The unemployment rate falls, from grace

by Mahesh Vyas

The unemployment rate fell in March 2022 to 7.6 per cent from 8.1 per cent in February. The good news on the labour markets front in March 2022 stops here. All the other data point to worsening labour market conditions in March 2022.

The labour participation rate (LPR) fell to 39.5 per cent in March 2022. This was lower than the 39.9 per cent participation rate recorded in February. It is also lower than during the second wave of Covid-19 in April-June 2021. The lowest the labour participation rate had fallen to in the second wave was in June 2021 when it fell to 39.6 per cent. The average LPR during April-June 2021 was 40 per cent. March 2022, with no Covid-19 wave and with much lesser restrictions on mobility, has reported a worse LPR of 39.5 per cent.

The labour force shrunk by 3.8 million during March 2022 to 428 million. This is the lowest labour force in eight months, i.e. since July 2021. Employment shrunk by 1.4 million to 396 million in March 2022, which was the lowest level since June 2021. The count of the unemployed fell by 2.4 million in March 2022. This is what caused the fall in the unemployment rate. But, the fall in the absolute count of unemployed or the unemployment rate is not because more people got employed. We have already noted that employment actually fell in March, by a substantial 1.4 million.

What the labour market statistics of March 2022 show is India’s biggest sign of economic distress. Millions left the labour markets they stopped even looking for employment, possibly too disappointed with their failure to get a job and under the belief that there were no jobs available.

This is not the first time that India has seen a fall in the labour force in a month wherein both its constituents the employed and the unemployed have fallen simultaneously. Some of this phenomenon occurring during a month could be a reflection of short-term labour market variations, or even sampling variations. What stands out this time is that the labour force and both its constituents shrunk during a larger period of the quarter of March 2022. This is for the first time in over three years, i.e. since the quarter of June 2018 that we have seen such a decline in the labour force.

The decline in the LPR reflects the inadequacy of the growth in employment opportunities. This is because LPR compares the labour force with the working age population. The working age population continues to grow and if job opportunities do not grow in tandem, then the LPR falls. But, a decline in the labour force in absolute terms reflects a shrinkage in employment opportunities in absolute terms.

The matter gets worse when we dwell into the source of fall in employment.The composition of the 1.4 million fall in employment in March 2022 reveals a much bigger problem on the employment front. Non-agricultural jobs fell by a whopping 16.7 million. This was offset by a 15.3 million increase in employment in agriculture. Such a large increase in employment in agriculture is likely a seasonal demand for workers preparing for the rabi harvest. But, March is a tad too early for the rabi harvest. It is possible that a significant portion of the increase in employment in agriculture in March was disguised unemployment.

The fall in non-agricultural jobs in March is large and therefore worrisome.

Industrial jobs fell by 7.6 million in March 2022. The manufacturing sector shed 4.1 million jobs, the construction sector shed 2.9 million and mines shed 1.1 million jobs. Utilities saw a small increase. Manufacturing industries that reported a fall in jobs were the large organised sectors cement and metals.

The fall in manufacturing jobs is surprising. After a disastrous 2020-21, manufacturing jobs had been recovering through most of 2021-22. Except in July 2021 when employment in manufacturing was lower than it was in the year ago month, and that was by a whisker, employment in all other months till February 2022 was higher than in the corresponding year ago month. March was expected to maintain the momentum. The fall in March 2022 is therefore surprising. The March 2022 employment was a 12.5 per cent fall over February (which had lesser days) and it was a 4.3 per cent fall over March 2021, which was on the eve of the second wave of Covid-19. The fall in March is also surprising because traditionally March was seasonally a far busier month than other months of the year.

The construction sector has recovered from the lockdown shocks. But, it has stagnated at employing about 64 million. It is unable to get back to its 68-72 million levels of employment in 2018. In March 2022, employment in the construction industry was down to less than 62 million. Employment in retail trade is comparable to construction. The trade employed a record 70 million in February 2022. This fell to 65.6 million in March.

The 1.4 million fall in employment in March translates into a fall in the employment rate as well. The employment rate, or the proportion of the working-age population that is employed, is the most important labour market indicator. The employment rate fell from 36.7 per cent in February 2022 to 36.5 per cent in March.

Data for March 2022 has revealed once again that the unemployment rate is an unreliable indicator of economic conditions.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.1 -0.3
Consumer Sentiments Index
Base September-December 2015
83.2 +0.2
Consumer Expectations Index
Base September-December 2015
82.2 +0.4
Current Economic Conditions Index
Base September-December 2015
84.6 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 22 Jun 22 Sep 22 Dec 22
New projects 8.69 5.20 4.42 6.64
Completed projects 1.33 1.18 1.36 1.56
Stalled projects 0.43 0.53 0.07 0.01
Revived projects 0.33 0.29 0.12 0.30
Implementation stalled projects 0.09 0.29 0.26 0.11
Updated on: 30 Jan 2023 9:28AM
Quarterly Financials of Listed Companies
(% change) Mar 22 Jun 22 Sep 22 Dec 22
All listed Companies
 Income 20.8 40.1 25.2 17.9
 Expenses 19.8 41.4 27.1 18.2
 Net profit 31.5 21.1 -1.5 8.9
 PAT margin (%) 8.8 7.2 7.8 12.3
 Count of Cos. 4,684 4,703 4,557 628
Non-financial Companies
 Income 24.8 50.1 27.9 15.7
 Expenses 25.7 52.9 31.5 17.0
 Net profit 10.1 8.4 -20.7 -4.3
 PAT margin (%) 7.6 5.7 5.7 10.3
 Net fixed assets 2.0 4.1
 Current assets 15.0 19.1
 Current liabilities 11.7 10.4
 Borrowings 3.5 12.8
 Reserves & surplus 11.2 7.6
 Count of Cos. 3,397 3,424 3,365 452
Numbers are net of P&E
Updated on: 30 Jan 2023 9:28AM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.3 26.0
 Expenses 0.3 -3.6 24.9
 Net profit -2.9 75.4 61.9
 PAT margin (%) 2.0 4.5 7.3
 Assets 8.9 10.7 9.9
 Net worth 4.9 12.0 13.9
 RONW (%) 3.4 7.0 11.5
 Count of Cos. 31,826 30,673 13,136
Non-financial Companies
 Income -1.1 -2.5 30.8
 Expenses -1.0 -4.4 30.4
 Net profit -20.4 63.5 60.4
 PAT margin (%) 2.3 4.1 6.3
 Net fixed assets 11.4 2.4 2.2
 Net worth 2.2 10.6 14.5
 RONW (%) 4.7 7.7 12.8
 Debt / Equity (times) 1.1 1.0 0.8
 Interest cover (times) 1.9 2.5 4.1
 Net working capital cycle (days) 73 82 59
 Count of Cos. 25,095 24,011 10,541
Numbers are net of P&E
Updated on: 27 Jan 2023 10:15AM