lower than the urban unemployment rate in each of these months. This was primarily because the schemes introduced by the government were targeted to boost employment in the rural areas specifically.
According to the Consumer Pyramid Household Survey (CPHS), around 8.4 crore jobs were lost during the April-June 2020 quarter, out of which 72% were small traders and wage labourers, 19% were salaried employees and 18% businesses. During the following quarter, the small traders and wage labourers recovered more than they lost and businesses recovered by almost 97%. However, the salaried employees were the hardest hit as their recovery was a mere 12.3%.
Even an increase in entrepreneurs has not led to an increase in salaried jobs, thus implying that these new ventures are either small businesses or restricted to self-employment. Thus, it has not resulted in generating job opportunities and economic growth. Since this problem persisted even before the pandemic, it is necessary to analyze the reasons behind it and address this through policy impetus and formalization of jobs.
Moreover, a disappointing trend seen in the labour market is that not only is there a decline in the employment rate, but also in the labour force participation market. This is a cause for concern and if this continues to persist, it will have to be closely analyzed and the National Economic Policy will need to address it.
Government initiatives
The Government of India introduced new schemes to address unemployment in the country, keeping in mind the influx of migrant workers from rural to urban areas. The government enhanced the budgetary allocation to the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) by Rs 40,000 crore to address this critical problem.Additionally, the PM Garib Kalyan Rozgar Yojana was announced an employment-cum-rural public works program. The scheme was introduced in 116 districts of 6 states in June 2020 with an initial allocation Rs. 50,000 crore for building durable rural infrastructure.
As part of the Atmanirbhar package, the government announced incentives to facilitate formalisation of jobs. Every registered establishment under the Employees Provident Fund Organisation (EPFO) that brings in new employees into its fold or employees who have lost jobs between March 1, 2020 and September 30, 2020 to re-join work, will be eligible to subsidy of 24% or 12% each of the employees' and employers contribution for each new candidate enrolled.
The new candidates who enrol between October 1, 2020 and till June 30, 2021 will get the benefits under the scheme for a period of two years. For organisations with up to 1,000 employees who earn up to Rs 15,000 per month and are registered under EPFO, the 12% contribution of the employees and 12% from the employer -- amounting to a total 24% will be borne entirely by the central government. For establishments employing more than 1,000 employees, employees EPF contribution of 12% will be provided by the government.
As part of the Atmanirbhar package, the government announced incentives to facilitate formalisation of jobs. Every registered establishment under the Employees Provident Fund Organisation (EPFO) that brings in new employees into its fold or employees who have lost jobs between March 1, 2020 and September 30, 2020 to re-join work, will be eligible to subsidy of 24% or 12% each of the employees' and employers contribution for each new candidate enrolled.
The new candidates who enrol between October 1, 2020 and till June 30, 2021 will get the benefits under the scheme for a period of two years. For organisations with up to 1,000 employees who earn up to Rs 15,000 per month and are registered under EPFO, the 12% contribution of the employees and 12% from the employer -- amounting to a total 24% will be borne entirely by the central government. For establishments employing more than 1,000 employees, employees EPF contribution of 12% will be provided by the government.
Almost 15 lakh subscribers were added to the EPFO subscriber base in September 2020. Of the new 15,000 subscribers added to the EPFO subscriber base, 42.8% fell in the 18-25 years age group. This is a critical indicator of the labour market of India.
In addition to the above mentioned schemes, the government had also been considering the possibility of introducing a replica of MNREGA for the urban sector. However, the government has rightly decided to shelve the idea for now. There are many arguments against this. The urban local bodies (ULBs) will be primarily responsible for implementing MNREGA in urban areas.
Most ULBs are understaffed and lack skilled staff to meet infrastructure and service delivery needs of citizens. They are also financially constrained: their own revenue is an abysmally low 1 per cent of the GDP.
In addition to the above mentioned schemes, the government had also been considering the possibility of introducing a replica of MNREGA for the urban sector. However, the government has rightly decided to shelve the idea for now. There are many arguments against this. The urban local bodies (ULBs) will be primarily responsible for implementing MNREGA in urban areas.
Most ULBs are understaffed and lack skilled staff to meet infrastructure and service delivery needs of citizens. They are also financially constrained: their own revenue is an abysmally low 1 per cent of the GDP.
A disappointing trend is that not only is there a decline in employment rate, but also in labour force participation market
MNREGA was envisaged to address the problem of rural unemployment and underemployment. It is primarily meant for labourers who are rendered unemployed due to the seasonal nature of agriculture. The nature of work is unskilled manual labour. The scheme is conceived as wage-intensive and less money is allocated towards material and administration.
The scope for manual unskilled work is limited in urban areas. The capital content of urban infrastructure tends to be high. For employing the same number of workers, the total expenditure would need to be much higher in, say, construction activities. The wage intensive nature of the scheme thus makes it largely unsuitable for building urban infrastructure.
