Employment increases in rural India

by Mahesh Vyas

The sharp and sudden increase in employment in September 2021 was largely a rural story. In all the major labour market metrics, it is rural India that shows big improvements. Labour conditions improved in urban India also but not as much as they did in rural India.

Labour participation increased from 40.52 per cent in August to 40.66 per cent in September. This 0.14 percentage point rise was concentrated in rural India where the labour participation rate (LPR) increased by 0.20 percentage points. This is a much bigger increase than that seen in urban India where the LPR increased by a much smaller 0.02 percentage points.

The all-India unemployment rate fell by 1.46 percentage points from 8.32 per cent in August to 6.86 per cent in September. The fall is larger at 1.58 percentage points in rural India than in urban India where the fall was of only 1.16 percentage points. The unemployment rate in rural India was lower at 6.1 per cent in September compared to 8.6 per cent in urban India.

The employment rate rose by 0.85 percentage points in rural India from 38.68 per cent in August to 39.53 per cent in September. In comparison, urban India saw a smaller increase of 0.47 percentage points in its employment rate from 34.15 per cent to 34.62 per cent in the same months, respectively.

India’s employment rate increased by 0.72 percentage points from 37.15 per cent in August to 37.87 per cent in September. This translates into a big, 8.5 million increase in employment during the month.

Of the 8.5 million additional people employed in September, 6.5 million were in rural India. Rural India accounts for about 69 per cent of total employment. But, 76.5 per cent of the additional employment created in September was in rural India. This is an extraordinary increase in rural India in the month of September when the demand for labour from agriculture is usually low. Surely, agriculture absorbed an additional 0.55 million during the month. But, the remaining and much larger 6 million were absorbed in non-farm rural jobs.

The construction industry in rural India was the largest absorber of additional labour in September. 7.55 million additional people found employment in the construction industry during the month. There could be two major sources of this sharp increase.

First, investments in road building have been growing steadily. CMIE’s CapEx database shows that road projects are getting commissioned at a rapid pace. Rs.1 trillion worth of roads projects were completed in 2020-21 and Rs.1.27 trillion worth of projects are expected to be completed in 2021-22. Central government expenditure data available from the Controller General of Accounts shows that spending by the Ministry of Roads, Transport and Highways during April-August 2021 was more than twice its spending in the same months of 2020. The ministry spent Rs.780 billion this year against Rs.374 billion in the last year or Rs.322 billion in the year before. This accelerated spending and the expectations of greater completion of roads projects in the year could have provided the additional demand for labour in the construction industry.

Second, a somewhat less likely reason is that it is possible that there was some acceleration in employment under the Mahatma Gandhi National Rural Guarantee Scheme (MGNREGS). The Ministry of Rural Development shows a 41 per cent fall in spending during April-August this compared to the same months last year. But, the ministry is known to delay payments. The MGNREGS website also does not show any spurt in employment in September. But, the website is known to show large variations over time. So, we need to wait to either confirm or reject this possible reason for the increase in employment in construction in rural India.

Rural India also saw a substantial increase in employment in manufacturing industries in September. Employment in rural manufacturing industries increased by 4.7 million during the month. Of this, employment in food industries increased by 2.16 million. Other major industries that saw an increase in employment in rural India were metals which added 1.5 million jobs and textiles which added 0.2 million new jobs.

While manufacturing and construction industries in rural India added jobs in September, rural services sector shed a substantial 6.8 million jobs. Most major service industries shed jobs in September. This includes retail trade, personal non-professional services, travel and tourism and education.

As the rural regions added 6.5 million jobs in September it absorbed large numbers of the unemployed. As a result, the number of unemployed persons in rural India fell by 4.6 million from 22.7 million to 18.1 million. Besides, people also seem to have moved from the services sectors to the construction and manufacturing industries in rural India. Most of the new jobs created in rural India were of daily wage labourers. There was an increase in salaried jobs also. Rural India added 2.8 million salaried jobs.

The addition of salaried jobs was essentially in urban India. Nearly 60 per cent of the total 6.9 million salaried jobs added in September were in urban India. While rural India added 2.8 million, urban India added 4.2 million salaried jobs. But, it is likely that these salaried jobs in urban India may not be of good quality. The manufacturing sector saw a fall in employment in urban India in September. And, a large part of the increase in services sector jobs was among non-professional personal services. There were increases in education and in travel and tourism but these were small. The big story of job increases in September 2021 is therefore of rural India.