Reality about unemployment in India

India, according to Census 2011, estimates its workforce at 402 million. According to the labour ministry, as of 2016, India’s labour market comprises more than 475 million people. Of this, it is estimated that less than 10% are in formal employment.The inability to create formal economy jobs haunted the United Progressive Alliance government and is now a growing cause for worry for the Bharatiya Janata Party-led National Democratic Alliance.

It is true that a reliable and up to date measure of employment and unemployment is not easy. There are many sources of data on employment and unemployment. Currently, unemployment data is collected and disseminated by several departments, agencies, ministries in India. The primary agencies for survey and data collection are Central Statistical Office (CSO) and the National Sample Survey Office (NSSO) of the Ministry of Statistics and Programme Implementation (MOSPI). Other agencies include Labour Bureau of the Ministry of Labour and Employment (MoLE) and Registrar General and Census Commissioner of India under Home ministry. Further, Ministry of Micro, Small and Medium Enterprises (MSMEs) and the Directorate General of Technical Education (DGET) also occasionally collect employment data. Nevertheless, dubbing all these data as unreliable, or just cherry picking of one set of data to showcase government’s achievement does not change the reality.

Mirza Ghalib once remarked, “I know the reality of heaven; what you say is good to soothe my heart.” This aptly applies when government agencies are propagating that statistics show that formal employment in India has increased. This kind of statistical jugglery may win elections, but eventually it may break the hearts of millions of young people. Contrast this with a report in the Hindustan Times in July 12017. According official data, one of every three IITians graduating in 2017 either didn’t find a suitable job or wasn’t found suitable for a job through campus placement, pointing to shrinking employment opportunities for India’s large pool of engineering talent. Only 66% of those who made themselves available for campus recruitment landed a job offer in 2016-17, as against 79% in 2015-16 and 78% in 2014-15, according to data made available by IITs to the human resource development (HRD) ministry. Out of 9,104 student in 17 IITs who applied this year, only 6,013 got jobs. The data for placement was shared by 17 IITs. There are 75,000 students studying in 23 IITs in the country. DNA also reported that The number of private job offers for graduates across the Indian Institutes of Technology (IITs) has dropped in the last two years. While 7,367 students were placed in 2015-16, only 6,406 got the opportunity in 2016-17. If this is the fate of IITs, where students are rigorously educated and trained, what might be happening to the students of social sciences and humanities or to those who are less educated or uneducated? Private sector provides approximately 90 per cent of jobs and the informal sector in India generates more than 90 per cent of jobs. This has not happened in a few years of course, and there are deep rooted problems in our educational system (with regard to employability) as well as the strategy of growth and industrialization (which is less labour absorbing). The only change in recent times is propagating that all is well because the new government has consciously worked for increasing employment. It is not truth, but a post truth—that is ‘take the truth as it is being told’ and not ‘as it actually exists’!

What Economic Survey says?

 While the economists have recently raised concerns over not enough jobs being created, the government has rejected the worrying employment scenario, saying that there is a lack of comprehensive data on job creation. Rajiv Kumar, Vice-President of Niti Aayog said in January that there is “much better news on employment”, which was in contrast with the then CMIE data. He had also said that the government think-tank would “very soon” release a report based on high-frequency data on job creation. The report has not been released yet.

The Economic Survey 2017-18 claims that Formal Sector Non-Farm employment is much more than it is believed and it has increased in the last two years. The survey has madesome interesting points in this regard. According to it, assessments of the employment challenge are hampered by a lack of timely data. Recognizing this, the government authorized the NITI Aayog to provide new guidelines for filling this lacuna, and the next comprehensive survey of employment is under way. In the meantime, the digitization of government data and the introduction of the GST have provided an opportunity to make some preliminary estimates of formal employment.

The Survey explains that from a social security perspective formal employment amounts to 6 crores, to which we must add an estimated 1.5 crore of government workers (excluding defense), for a total of 7.5 crores. Since the non-agricultural workforce (again adding government to the figure in the table) is estimated at 24 crores according to the 68th Round (2011) of the NSSO Employment-Unemployment Survey, formal employment under this definition is equivalent to 31 percent of the non-agricultural workforce.

