Mumbai/New Delhi: A recent dataset on employment has thrown a curveball at economists tracking India’s economy, with several of them trying to wrap their heads around how the country managed to add a large number of jobs the past few years despite the covid-19 shock.
India is estimated to have created 108.9 million between fiscal years 2019-20 and 2023-24, significantly higher than the 76.8 million jobs added between FY06 and FY20, as per provisional data released by the Reserve Bank of India on 8 July.
In 2023-24 alone, India is estimated to have added 46.7 million jobs.
To be sure, RBI emphasised in a statement accompanying the data that it had attempted “a provisional estimate of productivity” for the first time for FY24 based on available information.
“The data shows there was growth in employment even during the two pandemic years, as per the KLEMS data. It is a bit hard to reconcile…,” said Madan Sabnavis, chief economist, Bank of Baroda, “but I understand from the methodology that RBI has used the PLFS (Periodic Labour Force Survey) data for extrapolations.”
The addition of jobs also does not match recent government data showing weak consumption growth, he added. “The only explanation could be that because of inflation, people were only spending on food and the real consumption part has declined.”
RBI released its employment data days after Citi Research said in a 4 July report that given India’s demographic dividend, even a 7% GDP growth might not be enough to meet the country’s job requirement over the next decade, under reasonable assumptions.
India issued a rebuttal on 8 July, on the same day the RBI report was released, stating that the Citi report had failed to account for the “comprehensive and positive employment data available from official sources such as the Periodic Labour Force Survey (PLFS) and the Reserve Bank of India’s KLEMS data”.
KLEMS refers to the RBI database that measures capital (K), labour, energy, material, and services to gauge productivity at the industry level.
Despite the apparent surge in employment, economists are not too enthused with the quality of jobs being created, given that employment in lower-pay brackets such as agriculture and trade has seen better growth.
Sabnavis pointed out that growth in India’s real gross domestic product (GDP) had declined in recent years—from about ₹43 trillion during FY2014-19 to about ₹33 trillion between FY19 and FY24.
“However, the KLEMS data shows that job creation has gone up substantially in the same period. It could mean that we are creating jobs in very low-productivity areas,” he said.
RBI’s KLEMS data show that even as the pandemic resulted in a sharp drop in global employment rates, India witnessed an increase, with as much as 15% more people finding a job in 2020-21—the peak of covid-19 curfews—than in 2018-19.
“Prior to covid-19, jobs in agriculture were shrinking, signalling rising urbanisation and reducing overemployment within this sector, a sign of equitable development. But since covid-19, this trend has reversed, sparking concerns around a prolonged K-shaped recovery,” said Debopam Chaudhuri, chief economist at Piramal Enterprises Ltd.
According to Chaudhuri, India’s agriculture and allied sectors absorbed a vast number of displaced urban workers—mainly from small businesses—who chose to migrate back to their rural homes due to the pandemic and lockdowns in 2020-21.
However, owing to the nature of these jobs, Chaudhuri said, value addition to the Indian economy took a severe hit, reflected in the labour productivity—value added per employed person per year—estimates provided in the KLEMS database.
Spokespersons of the ministries of finance, labour and employment, and RBI did not respond to emailed queries.Mint also reached out to the secretary of the ministry of labour and employment but did not receive a response.
Mitali Nikore, economist and founder of economic research group Nikore Associates, pointed out that the labour quality index has not shown much improvement over the previous three years, indicating that wage growth has been slow across sectors.
Nikore’s analysis shows how job creation trends varied across sectors in the pre-covid-19, during covid-19, and post-covid-19 years.
Almost 30 million jobs were generated in the agriculture sector during FY19 and FY20, and 22 million jobs in the services sector. During FY21-FY22, nearly 18 million jobs were created in the agriculture sector. But in FY23, job-creation in the services sector was higher than in agriculture.
Government officials point to the Employees' Provident Fund Organisation (EPFO) data to assert that more people are joining formal jobs.
While there has been a consistent improvement since the pandemic in key labour market indicators—including increased labour force participation rate (LFPR) and worker population ratio (WPR)—there is scope for improvement on the jobs front, said a senior government official, who spoke on condition of anonymity.
“I firmly believe that job creation will increase further as the economy clocks consistent high growth in the medium term,” the official said.
Experts said a problem in assessing job creation in the economy is the absence of data capturing the trends for a longer period. The best source, the Census, was last done in 2011, these experts pointed out.
Manoranjan Sharma, chief economist at Infomerics Ratings and former chief economist at Canara Bank, said the Union government’s thrust on sectors such as construction, trade, transport, and storage had a salubrious impact on overall employment.
“The covid-19 pandemic in India, as in most countries, devastated income, output, and employment,” Sharma said. “But post-pandemic, there was a pent-up demand and growth has now not only stabilised but also gained traction.”
Devina Sengupta in Mumbai contributed to this report.
