Return to a declining gradient

by Mahesh Vyas

India pencilled an unemployment rate of 6.9 per cent in February 2021. This was higher than the 6.5 per cent unemployment rate recorded in January 2021 but it was lower than the 9.1 per cent India had touched in December 2020. The unemployment rate has ranged from 6.5 per cent to 9 per cent in the post-lockdown period since July 2021. The February 2021 rate is a little lower than the 7.6 per cent average during this period. It is also lower than the February 2020 unemployment rate which was 7.8 per cent.

The average unemployment rate during the post-lockdown period since July 2020 at 7.3 per cent is a little lower than the 7.6 per cent average unemployment rate recorded in the corresponding months of the previous year.

The unemployment rate has therefore, recovered to its pre-lockdown levels. However, other more important labour market parameters have worsened. The two other important labour market ratios are the labour force participation rate and the employment rate. Both remain significantly lower than their levels before the lockdown. A recovery in these two ratios to pre-lockdown levels is still a distant dream. More realistically it may not be misplaced pessimism to lament that given the secular decline in labour market indicators even before the lockdown, a recovery in the LPR and ER to pre-lockdown levels may not be just distant dream but, it could be an elusive dream.

In February 2021, the labour participation rate was 40.5 per cent. This was slightly lower than the 40.6 per cent LPR recorded in January 2021 and 42.6 per cent it was in February 2020. This means that the proportion of working age people who are employed or are unemployed and are actively seeking employment has declined.

The return of the unemployment rate to pre-lockdown times is not worth celebrating because it is more a reflection of a shrinking labour force than a decline in the count of the unemployed. During July-February last fiscal, the unemployment rate of 7.6 per cent was a ratio of the 33.2 million unemployed out of a labour force of 438.5 million. During July-February this fiscal a similar unemployment rate of 7.3 per cent is a ratio of 31.2 million unemployed out of a much smaller labour force of 426.3 million. The small fall in the unemployed we see does not imply that more people got employment. It means that the unemployed just stopped looking for jobs. It reflects an exodus of labour from the labour markets in the face of lack of jobs.

Count of the employed, which is the larger component of the labour force, has declined quite sharply. Again, we compare the eight months post the severe lockdown of this fiscal, i.e. July 2020 through February 2021 to the corresponding eight months of the previous year. During July-February of the previous fiscal, on average, 405.3 million persons were employed. In comparison, during the corresponding period of the current year, 395.2 million persons were employed. This implies over 10 million less jobs this year than the previous year.

So, the post-lockdown period is characterised by a 2.5 per cent fall in employment and 6.2 per cent fall in the count of the unemployed. This translates into a 2.8 per cent contraction of the labour force.

The Indian economy has emerged from the dark deep abyss of the lockdown. Official statistics show a small positive growth of 0.4 per cent y-o-y, in real GDP in the third quarter. But, employment has not recovered similarly. It was down by 2.8 per cent. India has faced a multi-decadal challenge in generating employment commensurate with its real GDP growth. It would take a much faster GDP growth or a more labour-intensive GDP growth to bring employment growth into the positive zone like the GDP has been reverting to very quickly. Else, employment will continue to decline. Total employment in India declined from 413 million in 2016-17 to 409 million in 2019-20. This is a time when the economy was growing at about 6 per cent per annum on average.

Employment needs to grow at least to keep the employment rate constant. The employment rate is the proportion of working age population that is employed. So, what we are saying is that employment needs to grow at least enough to keep pace with the rate at which population of the working age people is growing. This could ensure that the situation wouldn’t get worse from where India stands today.

India’s employment rate has been falling steadily. It fell from 42.7 per cent in 2016-17 to 41.6 per cent, 40.1 per cent and 39.4 per cent in the following three years till 2019-20. As of February 2021 it dropped even further to 37.7 per cent. The slide in the employment rate continues. The rate has recovered from the steep fall earlier in fiscal 2020-21. But it has merely reverted to its trend of a steady fall that was established before the lockdown.

The post-lockdown recovery in the employment rate is not to the pre-lockdown levels but to the earlier trend of a slow and steady fall.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.5 +1.4
Consumer Sentiments Index
Base September-December 2015
57.1 0.0
Consumer Expectations Index
Base September-December 2015
58.6 0.0
Current Economic Conditions Index
Base September-December 2015
54.8 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Jun 20 Sep 20 Dec 20 Mar 21
New projects 0.96 1.40 1.16 1.41
Completed projects 0.26 0.73 0.83 0.62
Stalled projects 0.11 0.08 0.31 0.14
Revived projects 0.68 0.29 0.11 0.13
Implementation stalled projects 0.09 0.07 0.15 0.30
Updated on: 21 Apr 2021 8:28PM
Quarterly Financials of Listed Companies
(% change) Jun 20 Sep 20 Dec 20 Mar 21
All listed Companies
 Income -27.7 -6.3 1.6 7.4
 Expenses -27.9 -10.3 0.2 4.6
 Net profit -40.5 47.2 57.6 18.7
 PAT margin (%) 5.2 8.3 8.4 20.6
 Count of Cos. 4,399 4,401 4,372 41
Non-financial Companies
 Income -37.4 -10.5 0.2 8.2
 Expenses -37.7 -14.2 -0.7 6.0
 Net profit -56.0 31.5 54.3 16.7
 PAT margin (%) 4.5 8.1 8.9 20.2
 Net fixed assets 5.9 1.1
 Current assets 0.7 1.9
 Current liabilities -2.7 4.9
 Borrowings 8.3 5.8
 Reserves & surplus 4.2 5.9
 Count of Cos. 3,265 3,266 3,252 29
Numbers are net of P&E
Updated on: 21 Apr 2021 8:28PM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.3 0.0 -6.6
 Expenses 13.6 0.0 -7.8
 Net profit 15.2 -9.5 1.7
 PAT margin (%) 2.1 2.2 10.4
 Assets 9.6 7.8 0.7
 Net worth 8.5 4.4 -0.1
 RONW (%) 3.8 3.6 11.7
 Count of Cos. 30,747 29,337 38
Non-financial Companies
 Income 13.9 -1.9 -7.0
 Expenses 14.1 -1.7 -8.3
 Net profit 21.6 -19.8 2.2
 PAT margin (%) 2.9 2.5 11.0
 Net fixed assets 5.5 8.9 -0.6
 Net worth 8.1 2.1 -0.2
 RONW (%) 6.4 5.1 13.3
 Debt / Equity (times) 1.0 1.0 0.1
 Interest cover (times) 2.3 2.0 23.1
 Net working capital cycle (days) 72 70 37
 Count of Cos. 24,611 23,388 30
Numbers are net of P&E
Updated on: 19 Apr 2021 9:56PM