India’s unemployment rate fell to 7.7% in May owing to a reduction in labour participation, according to the latest report by the private think tank CMIE (Centre for Monitoring Indian Economy). The April unemployment rate stood at 8.5%.

"This fall in the unemployment rate breaks the upward trend in the metric recorded in the first four months of 2023. The unemployment rate inched down as a consequence of a fall in labour participation, which implies a fall in the number of people who entered the labour market in search of work," said Natasha Somayya K, member, CMIE.

According to CMIE, May witnessed a substantial fall of 4.8 million in the number of unemployed persons in the country. In May, the number of unemployed people stood at 33.9 million as against 38.7 million unemployed persons in April.

Between January and April, the unemployment rate increased by 1.4 percentage points. It fell by a significant 0.8 percentage points in May. "This decline was anticipated, as the weekly estimates of the unemployment rate for the month also followed a declining trend," said Somayya K.

The unemployment rate fell drastically from 9.2% in the first week of May to 5.4% in the fourth week, settling down at an average of 7.5%. According to Somayya K, over the past 12 months, the unemployment rate ranged between 6.4% to 8.5%, averaging at 7.7%. An unemployment rate of 7.7% in May, therefore, suggests a reversion to the mean value.

The labour participation rate (LPR) in May fell 1.1 percentage points to 39.6%. As a result, the labour force shrunk in size from 453.5 million to 441.9 million. "This drop in LPR in May was expected because April witnessed large numbers of people entering the labour force but only a small share was able to secure employment in the month. This was bound to discourage many from searching for work in the month of May," Somayya K said.

The decline in labour participation in May 2023 was considerably higher in rural India compared to urban India.

In urban India, the labour force shrunk by close to 4.5 million. There were around 147 million people in the urban labour force in April. This inched down to 142.5 million. Correspondingly, the labour participation rate in urban India fell from 38.9% to 37.7%. Meanwhile, around 4.4 million fewer people were employed in rural India in May, resulting in 278.5 million people in the rural workforce. The employment rate fell by a small margin, to 37.8% in May as against 38.43% in April.

"In May 2023, India witnessed a fall in labour participation, employment and unemployment. Rural India contributed a larger share to the drop in labour participation and employment. Around 61.2% of the contraction of the total labour force was due to the reduction in the size of the rural labour force," said Somayya K.

"Additionally, the fall in the number of jobs in rural India accounted for 64.7% of the decline in total employment in India. In the preceding month of April, rural India recorded an impressive employment generation compared to urban India. In May, however, it has not been able to sustain the creation of jobs," she added.

Labour Participation Rate (LPR)

Unemployment rate dips to 7.7% in May on reduced labour participation: CMIE