It adds that from a tax perspective formal employment is 11.2 crores; adding government employment yields a total count of 12.7 crores. This implies that nearly 54 percent of the non-agricultural workforce is in the formal sector. Of course, not all the firms that pay GST are formal, in the common-use sense of the term. As Chapter 2 shows, many small, below-the-threshold firms have registered for the GST so they can secure tax credits on their purchases. Against this, the figure excludes many formal workers in sectors outside the GST such as health and education.

It concludes :Notwithstanding the caveats regarding the specific numbers, the broad conclusion is likely to be robust: formal payrolls may be considerably greater than currently believed.

What other sources of data show?

CMIE Data

According to data of Centre for Monitoring Indian Economy (CMIE), the unemployment rate in India has doubled between July 2017 and April 2018, whereas the number of jobs in the country in the last financial year 2017-18 also fell to 406 million from 406.7 million in the previous year, data from the Centre for Monitoring Indian Economy show. The unemployment rate in the country rose from 3.39% in July 2017 to 6.23% in March 2018, and is projected to reach 6.75% in April 2018.

The unemployment rate between July 2017 and October 2017 rose significantly from 3.39% to 5.04%. It declined for two months — November and December to 4.76% and 4.78% respectively and started rising again from January 2018. Jobless growth is one of the major challenges the country is facing.

Analysts have pointed out that since nearly half of India’s workforce is dependent on agriculture, jobs suffer due to the volatility in the sector — drought, unseasonal rains, bad crop et al. Madan Sabnavis, Chief Economist of CARE Ratings says that there has been a trend of replacements than adding new jobs.According to him “There have been softer recruitments in the corporate sector with just 2-3% growth rate, while jobs in the public sector have not increased.”  He explained that a lot of people are understood to have lost their jobs when housing projects got stuck last year.

KLEMS India database: What happened the previous year?

Given how key labour-intensive sectors, such as agriculture and exports, have not done too well between FY14 and FY16, it is not surprising no new jobs were being created in the economy during this time. In fact, the KLEMS India database reveals a contraction in the workforce over this period, with about 1.2 million jobs being lost and the total employment down from 483.9 million to 482.7 million. Even though growth rates were purportedly high, in 201-16 and 206-17, the KLEMS India database show that manufacturers didn’t hire too many more people—because only an additional 0.3 million jobs were created. Unfortunately, the agriculture sector, which provides nearly half the total employment, barely grew in either of the years, and actually contracted 0.2% in FY15. Consequently, the number of people employed slipped from 217.6 million in FY14 to 210.1 million in the next year and further to 202.7 million in the subsequent year. Again, the loss of jobs in the textiles sector—around 0.7 million jobs were lost in the two years between FY14 and FY16—could be partly due to the near collapse of the exports sector, which contracted to $316.5 billion in FY15 and further to $266.4 billion in FY16, from $318.6 billion FY14. Sector experts have been pointing out exports from labour-intensive sectors have been slower than that of the sector as a whole. Much of this, they say, is due to structural issues, and caution that labour-intensive sectors are becoming less competitive. Over the past year, demonetisation and the delays in refunds, on account of GST, have further hurt exporters. The slowdown in sectors, such as construction, which grew just 1.3% in FY17, is not good news because it accounts for around 12-14% of the total employment. More than 10 million jobs were created in the construction sector in the two years to FY16 although growth decelerated from 4.3 % in 2014-15 to 3.7% in FY16. With real estate slowing down significantly since then, it’s unlikely the additional employment would have been significant. The KLEMS data shows the pace of job creation has decelerated since the early nineties; with an additional12 million people looking to earn a livelihood every year, the economic environment needs to be a lot friendlier.

International Labour Organisation Estimates

According to the latest report of International Labour Organisation (ILO),, the unemployment rate in India dipped from 3.6 per cent in 2012 to 3.4 per cent in 2014. It, however, rose to 3.5 per cent in 2015 and the unemployment rate has remained unchanged since then.  India could witness a higher unemployment rate of 3.5 per cent in 2018, a little more than the 3.4 per cent projected earlier

The unemployment rate in the country will stand at 3.5 per cent in 2018 and 2019 – the same level of unemployment seen in 2017 and 2016, the ILO’s ‘World Employment and Social Outlook: Trends 2018’report said. In its 2017 report, the ILO had projected unemployment rate in India at 3.4 per cent in 2017 and 2018. The ILO said the unemployment rate at a global level would decline for the first time in three years.

