Narendra Modi's '7 million jobs' speech: Relying on EPF data alone paints incorrect picture of employment in India

By  Chaitanya Mallapur

Prime Minister Narendra Modi recently said that "lies were being spread" about the lack of employment in India. "In one year, EPF (Employment Provident Fund) accounts of 70 lakh youth between the ages of 18 and 25 have been opened," Modi said in a television interview aired on 22 January, 2018. "Seven million new EPF accounts, doesn't this show new employment?"

Modi was quoting from a report, Towards a Payroll Reporting in India, published on 15 January, 2018, by Pulak Ghosh, a professor at the Indian Institute of Management, Bangalore, and Soumya Kanti Ghosh, group chief economic adviser at the State Bank of India.

File photo of Narendra Modi. AP

File photo of Narendra Modi. AP

But the data used has been contested. Critics have said that while the study is a good starting point, the new Employees' Provident Fund Organisation (EPFO) data – apparently made available only to Pulak and Soumya – do not account for job losses after the implementation of the goods and services tax (GST) and demonetisation in 2017; and the data does not record how many of these jobs are formalised versions of what were previously informal-sector jobs.

"Unfortunately, despite the hoopla surrounding the Ghosh-Ghosh study, the jury remains out on whether this (job creation) is yet happening or not," Vivek Dehejia, resident senior fellow at IDFC Institute, wrote in Mint. "We cannot say whether Prime Minister Narendra Modi has yet been successful in his promise to boost job creation in India.”

India has a young population, the majority below the age of 35, Modi said in his interview, offering this as an incentive for the world to do business in India.

Jobs an upcoming challenge for nation with growing young population

Jobs are a major and growing challenge in India, which has the world’s largest working-age population–730 million–that requires about a million jobs every month.

“The Indian economy should urgently seek ways to generate decent jobs in large numbers,” Jayan Jose Thomas, associate professor at the Indian Institute of Technology, Delhi, wrote in Mint. “A failure to do so would result in frittering away the energies of the country’s young population.

As many as 18.3 million Indians were unemployed in 2017, and this unemployment is projected to increase to 18.9 million by 2019, according to The World Employment and Social Outlook–Trends 2018 report by the International Labour Organisation, released on 22 January, 2018. TABLE

 

“The rapid growth of ICT (Information and Communication Technology) services in recent years in some emerging countries, notably India, has not generated enough employment opportunities for the large majority of the population,” the report said.

It was against this backdrop that the Ghosh and Ghosh study was released, attracting wide attention from the media and, eventually, the prime minister.

Provident-fund data: Useful or not?

“It is the media narrative and the spin that I am contesting,” said Praveen Chakravarty, senior fellow in political economy at IDFC Institute (and founding trustee of IndiaSpend). “Let’s not mix new 18-25-year-old EPFO registrations with net new jobs in the economy. These are not the same.”

Chakravarty and Jairam Ramesh, member of Parliament and former union minister, contested the Ghosh and Ghosh study in a rejoinder published in The Hindu on January 22, 2018.

fact-checker-indiaspend

“The prime minister ignored the case for a better payroll system but pounced on the 55 lakh new jobs number, citing it to claim that his government is doing a splendid job in creating new jobs,” wrote Ramesh and Chakravarty. “Unfortunately, it is a case of data analysis gone berserk.”

“I think the primary argument for a better payroll reporting system in India is perfectly justified and much needed,” Chakravarty told FactChecker. “There is very little one can claim about jobs in the overall economy with just EPFO numbers.”

Chakravarty also questioned the “privileged access” of EPFO data not available to others. “That is not a done thing in research circles,” he said. “Either release the data you have or use publicly available data. To say, ‘I have privileged access, you don’t; hence you have to believe me’ is quite naive.”

He acknowledged, as did others, that the EPFO data could be used to explore the question of employment in India.

