First demonetisation and then GST dealt crippling blows to India's already dismal job creation record

New Delhi: As we near the first anniversary of demonetisation later this week, there remains a large void as far as data regarding jobs or employment are concerned. There is enough anecdotal evidence to suggest that demonetisation impacted the unorganised sector, the small and medium enterprises, the most. Job creation has been Modi government’s biggest headache, even before the shock announcement of withdrawing over 80 percent of the currency in circulation on 8 November last year dealt a crippling blow to employment in India. This single decision pulled the plug for employment prospects of millions of contract workers, daily wagers and others employed in temporary jobs in the unorganised sector across the country. Added to demonetisation now is the crippling impact of GST rollout on employment intensive sectors like textiles, construction and real estate.

India Inc has been demanding job creation opportunities through policy framework for some time now. The latest Economic Outlook Survey of by business chamber FICCI says there was a broad consensus among the respondents that one of the primary objectives of the new industrial policy should be job creation. “Lack of employment opportunities remains a key challenge as India has a huge young and aspirational workforce. It was felt that though the government has initiated key campaigns like ‘Make in India’, ‘Skill India’, these should be made an integral part of industrial policy with clear provisions for their assessment.”

Remember, only about 40 percent of the workforce in India is employed in non-agricultural jobs. Here too, the majority is earning wages in the unorganised sector, which bypasses taxes and usually manages not come under the radar of any data collection exercise. Such unorganised sector workers change jobs frequently and therefore even where data are available, they show high volatility in unemployment rates. Mahesh Vyas, MD and CEO of CMIE, has quoted the Economic Review of the Directorate General of Employment and Training, Ministry of Labour to say earlier that the total number of people employed in the organised sector was 29.6 million in 2011-12.

In the same year, using the National Sample Survey Organisation’s Employment and Unemployment survey in India and the Census 2011 data, CMIE estimated that the total persons employed was 303.5 million . Put simply, this means less than 10 percent of the total number of people at all employed in India were working in the organized sector or 90 percent were in jobs which were likely not permanent and definitely not under the radar of most employment data collections.

Vyas further said that an estimated 404.7 million persons were employed during January-April 2017. This means, in the five year period, the rise in total number of people employed was only 101.2 million or just about 20 million on an average each year. This shows India’s looming jobs crisis, demonetisation or no demonetisation. On an average, anywhere between 10-15 million new job seekers arrive in India every month.

Vyas’ analysis further said that of the 404.7 million total employed in January-April of this year, only 21 percent were employed in what can be called as jobs in a proper sense. These are white collar workers, industrial workers, support staff in factories and offices, managers, etc. There were 86 million people with such jobs. This means only every fifth person had a regular job.

Given these complexities, is it any wonder that not one official estimate on unemployment till now has linked job losses to demonetisation in the last 12 months? In fact, by the middle of the current calendar year, government’s own think tank NITI Aayog began emphasizing painful lack of data, saying there was urgent need to improve the sample sizes being used by various government agencies to collect data on employment.

So as India continues to be in the midst of a jobs crisis, accentuated further by demonetisation, it also continues to close its eyes to an integrated approach to solve the jobs muddle. Vyas noted in a post on 10 October that unemployment is inching up even one year after the massive economic disruption caused by demonetisation. The rate of unemployment in urban India was the highest in 11 months in October.

“In the week ended 8 October, it was 5.8 percent compared to 5 percent in the preceding week. In urban India, unemployment was 8.2 percent. This is the highest unemployment rate in urban India in the past 11 months. Urban labour participation rate has recovered to its level during the last December-January period. The rise in labour participation rate and the unemployment rate shows that labour is returning back to the labour markets but, it isn’t finding jobs. The fall in labour participation rate began soon after demonetisation. We are probably seeing a recovery after about a year.”

According to the BSE-CMIE month wise unemployment data, November and December last year were the worst months for jobs in the entire 12-month period, with overall unemployment highest in November at 6.55 percent followed by 6.42 percent in December. Then it kept fluctuating, fell to 3.39 percent in July before rising to well beyond 5 percent in October this year (5.68 percent). In another subsequent post, Vyas said that the post-demonetisation period “did see a substantial increase in the volatility of monthly unemployment rate. The coefficient of variation increased from 8.8 percent (pre) to 23.5 percent (post)”.

It is the high proportion of these workers in India that makes the unemployment time-series volatile.

Not just unorganised sector, employment growth even in the corporate sector has been lagging GDP growth. Madan Sabnavis, Chief Economist at Care Ratings said “Growth in employment in corporate sector is not commensurate with GDP growth. In terms of overall employment, the bulk happens in banking, IT, textiles and healthcare. Growth was only seen in these four sectors, if we exclude them then there was negative employment growth in 2016-17”. On an average, job growth rates were 1.5-2 percent versus about 7 percent GDP growth rate.

Let us look at another sample of data but this time, released by a government agency. The National Sample Survey Organisation (NSSO) released data for 2015-16 in the non-agricultural, non-construction, non registered segment in July, showing that this sector and its job creation potential failed to keep up with the country’s economic growth. This survey showed that in five years till 2015-16, the number of Indians engaged in non-farm employment (excluding construction sector) rose by a mere three percent even when the number of such enterprises grew by almost 10 percent and wages for people working in this sector rose by over 86 percent.

In 2010-11, about 10.8 crore workers were engaged in unincorporated non-agricultural enterprise activities (excluding construction) and this number rose to just 11.13 crore by June 2016, according to the NSSO’s ‘Key Indicators of Unincorporated Non-agricultural Enterprises (Excluding Construction) in India (73rd round)’. That means just 33 lakh people were added to this segment of India’s informal workforce in five years or an average of 6.6 lakh each year. The total number of enterprises in such category rose from 5.77crore to 6.34 crore by 2016 and the average annual wage increased from Rs 47,016 to Rs 87,544.

Meanwhile, there were some random admissions by the government over job losses, like in this Lok Sabha written reply by the Minister of State for Textiles Ajay Tamta on 10 August this year.

When two of his colleagues wanted to know whether a large number of textile workers became jobless due to closure of textile units or due to some other reasons, Tamta said “As per Office of the Textile Commissioner, 610 cotton/ man- made fibre textile mills (Non-SSI) were closed having 3,00,697 numbers of workers on their payroll as on 30.6.2017.” Again, there was no reference to demonetisation and the reply did not even specify the period within which these closures have happened.

This piece in Scroll outlines the blow to job creation after the implementation of GST from July this year. It says not just manufacturing, jobs in the service sector too have been hit. It invokes the NDA’s poll promise of creation of 25 million jobs per year over 10 years. “But every indicator suggests that 2017 will see net job losses. CMIE started estimating employment trends in January 2016 when it reckoned that around 39 million people were looking for work. Between April and December last year, the employed workforce grew from 401 million to 406.5 million. The workforce had fallen to 405 million by April this year. That implies a net 5.5 million jobs were generated between January to December 2016 but a net 1.5 million jobs were lost between January to April this year.” How are we going to tackle this demographic disaster?