There was a time when India's demographic dividend was being touted as its biggest strength. Today, questions are being raised if we have squandered the advantage. According to independent data agency CMIE, India's labour participation rate (LPR) has been on a downward slide, falling from over 46% in 2016 to just over 40% in 2021.
The LPR is a measure of how many employable people in the economy have jobs or are looking for work. In November, as per CMIE's metrics, the LPR was just 40.15%. This means that 60% of the employable population is not part of the workforce or even looking to join - and have fallen off the job market. While LPR plunged to around 35% during the strict lockdown in 2020, the decline, as shown in the graph, began much before the pandemic. Even if you consider, a chunk of this is because of the low participation of women in the Indian workforce, it still doesn't explain the drop over the years.
According to World Bank's latest ILO estimates, India's LPR was 46.3%, the lowest in South Asia in 2020. While Pakistan, Sri Lanka, Bangladesh walked past, India fared even worse than Afghanistan, even though it was marginal.
Moreover, according to Mahesh Vyas, Managing Director and CEO, CMIE, only around 20% of the employed have salaried jobs. A bulk, over 50% are self-employed and the rest are daily wage labourers, which raises questions over job stability and income levels as well.
As per CMIE, the unemployment rate, on a 30-day moving average, was 7% in November 2021, with rural unemployment at 6.44%. The urban jobless rate rose to 8.21% in the month, reversing gains as the increased demand for manpower in the festive season abated. Worse, urban unemployment went over 9% several times in December. Experts, however, point out that the unemployment rate - the number of unemployed as a proportion of the labour force - doesn't reflect the crisis adequately. LPR, in turn, indicates the demand for jobs in an economy.
More than the percentages though, it is the absolute numbers that bring out the level of distress. The data shows that in the five years starting December 2016, India's working age population went up by over 12% from 958 million to 1077 million, the total number of employed dropped 1% from 406 million to 402 million. Here too, the slide began much before the pandemic, indicating the brunt the economy has faced from a series of governance measures such as demonetisation, GST and more.
Vyas' explanation of the fall in India's LPR raises further worries. He says that employed people within households are shrinking; houses where only one person was employed have risen from 59% in 2016 to 68% in the first 11 months of 2021. Houses with no person employed rose to a peak of 33% during the first lockdown. The number has come down to 7.8% from July through November 2021, on an average, he says, but is still higher than pre-pandemic levels of around 6%.
The World Inequality report 2022 called India as a "poor and very unequal country, with an affluent elite”, where the bottom 50% holds just 13% of national income in 2021. The employment data reinforces the distress and the divide faced by the country. None of this portends well for the economy or the $5-trillion target set by the government, unless it can course-correct and create more jobs.