“The study done by Ghosh (and Ghosh) is a very good starting point,” V Anantha Nageswaran an independent consultant based in Singapore, wrote in Mint. Supporting their claim of job creation, Nageswaran cited a 2017 analysis by Mahesh Nandurkar–India Strategist with CLSA, a broking-cum-investment firm–that studied over 900 listed companies with an employee base of five million, which showed 3.7 percent growth in jobs in the financial year 2016-17 and a four percent rise in 2015-16.

“This is actually in line with the jobs growth seen for these companies over the last 10 years,” Nandurkar wrote in Business Standard. “Thus, at least for this sample, jobs creation has not slowed down over the last two years.”

Yet, other surveys indicate widespread job losses.

Surveys indicate jobs loss across various sectors

Job losses were reported across various sectors, from textile, banking, information technology, to start-ups, based on collation of data across these sectors, The Indian Express reported.

FIGURE

Other surveys have pointed to job losses from demonetisation and GST.

About 1.5 million jobs were lost between January and April 2017, following demonetisation, according to data from Centre for Monitoring Indian Economy (CMIE), a think tank, The Indian Express reported.

Nearly 45 percent jobs in trading organisations were lost during October and December 2016, according to a report by All India Manufacturers Organisation that surveyed 10,000 respondents across India, according to Scroll. After the GST rollout on 1 July, 2017, the trading industry lost 18 percent of jobs between July and September 2017, as did small and medium enterprises (25 percent), large companies (15 percent) and exporters (20 percent).

Seven million new jobs created in a year: Provident fund data analysis

The report by the Ghosh duo primarily analyses payroll data in the formal or organised sector through the EPFO, Employees’ State Insurance Corporation (ESIC), National Pension System (NPS) and General Provident Fund (GPF). The report said 590,000 jobs every month–or seven million annually–were likely to be generated in 2017-18.

TABLE 3

As regards the EPFO payroll, the report says that employees aged 18-25 are likely to be entering their first jobs–the average age for graduates is 21 and post-graduates is 23-24.

As many as 4.54 million new payrolls were created across 190 industries during 2016-17 and 3.68 million new payrolls in 2017-18 (up to November 2017), the report said. Extrapolating these data, Ghosh and Ghosh estimate that 5.5 million new payrolls–or jobs–are likely to be created in 2017-18.

The debate on jobs created versus jobs lost

The analysis by Ghosh and Ghosh was flawed, argued Ramesh and Chakravarty because new EPFO registrations do not necessarily mean a new job. They supported the need for better payroll reporting but said current data could not be used as evidence of job creation.

The Ghosh duo responded in The Hindu to Ramesh and Chakravarty’s rejoinder. “This is the first study to dig out raw data and use big data analytics to construct a payroll report in India,” they wrote. “Previous studies used the survey-based method and extrapolation, which is arguably flawed.”

On the issue of registrations of EPFO accounts in the 18-25 age group, and the formalisation of jobs during demonetisation (2016-17) and GST (2017-18), Ghosh and Ghosh responded that it is a “claim or hypothesis” based on various surveys and not supported with data.

It is possible that an existing employee below 19 can join the payroll, registering with the EPFO during any year, Ghosh and Ghosh conceded. “We believe that this figure is not material on (a) net basis as we have excluded first payments from those who are 25 years and above and who could have also joined the payroll for the first time (the number of such outstanding payrolls is as much as 54.8 lakh),” the Ghoshs’ wrote, acknowledging that EPFO data cannot capture job losses attributed to GST.

“Even if we assume that there have been job losses, we need to mention that our objective is to capture first-time payroll reports through EPFO,” the Ghosh duo wrote. “By definition, EPFO is not a platform to estimate hypothetical job losses, but new payroll capture through real-time data analytics.”

FactChecker is fact-checking initiative, scrutinising for veracity and context statements made by individuals and organisations in public life.


Updated Date: Jan 30, 2018 12:49 PM

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