India’s central bank needs reliable and frequent employment data as a policy input

Jobs have become an important part of India’s electoral and fiscal policy discourse. (REUTERS)
Jobs have become an important part of India’s electoral and fiscal policy discourse. (REUTERS)

Summary

  • India should improve the reliability and frequency of data on jobs so that labour market conditions can be taken into account for monetary policy formulation

With a new governor at the helm, the Reserve Bank of India’s (RBI’s) monetary policy stance will be watched very closely this time. If RBI signals a shift to an easy-money policy, it will ease concerns relating to the growth slowdown. But it will raise concerns about inflation at a time when a weak rupee is expected to raise import prices.

In other large economies, central banks often rely on labour-market indicators to help resolve such policy dilemmas. In some countries, central banks are mandated to maximize employment opportunities. In others, central bankers take into account jobs data to decide the policy stance.

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RBI doesn’t have an explicit employment mandate. Nor does it seem to place much weight on the labour-market impact of its policy decisions. The last policy statement in December did not mention ‘jobs’ or ‘employment’ even once. One external member of the Monetary Policy Committee drew attention to the jobs issue. But he did not provide any figures on the likely job gains or losses that could arise from alternate policy choices.

In fact, we don’t have reliable estimates of how monetary policy impacts job creation. Indian policymakers have long been content with once-in-five-year updates of workforce numbers provided by the quinquennial rounds of the National Sample Survey (NSS).

Economists held that most Indians were too poor to be unemployed. In other words, the informal labour market was considered to be a residual sector, always offering ‘work’ to those who lacked regular ‘jobs’. The Indian definition of employment included informal work arrangements. Official unemployment rates remained low and stable, even as ‘disguised unemployment’ levels stayed high.

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When the International Monetary Fund (IMF) asked for quarterly labour-market updates in the mid-90s as part of its Special Data Dissemination Standard (SDDS) norms, India refused to comply. An exception was sought on the grounds that India’s labour market data did not have the same macroeconomic implications as in industrialized countries.

It was only in the late 2000s that the idea of a high-frequency labour-market tracker was revived. The Indian economy had moved into a faster lane by then and the salaried class had grown substantially. The issue of jobs—as opposed to work—had started gaining political traction.

The National Statistical Commission (NSC) appointed a committee headed by Amitabh Kundu to prepare a roadmap for conducting a periodic labour force survey (PLFS).

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The Kundu committee report, submitted in 2010, recommended quarterly updates for urban India and annual updates for the countryside. After field trials in three states and several rounds of deliberation, the PLFS survey was finally launched in 2017-18. Unfortunately, the survey report got mired in controversy even before it was released. The leaked contents of the report suggested a jump in unemployment rates ahead of the 2019 Lok Sabha elections, prompting government officials to discredit the new survey. The report was released only after the elections were over.

The PLFS has come to be used widely by policymakers since then. The lags with which the data was released have declined over time.

The National Statistical Office (NSO) is planning to come up with a monthly PLFS series soon. This series could be a useful input for the central bank’s policy decisions in the months and years to come. However, the new series should be subjected to adequate quality checks and cross-validation before it is used as a policy target.

It was only in the late 2000s that the idea of a high-frequency labour-market tracker was revived.

High-frequency updates from other surveys such as the Annual Survey of Industries (ASI), the Annual Survey of Unincorporated Sector Enterprises (ASUSE) and the upcoming Annual Survey of Service Sector Enterprises (ASSSE) could be useful complements to the monthly PLFS series in the future. The NSO should also review the reliability of administrative data-sets, such as that of the Employees Provident Fund Organisation (EPFO).

To provide a clear and comprehensive view of the labour market, the NSO and NSC should jointly evaluate how far different labour-market indicators track each other, and how far they track other high-frequency indicators. If a certain data series suggests a divergent trend, that should be investigated and the reasons for such a divergence should be explained to the public.

Such steps will burnish the credibility of official statistics and help policymakers as well as investors make informed decisions. When the MPC starts using labour market data to inform policy decisions, it would create a healthy feedback loop, forcing the NSO to pay close attention to data quality issues.

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Across the world, statisticians have found it difficult to maintain the quality and consistency of labour-market data in recent years. A backlash from aggrieved central bankers has put these data-sets under the spotlight. In the UK, for instance, the national statistical office faced tough questions on jobs data from parliamentarians last year after the central bank chief flagged the unreliability of employment numbers.

Jobs have become an important part of India’s electoral and fiscal policy discourse. They will become a part of the country’s monetary policy calculus only once the official statistical system provides high-quality labour-market data at high frequency.

The author is a Chennai-based journalist.

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