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Reality about unemployment in India

Reality about unemployment in India

India, according to Census 2011, estimates its workforce at 402 million. According to the labour ministry, as of 2016, India’s labour market comprises more than 475 million people. Of this, it is estimated that less than 10% are in formal employment.The inability to create formal economy jobs haunted the United Progressive Alliance government and is now a growing cause for worry for the Bharatiya Janata Party-led National Democratic Alliance.

It is true that a reliable and up to date measure of employment and unemployment is not easy. There are many sources of data on employment and unemployment. Currently, unemployment data is collected and disseminated by several departments, agencies, ministries in India. The primary agencies for survey and data collection are Central Statistical Office (CSO) and the National Sample Survey Office (NSSO) of the Ministry of Statistics and Programme Implementation (MOSPI). Other agencies include Labour Bureau of the Ministry of Labour and Employment (MoLE) and Registrar General and Census Commissioner of India under Home ministry. Further, Ministry of Micro, Small and Medium Enterprises (MSMEs) and the Directorate General of Technical Education (DGET) also occasionally collect employment data. Nevertheless, dubbing all these data as unreliable, or just cherry picking of one set of data to showcase government’s achievement does not change the reality.

Mirza Ghalib once remarked, “I know the reality of heaven; what you say is good to soothe my heart.” This aptly applies when government agencies are propagating that statistics show that formal employment in India has increased. This kind of statistical jugglery may win elections, but eventually it may break the hearts of millions of young people. Contrast this with a report in the Hindustan Times in July 12017. According official data, one of every three IITians graduating in 2017 either didn’t find a suitable job or wasn’t found suitable for a job through campus placement, pointing to shrinking employment opportunities for India’s large pool of engineering talent. Only 66% of those who made themselves available for campus recruitment landed a job offer in 2016-17, as against 79% in 2015-16 and 78% in 2014-15, according to data made available by IITs to the human resource development (HRD) ministry. Out of 9,104 student in 17 IITs who applied this year, only 6,013 got jobs. The data for placement was shared by 17 IITs. There are 75,000 students studying in 23 IITs in the country. DNA also reported that The number of private job offers for graduates across the Indian Institutes of Technology (IITs) has dropped in the last two years. While 7,367 students were placed in 2015-16, only 6,406 got the opportunity in 2016-17. If this is the fate of IITs, where students are rigorously educated and trained, what might be happening to the students of social sciences and humanities or to those who are less educated or uneducated? Private sector provides approximately 90 per cent of jobs and the informal sector in India generates more than 90 per cent of jobs. This has not happened in a few years of course, and there are deep rooted problems in our educational system (with regard to employability) as well as the strategy of growth and industrialization (which is less labour absorbing). The only change in recent times is propagating that all is well because the new government has consciously worked for increasing employment. It is not truth, but a post truth—that is ‘take the truth as it is being told’ and not ‘as it actually exists’!

What Economic Survey says?

 While the economists have recently raised concerns over not enough jobs being created, the government has rejected the worrying employment scenario, saying that there is a lack of comprehensive data on job creation. Rajiv Kumar, Vice-President of Niti Aayog said in January that there is “much better news on employment”, which was in contrast with the then CMIE data. He had also said that the government think-tank would “very soon” release a report based on high-frequency data on job creation. The report has not been released yet.

The Economic Survey 2017-18 claims that Formal Sector Non-Farm employment is much more than it is believed and it has increased in the last two years. The survey has madesome interesting points in this regard. According to it, assessments of the employment challenge are hampered by a lack of timely data. Recognizing this, the government authorized the NITI Aayog to provide new guidelines for filling this lacuna, and the next comprehensive survey of employment is under way. In the meantime, the digitization of government data and the introduction of the GST have provided an opportunity to make some preliminary estimates of formal employment.

The Survey explains that from a social security perspective formal employment amounts to 6 crores, to which we must add an estimated 1.5 crore of government workers (excluding defense), for a total of 7.5 crores. Since the non-agricultural workforce (again adding government to the figure in the table) is estimated at 24 crores according to the 68th Round (2011) of the NSSO Employment-Unemployment Survey, formal employment under this definition is equivalent to 31 percent of the non-agricultural workforce.

