Economy
The Indian economy’s ‘long covid’ problem
Summary
- Things are looking good for the ruling party ahead of polls, but some structural problems on the jobs front remain
New Delhi: As India heads into national elections this year, the state of the Indian economy, and its ability to create jobs and grow personal incomes, will become a critical political issue. Two years of covid-19 pandemic lead to widespread job losses and a fall in incomes for millions of workers. 2022-23 was the first full year of recovery after covid-19. To what extent have different states gotten back to normal, and in what shape is the economy now, as we head into 2024? The recently-released annual compendium of state finances by India’s central bank, which enumerates select data for 2020-23, offers some insights.
Recovery of Sorts
The All-India per capita income for 2022-23 was ₹1.15 lakh per year. In real terms (adjusted for higher prices of goods and services), that is 6.7% higher than in 2019-20, the last pre-covid year.
After the steep decline in incomes in absolute terms in the covid years of 2020-21 and 2021-22, all states staged a recovery in 2022-23, as areas emerged from lockdown, and consumers opened their wallets. Of the 23 states for which per capita income data for 2022-23 was available, 19 bettered the all-India rate. But there were wide differences between states in terms of the extent to which they showed improvements in incomes.
At one extreme are states like Tamil Nadu, Assam and Odisha, which have shown double-digit growth in per capita incomes (chart 1). At the other extreme are affluent states such as Delhi and Maharashtra, which have shown a per capita change in GDP well below the national average (though still positive). The growth data for 2022-23 is incomplete as industrially important states like Gujarat, or high-income states like Goa or Kerala, have not yet reported GDP data for 2022-23.
Job Conundrums
At first glance, data on jobs also gives cause for optimism. This shows that unemployment rates actually fell during the lockdown. The overall unemployment rate for both men and women, across rural and urban areas fell from 4.8% in 2019-20 to 4.1% in 2021-22 and further to 3.2% in 2022-23. Unemployment rates in 2022-23 were actually lower than that in 2018-19, for urban areas as well, with the exceptions being Himachal Pradesh, Jammu and Kashmir, and Chhattisgarh. This runs contrary to the trove of reports on the trauma that individuals and households had to face during lockdown, with many being thrown out of work.
But dig deeper and a more complex picture emerges. The first problem with unemployment data in a country like India is that very few individuals have the luxury to remain unemployed—they have to find work even if it is at a much lower pay than what they were receiving currently.
As a result, historically, India has had much lower official unemployment rates than in the West over an economic cycle. So, a decline in unemployment rates can reveal only a part of the story of what’s going on in the labour market. Many individuals would rather work for much lower pay or much fewer hours than remain unemployed, in an economy where unemployment benefits are non-existent.
The second problem is that a large number of working-age individuals are simply not part of the workforce, and hence are not counted as among those either working or looking for a job. Unemployment statistics exclude such individuals altogether.
This is most obvious in the case of women. According to the data, overall, around 58% of women in rural and urban areas aged 15 years and above in 2022-23 are part of the labour force—either employed or looking for jobs. This has actually increased during the covid years, from 53.5% in 2019-20.
But much of this increase in labour force participation was driven by women in rural areas. Historically, this has been the case during times of distress when all able-bodied members of the family are put to work to earn extra income. And indeed, in better-off urban areas, only a quarter of women aged 15 and above were in the labour force in 2022-23, up marginally from 23.3% in 2019-20.
The other problem is that jobs were becoming harder to find even before covid. Unemployment rates in 2022-23 are higher than they were a decade ago for all states, except Delhi and West Bengal. The unemployment rate for graduates, across the country as a whole, was 13.4% in 2022-23, compared with 4.7% in 2011-12.
Then, there’s the issue of the quality of jobs. If a state’s manufacturing sector (or large-scale industry in general) is able to create jobs at a fast enough pace, the proportion of salaried jobs should rise, and those who are casual labourers or running their own businesses should fall. If a state’s manufacturing or service sector is not growing fast enough, and is not able to draw off people from agriculture, those left are forced to take up low-wage jobs in the rural non-farm sector, or remain behind in agriculture, where incomes have stagnated for decades.
Take the example of two states, Tamil Nadu and Uttar Pradesh. Salaried employees account for a third of Tamil Nadu’s workforce. Less than 30% of the state’s labour force is engaged in agriculture, as per the government’s latest Periodic Labour Force Survey (PLFS) for the period between July 2022 and June 2023. In contrast, the same report shows that Uttar Pradesh, India’s most populous state, has 13% of its workforce earning regular monthly income and 54% depending on agriculture.