The report disagreed with denial of jobless growth by Prime Minister Narendra Modi and assertion that seven million jobs had been created in the current financial year. The ILO has, on the contrary, projected in its latest report that the number of jobless in India  will increase to 18.6 million in 2018 and 18.9 million in 2019, against 18.3 million in 2017. In last year’s report, the ILO had forecast that the number of unemployed in the country is expected to be 18 million in 2018 and had estimated the unemployment figure for 2017 at 17.8 million. So, the number of unemployed persons in India in 2017 was 0.5 million more than ILO’s previous year estimates.

The ILO has projected a dip in unemployment rate globally from 5.6 per cent in 2017 to 5.5 per cent in 2018 and 2019. In its 2017 report, the ILO had projected the global unemployment rate at 5.8 per cent for 2017 and 2018. Globally, 192.3 million people will remain unemployed in 2018 – a slight dip from 192.7 million in 2017. India is still better in comparison to the global average unemployment, but this is not enough. Former RBI governor recently said that India needs a higher employment growth and for this it needs to achieve a double digit growth rate led by the labour absorbing manufacturing sector.

The fallacy of EPFO data on employment

A recent study titled “Towards a payroll reporting in India” – by Pulak Ghosh and Soumya Kanti Ghosh used a new dataset, the Employees Provident Fund Organisation (EPFO), to gauge employment growth in India after demonitisation. This report authored by the Group Chief Economic Adviser of the State Bank of India and a professor from the Indian Institute of Management, Bangalore made a case for a better payroll reporting system in India and claimed that 55 lakh new jobs were created in India in a year. The authors later claimed that “7 million formal jobs are being added annually” in Indian labour market. To be sure, seven million formal jobs belies all past expectations, estimates and experiences of India’s labour market. In fact, by the authors’ own estimates, this would mean that India creates more formal jobs (7 million) than the number of skilled workers entering the workforce every year (6.6 million). The authors also claim in their study that 80% of the workforce in India is unorganised labour. That is, 80% of India’s workers are not registered with the EPFO or other formal sector databases. So, if there are seven million new formal sector jobs every year, does that mean there are also 28 million informal jobs being created every year to maintain this ratio of 80:20 unorganised to organised employment in India? This is shear exaggeration if the truth inside the data is not analysed.

 The report used data from the Employees’ Provident Fund Organisation (EPFO) which registers employees from the formal sector for provident fund benefits. It found that as of November 2017, there were 36.8 lakh new members in the age group of 18-25 years who registered with the EPFO vis-à-vis the previous year. It assumed that any 18- to 25-year-old registering with the EPFO implies that he or she found a new job in the organised sector. This happened on the back of massive external forces of formalisation by the twin forces of demonetisation in FY-2017 and the GST in FY-2018.  It then extrapolated this November 2017 data to the full year of FY-2018 and boldly claimed that 55.2 lakh new jobs were created in FY-2018. This analysis was flawed in the sense that new 18- to 25-year-old EPFO members do not automatically mean net new jobs in the economy; an informal job that turns formal with an EPFO registration does not mean it is a new job; cherry-picking an EPFO data point and post-demonetisation/Goods and Services Tax (GST) time frames lead to these grossly misleading conclusions. Jayaram Ramesh rightly points out that the costs of formalisation may have resulted in many firms cutting costs or even shutting down. The EPFO methodology does not capture any of these costs of forced formalisation but merely showcases the new formal employees as new jobs. In other words, if, say, for every five informal employees, four lost their jobs due to the GST and demonetisation and one became formal, this study will count it as one new job created. Instead, the truth would be that four jobs were lost and one job turned formal from informal, not new. Thus, the study conflates what could be formalisation gains with new jobs. Forced formalization increased the number of EPFO registration. It is seen from the fact that in FY-2015, the total number of contributing EPFO members grew 7%. In FY-2016, it grew 8%. But after demonetisation, in FY-2017, it grew 20% and by December 2017, it had grown a further 23%. To cross check, the latest official numbers revealed in July 2017 (livemint reported) that the subscriber base of the Employees Provident Fund Organization (EPFO) rose 26% in the last six months from 38 million to 48.1 million. The jump was attributed mainly to an amnesty scheme allowing firms to come clean on their actual staff strength without being penalized, rather than jump in employment. EPFO’s amnesty scheme encouraged companies to enrol workers who had joined them between 1 April 2009 and 31 December 2016. Employees’ contributions, if not collected during the period, were waived. The employers’ contribution will be required to be remitted but unpaid dues will not attract any penalty. Every month an organized sector employee contributes 12% to EPF and a matching contribution is given by the employer. The amnesty scheme started on 1 January and ended on 30 June, 2017.