It adds that from a tax perspective formal employment is 11.2 crores; adding government employment yields a total count of 12.7 crores. This implies that nearly 54 percent of the non-agricultural workforce is in the formal sector. Of course, not all the firms that pay GST are formal, in the common-use sense of the term. As Chapter 2 shows, many small, below-the-threshold firms have registered for the GST so they can secure tax credits on their purchases. Against this, the figure excludes many formal workers in sectors outside the GST such as health and education.

It concludes :Notwithstanding the caveats regarding the specific numbers, the broad conclusion is likely to be robust: formal payrolls may be considerably greater than currently believed.

What other sources of data show?


According to data of Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India has doubled between July 2017 and April 2018, whereas the number of jobs in the country in the last financial year 2017-18 also fell to 406 million from 406.7 million in the previous year, data from the Centre for Monitoring Indian Economy show. The unemployment rate in the country rose from 3.39% in July 2017 to 6.23% in March 2018, and is projected to reach 6.75% in April 2018.

The unemployment rate between July 2017 and October 2017 rose significantly from 3.39% to 5.04%. It declined for two months — November and December to 4.76% and 4.78% respectively and started rising again from January 2018. Jobless growth is one of the major challenges the country is facing.

Analysts have pointed out that since nearly half of India’s workforce is dependent on agriculture, jobs suffer due to the volatility in the sector — drought, unseasonal rains, bad crop et al. Madan Sabnavis, Chief Economist of CARE Ratings says that there has been a trend of replacements than adding new jobs.According to him “There have been softer recruitments in the corporate sector with just 2-3% growth rate, while jobs in the public sector have not increased.”  He explained that a lot of people are understood to have lost their jobs when housing projects got stuck last year.

KLEMS India database: What happened the previous year?

Given how key labour-intensive sectors, such as agriculture and exports, have not done too well between FY14 and FY16, it is not surprising no new jobs were being created in the economy during this time. In fact, the KLEMS India database reveals a contraction in the workforce over this period, with about 1.2 million jobs being lost and the total employment down from 483.9 million to 482.7 million. Even though growth rates were purportedly high, in 201-16 and 206-17, the KLEMS India database show that manufacturers didn’t hire too many more people—because only an additional 0.3 million jobs were created. Unfortunately, the agriculture sector, which provides nearly half the total employment, barely grew in either of the years, and actually contracted 0.2% in FY15. Consequently, the number of people employed slipped from 217.6 million in FY14 to 210.1 million in the next year and further to 202.7 million in the subsequent year. Again, the loss of jobs in the textiles sector—around 0.7 million jobs were lost in the two years between FY14 and FY16—could be partly due to the near collapse of the exports sector, which contracted to $316.5 billion in FY15 and further to $266.4 billion in FY16, from $318.6 billion FY14. Sector experts have been pointing out exports from labour-intensive sectors have been slower than that of the sector as a whole. Much of this, they say, is due to structural issues, and caution that labour-intensive sectors are becoming less competitive. Over the past year, demonetisation and the delays in refunds, on account of GST, have further hurt exporters. The slowdown in sectors, such as construction, which grew just 1.3% in FY17, is not good news because it accounts for around 12-14% of the total employment. More than 10 million jobs were created in the construction sector in the two years to FY16 although growth decelerated from 4.3 % in 2014-15 to 3.7% in FY16. With real estate slowing down significantly since then, it’s unlikely the additional employment would have been significant. The KLEMS data shows the pace of job creation has decelerated since the early nineties; with an additional12 million people looking to earn a livelihood every year, the economic environment needs to be a lot friendlier.

International Labour Organisation Estimates

According to the latest report of International Labour Organisation (ILO),, the unemployment rate in India dipped from 3.6 per cent in 2012 to 3.4 per cent in 2014. It, however, rose to 3.5 per cent in 2015 and the unemployment rate has remained unchanged since then.  India could witness a higher unemployment rate of 3.5 per cent in 2018, a little more than the 3.4 per cent projected earlier

The unemployment rate in the country will stand at 3.5 per cent in 2018 and 2019 – the same level of unemployment seen in 2017 and 2016, the ILO’s ‘World Employment and Social Outlook: Trends 2018’report said. In its 2017 report, the ILO had projected unemployment rate in India at 3.4 per cent in 2017 and 2018. The ILO said the unemployment rate at a global level would decline for the first time in three years.

