Employment falls in rural India

by Mahesh Vyas

India’s unemployment rate shot up to 7.8 per cent in October 2022 after having dropped to a 4-year low of 6.4 per cent in September. The October estimate is closer to the average unemployment rate post the Covid shock of April-May 2020. The average rate since June 2020 is 7.7 per cent and the median rate is 7.5 per cent. Minor shocks such as the one during the second wave of Covid during April-June 2021 apart, the unemployment rate has mostly hovered in the range of 6.58 per cent.

The increase in the unemployment rate in October is therefore not as surprising because it suggests a reversion to the mean value. It was the fall in the unemployment rate in September that was the surprise. Its failure to endure implies that the unemployment rate is sticky in its range of 6.5-8 per cent with a mean around 7.5 per cent. A fall in the unemployment rate during a month should therefore be interpreted with some caution.

The rise in the unemployment rate in October was accompanied by a small fall in the labour participation rate (LPR). This fell from 39.3 per cent in September to 39 per cent in October. The LPR seems to be settling at sub-40 per cent levels. It has been consistently below 40 per cent since May 2022 and in a sense also since January 2022 as it rose above 40 per cent only in April 2022 . The persistent fall in the LPR is a matter of grave concern because it suggests that an increasingly smaller proportion of the working age population is willing to be employed.

A falling LPR combined with an elevated unemployment rate implies that the employment rate has been falling. The employment rate is the proportion of the working age population that is employed. The employment rate is down to 36 per cent in October 2022. A year-ago the employment rate was around 37.3 per cent. The fall is therefore quite significant.

Employment fell by 7.8 million in October 2022. The count of the unemployed rose by 5.6 million. And about 2.2 million quit the labour markets. The labour force shrunk from 432 million in September to 429.8 million. Employment fell from 404.2 million in September to 396.4 million in October 2022.

The fall in employment was entirely in rural India. But, it was not in agriculture. Employment fell essentially in non-agricultural rural India in October 2022.

Employment in agriculture has been falling over the last one year. It had peaked at 164 million in November 2021. Since then, it fell rapidly to a low of 134 million in September. Its recovery in October 2022 at 139.6 million is the lowest agriculture employment seen in any October of the last four years. Therefore, while there was no fall in employment in agriculture in October 2022, the level of employment in the sector was quite low.

The services sectors lost 7.9 million jobs in October 2022. Of these, 4.6 million losses were incurred in rural India and 3.3 million were in urban India. There is a concentration of the job losses in the services sector in rural retail trade. Retail trade is the largest employer among the services industries. It accounts for nearly half of all services sector jobs. Of the 4.6 million rural services jobs lost in October, 4.3 million were in the retail trade industry. In urban India, retail trade recorded a small increase of 0.8 million jobs during the month.

The industrial sector saw a loss of 5.3 million jobs in October. Here again there is a concentration of the losses in manufacturing industries in rural India. These saw employment shrink by 8.4 million. Urban manufacturing industries added 4.2 million jobs at the same time.

Construction, which is the largest employer, shed a little over a million jobs in October. Most of these were in rural India.

Job losses in October are predominantly of the daily wage labourer kind. October saw employment in the form of daily wage labourers shrink by nearly 15 million. These losses are mostly in rural India where the count fell by over 13 million. It is likely that some of these migrated to the farms and declared themselves as farmers. We believe so because there is a simultaneous sharp increase of 10 million of people employed as farmers. Note that the increase in employment in agriculture was of only 5 million. This implies that the number of people employed as agricultural labourers has shrunk while the number of persons employed as farmers has increased.

This sharp fall in employment in non-agricultural employment in rural India, the substantial increase in employment as farmers and the apparent fall in agricultural labourers suggests that employment opportunities in rural India during October were highly constrained. This, of course, is also reflected in the rather high unemployment rate of 8 per cent in rural India during the month.

Urban India did relatively better. Employment in urban India increased from 126 million in September to 127.4 million in October. Most significantly, salaried jobs increased by 2.26 million in urban India. Urban salaried jobs crossed 51 million. This is the highest level in the past 44 months. Employment in the form of business persons also increased a bit in urban Indian in October 2022.

But, urban India is much smaller than rural India and therefore its gains cannot entirely offset the losses in rural India.