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wto

CSS Editorial: It is one of the finest articles on subsidy issue in the WTO related to India for a logical understanding of India’s stand in the WTO; really very beneficial for students!

Few things symbolise the WTO’s failure as evocatively as the developing world’s fight over food subsidies does. This has stalled various trade rounds because, while developing countries like India want more time to phase out their subsidies, especially since the Europeans and the US spend billions of dollars every year to subsidise their farmers, the latter give “data” to show this isn’t true. Most lay observers are swayed by the “data” and think countries like India are indeed guilty. Perhaps the best example of this is the latest submissions by India on its subsidies—Aggregate Measure of Support (AMS) in WTO jargon—and the US response to this. The US submission says that while India claims its AMS for rice was 5.45% in 2013-14, the actual number was 76.9%—that is, while India says its support to rice farmers adds up to 5.45% of the value of the crop in that year, in reality, India gave farmers more than three-fourths extra by way of price support. The corresponding figures for wheat are 3.53% and 65.3%. A figure below 10% is acceptable according to the WTO negotiations for developing countries, and below 5% for developed ones. How the US and India get such remarkably different numbers is at the heart of the problem with how the WTO operates.

Apart from the price that India guarantees its farmers, what obviously matters is the proportion of the crop that this applies to. Since India’s minimum support price (MSP) is, theoretically a price at which every farmer can sell to the government, the US assumes India’s price support extends to 100% of the crop; India, however, buys only 25-30% of the crop, so, logically, the price support should only apply to that amount. The fact that wheat/rice prices in India are way below MSP in most parts of the country is testimony to the view that MSP is not an effective price support to 100% of the crop. Indeed, while the US calculates India’s AMS for just wheat and rice as Rs 274,515 crore in 2013-14, the entire budget for the ministry of consumer affairs, food and public distribution that oversees all MSP and ration shop functions was Rs 92,927 crore! Just correcting for this distortion will reduce the US estimate of Indian subsidies from the 65-77% range to 16-19%.

This, it turns out, is the minor part of the story. When you look at the US calculation, it talks of the MSP of Rs 13,500 per tonne for wheat in most parts of the country. It then takes a “reference price” of Rs 3,540, multiplies the difference (13,500-3,540) by the 71 million tonnes of crop and arrives at the AMS; the same exercise is done at a higher price in some states that offer a bonus over the MSP. Given value of wheat was Rs 147,795 crore, the US arrives at an AMS of 65.3%. In the case of paddy, the US takes an MSP of Rs 13,100 per tonne and a “reference price” of Rs 2,346.67. But, and here’s the catch, the current global price of wheat is not Rs 3,540 per tonne, it is around Rs 16,900—in 2013-14, prices were 25-30% higher. With India’s MSP lower than the international price, its price support is negative, not a positive 65.3% as the US alleges! In the case of paddy, the US uses an MSP of Rs 13,100 vs a reference price of Rs 2,346.67, and uses this to arrive at a 77% AMS. Yet, when you look at the current price of Rs 19,500 per tonne, it is obvious India’s price support is negative —indeed, it is because India’s prices are lower than global prices that it is able to export in large quantities.