The report disagreed with denial of jobless growth by Prime Minister Narendra Modi and assertion that seven million jobs had been created in the current financial year. The ILO has, on the contrary, projected in its latest report that the number of jobless in India  will increase to 18.6 million in 2018 and 18.9 million in 2019, against 18.3 million in 2017. In last year’s report, the ILO had forecast that the number of unemployed in the country is expected to be 18 million in 2018 and had estimated the unemployment figure for 2017 at 17.8 million. So, the number of unemployed persons in India in 2017 was 0.5 million more than ILO’s previous year estimates.

The ILO has projected a dip in unemployment rate globally from 5.6 per cent in 2017 to 5.5 per cent in 2018 and 2019. In its 2017 report, the ILO had projected the global unemployment rate at 5.8 per cent for 2017 and 2018. Globally, 192.3 million people will remain unemployed in 2018 – a slight dip from 192.7 million in 2017. India is still better in comparison to the global average unemployment, but this is not enough. Former RBI governor recently said that India needs a higher employment growth and for this it needs to achieve a double digit growth rate led by the labour absorbing manufacturing sector.

The fallacy of EPFO data on employment

A recent study titled “Towards a payroll reporting in India” – by Pulak Ghosh and Soumya Kanti Ghosh used a new dataset, the Employees Provident Fund Organisation (EPFO), to gauge employment growth in India after demonitisation. This report authored by the Group Chief Economic Adviser of the State Bank of India and a professor from the Indian Institute of Management, Bangalore made a case for a better payroll reporting system in India and claimed that 55 lakh new jobs were created in India in a year. The authors later claimed that “7 million formal jobs are being added annually” in Indian labour market. To be sure, seven million formal jobs belies all past expectations, estimates and experiences of India’s labour market. In fact, by the authors’ own estimates, this would mean that India creates more formal jobs (7 million) than the number of skilled workers entering the workforce every year (6.6 million). The authors also claim in their study that 80% of the workforce in India is unorganised labour. That is, 80% of India’s workers are not registered with the EPFO or other formal sector databases. So, if there are seven million new formal sector jobs every year, does that mean there are also 28 million informal jobs being created every year to maintain this ratio of 80:20 unorganised to organised employment in India? This is sheer exaggeration if the truth inside the data is  analysed.

 The report used data from the Employees’ Provident Fund Organisation (EPFO) which registers employees from the formal sector for provident fund benefits. It found that as of November 2017, there were 36.8 lakh new members in the age group of 18-25 years who registered with the EPFO vis-à-vis the previous year. It assumed that any 18- to 25-year-old registering with the EPFO implies that he or she found a new job in the organised sector. This happened on the back of massive external forces of formalisation by the twin forces of demonetisation in FY-2017 and the GST in FY-2018.  It then extrapolated this November 2017 data to the full year of FY-2018 and boldly claimed that 55.2 lakh new jobs were created in FY-2018. This analysis was flawed in the sense that new 18- to 25-year-old EPFO members do not automatically mean net new jobs in the economy; an informal job that turns formal with an EPFO registration does not mean it is a new job; cherry-picking an EPFO data point and post-demonetisation/Goods and Services Tax (GST) time frames lead to these grossly misleading conclusions. Jayaram Ramesh rightly points out that the costs of formalisation may have resulted in many firms cutting costs or even shutting down. The EPFO methodology does not capture any of these costs of forced formalisation but merely showcases the new formal employees as new jobs. In other words, if, say, for every five informal employees, four lost their jobs due to the GST and demonetisation and one became formal, this study will count it as one new job created. Instead, the truth would be that four jobs were lost and one job turned formal from informal, not new. Thus, the study conflates what could be formalisation gains with new jobs. Forced formalization increased the number of EPFO registration. It is seen from the fact that in FY-2015, the total number of contributing EPFO members grew 7%. In FY-2016, it grew 8%. But after demonetisation, in FY-2017, it grew 20% and by December 2017, it had grown a further 23%. To cross check, the latest official numbers revealed in July 2017 (livemint reported) that the subscriber base of the Employees Provident Fund Organization (EPFO) rose 26% in the last six months from 38 million to 48.1 million. The jump was attributed mainly to an amnesty scheme allowing firms to come clean on their actual staff strength without being penalized, rather than jump in employment. EPFO’s amnesty scheme encouraged companies to enrol workers who had joined them between 1 April 2009 and 31 December 2016. Employees’ contributions, if not collected during the period, were waived. The employers’ contribution will be required to be remitted but unpaid dues will not attract any penalty. Every month an organized sector employee contributes 12% to EPF and a matching contribution is given by the employer. The amnesty scheme started on 1 January and ended on 30 June, 2017.

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