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As economic activity crashed with the outbreak of covid-19, India’s unemployment rate started climbing, peaking at 27.11% on 3 May
As economic activity crashed with the outbreak of covid-19, India’s unemployment rate started climbing, peaking at 27.11% on 3 May

Urban India may gain from a jobs guarantee policy

As economic activity crashed with the outbreak of covid-19, India’s unemployment rate started climbing, peaking at 27.11% on 3 May. It has fallen since then to 5.45% on 15 November, even lower than the pre-covid levels. Mint takes a look at the story behind the numbers.

As economic activity crashed with the outbreak of covid-19, India’s unemployment rate started climbing, peaking at 27.11% on 3 May. It has fallen since then to 5.45% on 15 November, even lower than the pre-covid levels. Mint takes a look at the story behind the numbers.

How has jobless rate moved post-covid?

Data from the Centre for Monitoring Indian Economy suggests that the unemployment rate was over 20% from end of March to end of May. This was primarily on account of the lockdown announced to control the spread of the covid pandemic. With economic activity coming to a standstill, businesses had to fire people to keep going. Some businesses shut down as well, further fuelling unemployment. Things improved post May and the unemployment rate has been in single digits from 21 June onward, when it was at 8.48%. On 15 November, it stood at 5.45%, the lowest in 2020.

What’s behind a fall in jobless rate since May?

The gradual opening up of the economy has accelerated activity and hence, unemployment has declined. In mid-May, the Centre increased the allocation to the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) by 40,000 crore, with the total allocation for the year standing at 1,01,500 crore. This created jobs in rural India and helped bring down the jobless rate. Nevertheless, the demand for jobs under MGNREGS has been higher than the jobs provided. In October, 2.44 crore households demanded jobs, but only 1.96 crore households, which is a little over 80%, got them.

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Grim outlook

Are there any other reasons for reduced unemployment?

The labour participation rate (LPR) or the ratio of the labour force to the population above 15 years of age, has been falling since February. On 23 February, the labour participation rate stood at 43.2%, and fell to a low of 35.37% on 26 April, before rising to 39.54% on 15 November. While the rate is higher than in April, it is still lower than the pre-covid levels.

What does this mean for overall economy?

Many people who have been unable to find jobs, have given up on the search and dropped out of the labour force, leading to a lower labour participation rate. Further, the unemployment rate is defined by the number of unemployed people, who are willing to work and are actively looking for a job, expressed as a percent of the labour force. An individual not looking for jobs doesn’t get counted as jobless or even as a part of the labour force. This methodology also leads to a lower unemployment rate.

What can be done to tackle this problem?

The lower unemployment rate hides the larger issues. A greater proportion of workers have dropped out of the labour force in urban Indian than in rural India. In February, the LPR for urban India was 40.48%, dropping to 37.54% by October. In rural India, it dropped from 43.67% to 42.25%. One reason for this is the fact that MGNREGS serves rural India. It may be time now for some sort of a similar job guarantee scheme for urban India as well.

Vivek Kaul is the author of Bad Money.

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