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Increased construction activity in rural areas is driving a recovery in India’s labour market instead of cities, services sector and industrial belts.

Of the nearly 12 million net additions to the employed workforce in January, most are helping rural India build houses and roads. The construction and real estate sector in rural India absorbed more than 8.23 million workers in January, showed data from the Centre for Monitoring Indian Economy (CMIE). In comparison, the labour-intensive construction sector in urban India added less than 350,000 people.

Rural real estate and agriculture sectors are absorbing people in the labour market, but rural services sector is witnessing sizable reduction in employment
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Rural real estate and agriculture sectors are absorbing people in the labour market, but rural services sector is witnessing sizable reduction in employment

Agriculture absorbed 4.26 million people, while manufacturing and mining saw negligible growth. This comes amid a continued struggle of the services sector where employment fell by more than 3 million in January from December.

Economists and experts say that the employment data highlights two major trends. First, in rural India, which was less affected by the pandemic, more people who have returned from the cities are now shifting to agriculture, real estate and the construction sector. Second, informal employment is catching up through these sectors, but subdued recovery in the organized sectors and informal services sector is hurting India’s job revival.

A robust revival is seen in housing construction, catering to a mix of pent-up demand and new end-user demand, said Anuj Puri, chairman of Anarock, a real estate consulting and advisory firm. The “impact of the coronavirus-induced lockdowns was not as severe in tier 2 and tier 3 cities as in the larger cities" and these smaller cities and towns are more dependent on their local economies besides government jobs, where job losses were not high.

“In short, the above factors have a multiplier effect across these sectors and drive employment creation," Puri said.

The Knight Frank-Ficci-Naredco Real Estate Sentiment Index survey published on 27 January showed that the real estate sector is set to grow faster in the next six months and the “sentiment" is much higher in east, south and west India (score of 65 to 66) as against north India.

The revival in real estate and construction activity in the rural sector is because of greater construction of individual buildings, renovations of existing houses and structures, and rural road constructions, Arup Mitra, a professor of economics at Institute of Economic Growth in Delhi University, said.

“There is a pent-up demand in rural real estate that was held up for several months because of the lockdown. With more people at home because of reverse migration and limited employment opportunities in cities and industrial belts, people are getting engaged in two sectors, in their own firms and in small-ticket real estate and construction work. However, the growth of employment in real estate and agri indicate that informalization is increasing," said K.R. Shyam Sundar, a labour economist and professor at XLRI Jamshedpur.

“The winter vegetable harvest, pulses and oil seeds cultivation is absorbing the rural workforce and this is visible in CMIE data. However, the rural service economy is in bad shape as there are too many people working in limited sectors. Both productivity and earnings have gone down for a large pool of people, which is adversely impacting services sectors there. My assessment is there is massive job loss in rural service sector because of lack of demand and there is low pickup in the service sector in urban India," Mitra said.

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