When the budget is presented next month, attention should be paid to its treatment of two critical challenges: unprecedented and prolonged job crisis and growing poverty. These are the twin mega problems that should have been addressed in the previous budgets too and can no longer be ignored.
That is because no amount of financial stimulus, mega investment announcements and mega ‘reforms’ will work until a growing mass of population lives precariously on low incomes. Without raising consumption demand, the main engine of growth, there would be little growth possibility; let lone regaining high growth.
Consider this: the GDP grew at an annual average of 7% (constant prices) during the 15 years between FY05 and FY19, before it plunged to 4% in FY20 and slid further due to the pandemic. A 9.2% GDP growth in FY22, assuming that it does materialise (Omicron risk is looming large), would mean a 1.3% of growth over FY20 and hence, should be treated as nothing more than a mathematical mirage that it truly is.
Most Indians sitting idle at home
That job crisis is a prolonged pre-pandemic challenge is known. The periodic labour force survey (PLFS) of 2017-18 said the unemployment rate had hit 45-year high. A subsequent study of its unit-level data declared that 9 million jobs had been lost between the PLFS of 2011-12 and PLFS of 2017-18 “for the first time in India’s history”. Since then, the PLFS of 2018-19 and 2019-20 have shown marginal improvements in employment but the gains would have been wiped out by a big margin due to the two pandemic waves and then the Omicron threat looms.
The most critical and far more telling employment data to look to decipher the state of job crisis is to know how many working-age people in India are actually working. Since 94% of India’s total workforce is engaged in informal sector (43.7 crore out of 46.5 crore as the labour ministry’s official website says), the economic growth rides predominantly on them.
Developed nations call this (working-age people actually working) ‘employment rate’. In India, it is called ‘worker population ratio’ or WPR, although the term ‘employment rate’ is catching up.
What is the employment rate or WPR in India?
The last PLFS of 2019-20 says, the WPR was 46.7% among 15 years and above (since there is no category called ‘working age’ in the PLFS) for that year. The WPR for all ages was 35% (which includes child labour or those below 15 years and senior citizens). This measurement is by their current weekly status (CWS), a method developed countries use, and going by former chairman of the National Statistical Commission PC Mohanan, best suits the turbulent time we live in (sudden disruptions in work brought by the pandemic and pre-pandemic disruptions like demonetisation and GST), rather than the annual Usual Status (PS+SS) approach which looks at yearly working status.
How does India’s WPR of 46.7% compare with the OECD countries?
Their average ‘employment rate’ for working-age population (15 to 64 years old) in 2020 was far higher at 67.4%.
Two caveats are needed here.
One, the PLFS of 2019-20 reflects the workers’ status during July 2019-June 2020, while the OECD data reflects the status during January-December 2020. This means, the PLFS captures only a quarter of the pandemic impact (March-June 2020), while the OECD’s captures the full pandemic year of 2020 (January-December). Had the PLFS covered the rest three quarters of 2020 (July to December 2020), its WPR would have been much lower and the OECD’s higher but by a small margin, given that theirs is largely a formal economy and they saved 50 million jobs through “job retention schemes” – a legacy of the World Wars.
Two, India doesn’t really have a concept of retirement age like developed nations. The Indian economy is dominated by a disproportionately large informal sector (and employs 94% of the total workforce). There is no retirement age for these 94% workers; they work until they can in agricultural farms, shops or the petty businesses they run until they physically can.
How does one expect the Indian economy to grow when more than 50% of its working-age population (15 years and above) was sitting idle (only 46.7% working) in 2019-20 and even greater number would be sitting idle now due to the pandemic loss of jobs and businesses? India didn’t save a single job, unlike OECD, and there hasn’t been any employment drive either – like filling up a huge vacancy in the central and state governments or big factories or establishments that create more jobs.
Why such a large number of people above 15 years are sitting idle is known: jobs have disappeared. The CMIE data shows, in December 2021, the pandemic had caused a job loss of 10.5 million (9.5 million salaried jobs and 1 million entrepreneurs). Most of the jobless have shifted to casual labour or self-employment – which means a massive loss of incomes and consequently, consumption demand.
The CMIE’s estimates show, the employment rate (15 years and above) fell to 37% in December 2021 – from 43% in December 2016[vi] – a scary number indeed.
Here too, a caveat is needed.
The CMIE and PLFS data are not strictly comparable, for methodological reasons. But it is the only available source for knowing the current employment status. The quarterly PLFS reports cover only urban areas and so, provides an incomplete picture. Why the Centre can’t produce a quick survey like the CMIE does every month with limited resources is a mystery unsolved since the PLFS 2017-18 report hit in early 2019.
Even otherwise, the PLFS number for 2020-21, when it comes, wouldn’t be very impressive.
Massive rise in poverty
That millions have been pushed into poverty in India due to the pandemic and the pre-pandemic disruptions caused by an overnight demonetisation and a flawed GST is known. The Pew Research said in March 2021 that the first wave of the pandemic pushed 75 million Indians into poverty – 60% of the people impoverished globally – and India’s middle class shrunk by 32 million. The second wave would have sent more into poverty because it killed and infected several times more.
Further, the central government says, in normal times, 60 million Indians slip into poverty due to “catastrophic” health expenditure. The pandemic has infected over 36 million and killed over 485,000 until as of January 13, 2021. The Science magazine published a study earlier this month saying that by the end of 2021 (when official deaths were 480,000), India had underreported deaths by six times and estimated the total deaths to be 3 million.
Since Covid-19 treatment costs are very high (from RT-PCR tests to ICUs with oxygen cylinders) and many such deaths would have claimed earning members, imagine how many millions would have slipped to poverty.
Thus, India would have added about 100 million poor to its population due to the pandemic so far.
There is no direct way of knowing how many have slipped into poverty.
India stopped carrying out consumption expenditure survey after the last one of 2017-18 showed that for the first time in 40 years the real monthly per capita consumption expenditure (MPCE) had fallen to ₹1,446 from ₹1,501 in 2011-12. Since India doesn’t have household income estimates and consumption expenditure serves as the proxy for household income, there is no way of knowing the actual poverty status for years to come.
Add the millions who have lost jobs and businesses and you have a large population which has lost their incomes and can’t be good consumer anymore to give a push to the economy. Hence, the significance of this budget and the need to keep an eye on.
However, there is one sound reason to be sceptical about finding anything worthwhile in the budget.
The Centre doesn’t even have the relevant data – on job and business loss or those who would have slipped into poverty. How will it then prepare a prudent policy or programme to challenge the twin problems?
For anyone thinking that the NITI Aayog’s recently released “National Multidimensional Poverty Index” could provide an answer, here is a sobering fact. The very subtitle of the report (right under the title) reads: “Baseline Report Based on NFHS-4 (2015-16)”.
And in his foreword, vice chairman of the Aayog Rajiv Kumar writes: “This baseline report of India’s first ever national MPI measure is based on the reference period of 2015-16 of the National Family Health Survey (NFHS). The national MPI measure has been constructed by utilising twelve key components which cover areas such as health and nutrition, education and standard of living.”
Notice the repeated reference to phrases like ‘baseline report’ and NFHS-4 (by that time the NFHS-5 was already out) and Kumar’s remark about the MPI being “constructed”. Taken together, what do they mean?
That the Aayog’s report is statistically based on a very old health survey of 2015-16, which is unconnected to poverty estimation and should be ignored.