So, why is the US using the wrong “reference price”? When the WTO reached its agreement, it needed a “reference price” to avoid disputes based on annual fluctuations in global prices. It used the average global price between 1986-88 for this. Logically, this price should have been revisited regularly or adjusted by, say, the level of inflation or the exchange rate. India’s WPI, for instance, is up 5.6 times since then; not surprisingly, the exchange rate to the dollar which was 13.4 then is also up 5-6 times. Such is the rigidity in the WTO process, in 2018, we are using 30-year-old prices to calculate market support.  But, the serious question is, why doesn’t this trip up the US and Europe who spend a lot more on farmers? Because, when the WTO focussed on trade-distorting subsidies—that meant anything like MSP that affected the domestic price—the US and Europe simply converted their price support to unconditional cash transfers to farmers which were not related to a particular crop. Each system gave, say, Rs 100 to a farmer, but the Indian one required him to grow wheat or rice while the US/EU didn’t.

Now that India has got Aadhaar-based cash transfers, it too can follow EU/US and stop its MSP while ensuring the farmer gets the same amount of subsidies. Indeed, there are attendant benefits to doing this since higher MSPs mean Punjab and Haryana grow too much wheat and rice and that hurts their soil and lowers the water table. But at a more basic level, why does India need to change its system of MSPs just because the WTO is unable to learn basic maths?

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Japan, China, South Korea Trilateral summit

A trilateral summit meet meeting between Japan’s Prime Minister Shinzo Abe, South Korea’s President Moon Jae-in, and Chinese Premier Li Keqiang  took place in Tokyo on May 09, 2018. The leaders of Japan, China and South Korea presented a united front on North Korea and free trade at the summit despite delayed issue a joint declaration (it took them more than 12 hours). As anticipated the agenda for the summit was dominated by the recent political and strategic thawing in North Korea and the upcoming Trump-Kim meeting. Other issues in the discussion also included economics, finance, disaster cooperation, and some historic issues. The 75- minute meeting, first in over 2½ years, delineated largely broad policy issues without offering the finer details that are at the root of their disagreements. The three leaders emphasised that they were in the driver’s seat for a peaceful and prosperous East Asia, and differences could be resolved through peaceful negotiation and cooperation.

They focused on their common goal of working towards a denuclearised North Korea, and to uphold free trade and oppose protectionism. While they were clear on the outcomes, they were less clear about how to get there. The delay in the joint declaration was over their differing opinions on denuclearising North Korea. They eventually settled on one that said Japan and China “especially appreciate and welcome” the Panmunjom Declaration, made after the historic inter-Korea talks on April 27, which “confirmed their common goal of the complete denuclearisation and the establishment of a permanent peace regime in the Korean Peninsula”.

Mr Abe, standing between Mr Li and Mr Moon, stressed that they were on the same page about the strict implementation of United Nations Security Council sanctions. He said: “They must be fully implemented. This is our shared stance.” Mr Li, however, chose to focus on the need to “seize the current opportunity to promote a resumption of dialogue”, adding that Beijing will continue to “play a constructive role”.

The three leaders also promised to uphold free trade, which has come under pressure over protectionism, with Mr Li citing a Chinese proverb that says: “We must not give up eating for fear of choking”. Their countries together account for nearly a quarter of the world economy, and a fifth of global trade volumes.

Mr Li cited a new framework he dubbed the “China-Japan-South Korea plus X model”, saying that the three nations can draw on each other’s strengths for third-country projects in areas like finance, energy and technology.

In spite of differences over the rigour for free trade deals, they vowed to speed up efforts for a trilateral pact – for which talks began in 2012 – and sought to push for the early conclusion of the Asean-led, 16-nation Regional Comprehensive Economic Partnership deal that also involves Australia, India and New Zealand.

Later, during their two-way talks, Mr Li and Mr Moon discussed offering North Korea adequate reward for its denuclearisation. Mr Moon’s chief press secretary Yoon Yong Chan said: “They agreed that the international community, including the United States, must actively take part in ensuring a bright future for North Korea through a security guarantee, and support for its economic development if it denuclearises, instead of making unconditional demands.” Dr Lee Seong Hyon, from the South Korean think-tank Sejong Institute said Seoul will not try to sway Tokyo but will persuade Washington instead. “When the US is persuaded, Japan will follow.”

Still, Mr Abe won the backing of Beijing and Seoul for the “full resolution” of the longstanding issue of North Korea’s abduction of Japanese citizens in the 1970s and 80s. He promised that Tokyo will normalise ties with Pyongyang if all pending issues are resolved.

Mr Abe accepted invitations from Mr Li and Mr Moon to make official visits to their countries, in a positive sign that the three nations are committed to managing – if not entirely resolving – their differences.