Here is another example. One way the economy has not recovered from covid-19 is in the proportion of labour in agriculture. As of 2018-19, the proportion of workers in agriculture was 42.5%, according to PLFS data. This is still way too high at India’s level of development and given that agriculture’s share of output in that year was as low as 14.7%. The following year (a year before covid), agriculture’s share of the workforce actually increased to 45.6%, and has remained at that level through the covid years and after (as of 2022-23, it was 45.8%).
Employment Gains
In general, we could measure the quality of jobs on four metrics:
Percentage of people engaged in agriculture and the extent to which that has declined
Percentage of people with salaried jobs and the extent to which that has increased
Percentage of workforce working as casual labour, and the extent to which that has declined
Percentage of people employed in manufacturing and the extent to which that has increased
We look at these four metrics for the time period between PLFS 2018 (July 2017 to June 2018) and PLFS 2023 (July 2022 to June 2023). Progress would mean reduction in the number of people engaged in agriculture/casual labour, and an increase in manufacturing or salaried jobs.
Out of the 20 major states considered for the analysis, only five states improved on all the four counts—reduced dependency on agriculture and increased workforce in manufacturing, leading to an increase in salaried jobs. These were Andhra Pradesh, Chhattisgarh, Gujarat, Madhya Pradesh and Maharashtra. In addition, casual employment for these states too fell between 2018 and 2023 (chart 2).
Seven states (including Kerala, Tamil Nadu and Telangana) improved on only one parameter—reduction in share of casual labour. In the absence of a reduction in agriculture and increase in salaried work, this need not be a positive change. It could also be explained by the higher demand for work under the National Rural Employment Guarantee Scheme (NREGS).
Uttar Pradesh (which failed to improve on three of the four parameters) and Assam (failed to improve on all four parameters) have seen a spike in households registered under NREGS. This could be because of migrant workers returning home during the covid-19 lockdown. Some may have exited NREGS rolls since, but the 2023 numbers are higher than 2019 for these two states, indicating continued distress in rural areas.
According to the State of Working India 2023 report published by the Centre for Sustainable Employment, Azim Premji University: “After stagnating since the 1980s, the share of workers with regular wage or salaried work started increasing in 2004, going from 18% to 25% for men and 10% to 25% for women. Between 2004 and 2017, around 3 million regular wage jobs were created annually. Between 2017 and 2019 this jumped to 5 million per year. Since 2019, the pace of regular wage jobs creation has decreased due to the growth slowdown and the pandemic."
This has been India’s template since 1980s. Growth has taken a portion of agriculture employment away. As manufacturing didn’t expand at a quick enough pace, much of the movement out of agriculture was absorbed by construction and informal services. So, growth happened but good jobs didn’t. “Connection between growth and good jobs remain weak," says the Azim Premji University report.
‘Long Covid’
Heading into the 2024 elections, things are looking good for the ruling party, at least from the perspective of the economy. The benchmark share index has soared beyond 70,000, the economy at an overall level has recovered from its covid squeeze. With global interest rates set to come down next year, corporate expectation of improved consumer sentiment has increased.
But as the data above shows, the surface froth masks deep problems that go back over a decade at least, with the most critical issue being the labour market. Successive governments over that time, and an even wider range of policy measures, have only resulted in the jobs market worsening.
Current politics, especially around election time, effectively ignores this. Most of the talk in the recent election campaigns, especially in the north Indian states and by the two main parties (Bharatiya Janata Party and Indian National Congress) was around welfare schemes—who can deliver more welfare schemes, including cash transfer schemes; which schemes have been more effective, etc. There is nothing inherently wrong with this, but it is an implicit recognition of the fact that political promises of secure and paying jobs ring hollow, in the face of the numbers. Hence, the fallback to cushioning society against the consequences of a moribund labour market.
As Neelanjan Sircar put it in an article in the Hindustan Times following the recent BJP electoral victories in the Hindi belt: “In office, PM Modi has focused on welfarism, creating the labharthi (beneficiary) voter. Much of this welfarism, like gas cylinders, has focused on women, and he has developed the image as a ‘provider’. All through the Hindi Belt, he is directly associated with free ration schemes in the wake of the coronavirus pandemic."
While non-welfare schemes like the production-linked incentive scheme intended to onshore manufacturing will increase manufacturing employment, the real question is whether they can lead to non-agricultural employment on a scale enough to make a difference to a large swathe of India’s working population across the country.
howindialives.com is a search engine for public data