An urban MNREGA could propel migration of workers from rural to urban areas. This could create challenges for the already crumbling infrastructure and services in urban areas. It would be a more sensible strategy to use EPFO to incentivize job creation, instead of replicating MNREGA for the urban sector.
According to the Periodic Labour Force Survey, 2017-18 77.1% of employment in India is in non-regular jobs i.e. they are now either self-employed or casual labour. Among the salaried employees in the non-agriculture sector there is rampant informality. 71.1% of salaried employees had no written job contract, 54.2% were ineligible for paid leave and 49.6% were ineligible for any social security. Informality is here to stay during the pandemic.
Workers who lost their jobs will try to create or find more jobs, mostly in the non-formal sector. Even formal enterprises prefer to hire informal workforce since it leads to a reduction in labour costs. It is of critical importance to periodically analyze and identify measures to address the problem of unemployment which has been aggravated by the pandemic.
There is an imperative need for an updated labour force database of the economy to fully comprehend the actual scale of the problem. This will substantially increase the possibility of accurately identifying the pandemic’s effect on the informal sector of the economy -- enterprises and workers both. The Ministry of Labour and Employment is reportedly creating a database of the informal workforce in the country to provide them social security. However, the status of this project is currently unknown.
The National Employment Policy needs to have a more holistic approach to address the challenge of unemployment. It is necessary to look at the composition of employment to ensure more gainful employment in the formal sector. The policy needs to focus on tackling informal employment and low and declining female participation rate.
There is a need to identify policies that might promote dwarfism amongst enterprises in India. There is a need to resurrect the ‘missing middle’ to augment productivity. Finally the laws and regulations that impose undue compliance burden and prevent enterprises from growing in scale need to be identified and rationalised. This will go a long in promoting the ease of doing business in India.
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*Fellow, National Institute of Public Finance amd Policy, New Delhi. The article is based on Dr Pandey's web policy talk organised by Impact and Policy Research Institute (IMPRI), New Delhi. Acknowledgements: Sajili Oberoi, Research intern, IMPRI, New Delhi, and Marketing and Communications Lead at BrainGain Global, New Delhi
The scope for manual unskilled work is limited in urban areas. The capital content of urban infrastructure tends to be high. For employing the same number of workers, the total expenditure would need to be much higher in, say, construction activities. The wage intensive nature of the scheme thus makes it largely unsuitable for building urban infrastructure.
An urban MNREGA could propel migration of workers from rural to urban areas. This could create challenges for the already crumbling infrastructure and services in urban areas. It would be a more sensible strategy to use EPFO to incentivize job creation, instead of replicating MNREGA for the urban sector.
Impact, challenges, way forward
With the salaried jobs witnessing negligible growth, it is becoming more critical than ever before to address the rapid informality in employment. In comparison to 2019-2020, informal employment increased while salaried jobs have faced a sharp decline. In spite of India’s fast growth, the proportion of salaried jobs crawled up at a very slow pace from 21.2 per cent in 2016-17 to 21.6 per cent in 2017-18 and to 21.9 per cent in 2018-19.According to the Periodic Labour Force Survey, 2017-18 77.1% of employment in India is in non-regular jobs i.e. they are now either self-employed or casual labour. Among the salaried employees in the non-agriculture sector there is rampant informality. 71.1% of salaried employees had no written job contract, 54.2% were ineligible for paid leave and 49.6% were ineligible for any social security. Informality is here to stay during the pandemic.
Workers who lost their jobs will try to create or find more jobs, mostly in the non-formal sector. Even formal enterprises prefer to hire informal workforce since it leads to a reduction in labour costs. It is of critical importance to periodically analyze and identify measures to address the problem of unemployment which has been aggravated by the pandemic.
There is an imperative need for an updated labour force database of the economy to fully comprehend the actual scale of the problem. This will substantially increase the possibility of accurately identifying the pandemic’s effect on the informal sector of the economy -- enterprises and workers both. The Ministry of Labour and Employment is reportedly creating a database of the informal workforce in the country to provide them social security. However, the status of this project is currently unknown.
The National Employment Policy needs to have a more holistic approach to address the challenge of unemployment. It is necessary to look at the composition of employment to ensure more gainful employment in the formal sector. The policy needs to focus on tackling informal employment and low and declining female participation rate.
There is a need to identify policies that might promote dwarfism amongst enterprises in India. There is a need to resurrect the ‘missing middle’ to augment productivity. Finally the laws and regulations that impose undue compliance burden and prevent enterprises from growing in scale need to be identified and rationalised. This will go a long in promoting the ease of doing business in India.
---
*Fellow, National Institute of Public Finance amd Policy, New Delhi. The article is based on Dr Pandey's web policy talk organised by Impact and Policy Research Institute (IMPRI), New Delhi. Acknowledgements: Sajili Oberoi, Research intern, IMPRI, New Delhi, and Marketing and Communications Lead at BrainGain Global, New Delhi
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