It will be China’s turn to chair the next trilateral summit, and the leaders said they will strive to make it a “regular” event. There was no indication, though, on when this might take place or if it will revert to being an annual affair.

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Panmunjom Declaration

In an unprecedented event on April 27 President Moon Jae-in of the Republic of Korea (South Korea) and Chairman Kim Jong Un of the State Affairs Commission of the Democratic People’s Republic of Korea (North Korea) held talks and both crossed the border into the other’s country. They held an Inter-Korean Summit Meeting at the Peace House at Panmunjom on 27 April, 2018 and signed a historic agreement, the Panmunjom Declaration, seeking a formal end to the Korean War and the “complete denuclearisation” of the peninsula at a summit in the demilitarised zone. The two leaders solemnly declared before the 80 million Korean people and the whole world that there will be no more war on the Korean Peninsula and thus a new era of peace has begun. The pair shook hands and even exchanged jokes in a highly-choreographed few hours before signing the joint declaration. They also decided to remain in close contact via a hotline in future.

Panmunjom Declaration

The two leaders, sharing the firm commitment to bring a swift a swift end to the Cold War relic of longstanding division and confrontation, to boldly approach a new era of national reconciliation, peace and prosperity, and to improve and cultivate inter-Korean relations in a more active manner, declared at this historic site of Panmunjom as follows:

  1. South and North Korea will reconnect the blood relations of the people and bring forward the future of co-prosperity and unification led by Koreans by facilitating comprehensive and groundbreaking advancement in inter-Korean relations. Improving and cultivating inter-Korean relations is the prevalent desire of the whole nation and the urgent calling of the times that cannot be held back any further.
  2. South and North Korea affirmed the principle of determining the destiny of the Korean nation on their own accord and agreed to bring forth the watershed moment for the improvement of inter-Korean relations by fully implementing all existing agreements and declarations adopted between the two sides thus far.
  3. South and North Korea agreed to hold dialogue and negotiations in various fields including at high level, and to take active measures for the implementation of the agreements reached at the Summit.
  4. South and North Korea agreed to establish a joint liaison office with resident representatives of both sides in the Gaeseong region in order to facilitate close consultation between the authorities as well as smooth exchanges and cooperation between the peoples.
  5. South and North Korea agreed to encourage more active cooperation, exchanges, visits and contacts at all levels in order to rejuvenate the sense of national reconciliation and unity. Between South and North, the two sides will encourage the atmosphere of amity and cooperation by actively staging various joint events on the dates that hold special meaning for both South and North Korea, such as 15 June, in which participants from all levels, including central and local governments, parliaments, political parties, and civil organisations, will be involved. On the international front, the two sides agreed to demonstrate their collective wisdom, talents, and solidarity by jointly participating in international sports events such as the 2018 Asian Games.
  6. South and North Korea agreed to endeavour to swiftly resolve the humanitarian issues that resulted from the division of the nation, and to convene the Inter-Korean Red Cross Meeting to discuss and solve various issues including the reunion of separated families. In this vein, South and North Korea agreed to proceed with reunion programmes for the separated families on the occasion of the National Liberation Day of 15 August this year.
  7. South and North Korea agreed to actively implement the projects previously agreed in the 4 October, 2007 declaration, in order to promote balanced economic growth and co-prosperity of the nation. As a first step, the two sides agreed to adopt practical steps towards the connection and modernization of the railways and roads on the eastern transportation corridor as well as between Seoul and Sinuiju for their utilisation.

Observers described the event as a momentous period of historical transformation on the Korean Peninsula, reflecting the enduring aspiration of the Korean people for peace, prosperity and unification. Analysts feel that this development would not only reduce tensions in the Korean peninsula, but also the diplomatic pressures and sanctions over North Korea. Although Japan would also benefit from the truce, still Japan feels that the agreement between the two Koreas would moderate the effects of economic sanctions against North Korea to curb its nuclear aspirations and development of weapons of mass destruction. The increased efforts for peace between the two Koreas may give a reason of concern to the United States because its pretext of keeping a military vigil in Easter Asia and Korean peninsula and deploying THAAD in South Korea is weakened. South Korea is also not happy about protectionist measures of Trump’s government.

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