Madan Sabnavis writes: The jobs puzzle

Let’s look at three recent reports on the topic of jobs. The first relates to startups that have begun issuing pink vouchers to their employees. The figure given for this year so far exceeds 10,000 and could be more in the near future. The second relates to the NSO survey which says the unemployment rate in 2020-21 (July-June) was at 4.2 percent, down from 4.8 percent in 2019-20. This sounds good because it seems that even though startups are laying off employees, somewhere in the country, opportunities are being created. The third is the determination the government has shown in creating opportunity – it has ensured the creation of a million jobs over the next year and a half. This may be optimistic, but if it materializes, the employment landscape will change dramatically.

So what is the employment situation today in India? Then, one can say that if jobs are created on a gradual basis, there will be an increase in income generation, which in turn should stimulate consumption. Therefore, if consumption rises – this can be indicated by the growth in the consumer goods sectors – one can be confident of creating jobs. Here the picture may not be very emphatic. Consumer durables have registered slightly negative or positive growth over the past five years or so – a reflection of individuals’ purchasing power that can ultimately be linked to job creation.

There was also a lot of talk about startups with several companies seeing impressive listings, despite poor P&L calculations. It is one thing to say that these companies were able to ride the stock market boom after Covid and got the resources. But those who still depend on funding from venture capitalists or private equity funds have suffered a setback, as this channel has depleted.

Interestingly, it is a well-known fact that 80-85 percent of startups globally become entangled in the first two years, mainly due to nonviable models that fail the scaling challenge – when the micro-level successful enterprise does not survive because expands These deep pockets are required and if funds are not available, this increases pressure on the company. The repercussions of this is deflation. Startups have been the flavor with many qualified engineering and management graduates who prefer to start their own ventures, especially in the fintech field. So, while startups look exciting, large-scale job creation cannot be part of these experiments, unless there is a guaranteed flow of money.

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The NSO data talking about the unemployment rate dropping to 4.2 percent in 2020-21 seems like good news because it says that during the height of the pandemic there was a drop in the unemployment rate. But this does not seem to coincide with those times when many people lost their jobs and when migrants were forced to return home with their workplaces closed. In fact, PLFS data reveals some anomalies. From 2018-2019 onwards, the unemployment rate declined – from 6.1 percent in 2017-18 to 5.8 percent in 2018-19 to 4.8 percent in 2019-20 and then to 4.2 percent in 2020-2021. But, during this stage, the GDP growth rate declined from 6.8% in 2017-2018 to 6.5% and 3.7% in 2018-2019 and 2019-20 respectively, and then contracted by 6.6% in 2020-2021. So, there seems to be something wrong here as lower GDP growth is associated with lower unemployment which should be in the other direction. This is something that requires further examination given that unemployment rates in CMIE have been between 7-10 per cent during the Covid period.

The government’s intention to employ one million employees is commendable. It would be a really big task considering that central government offices currently house about 3.45 million people according to the 2022-2023 budget. Employing an additional million people would mean adding about 30 percent to that number. The questions that arise are the following: First, can this figure be achieved in such a short period of time given that there are fairly long processes involved in assigning people to government departments? Secondly, hiring such a number is good for the country, but finding meaningful roles for them in various departments needs serious consideration. Interestingly, in 2012 and 2013, the total number of employees was 3.41 million, and decreased to 3.18 million by 2020-2021 as the government worked to reduce its impurities significantly. It has increased in the past two years to 3.46 million. It is quite clear that plans must be made to provide work for this group of new employees. Opportunities could extend beyond central government departments, perhaps in education, health and social care. But that would be out of order.

The third issue to consider is the cost increase to the government. As per the 2022-23 budget, the average outlay per employee was around Rs 12.20 lakh. Assuming the new group earns half of the existing average, the additional cost will be at least Rs 60,000 crore. The salary outlay for the year was Rs 4.22 crore. These provisions should be made in subsequent budgets. Another associated cost to consider relates to pension funds – this necessity accrues each year as employees retire periodically.

Therefore, the picture of overall unemployment looks complex today. While the rate is officially declining, our experience during the pandemic does not support such optimism. While the government’s intention to add over a million jobs in the next 18 months is commendable, the task is both daring and challenging in both administrative and financial terms. Finally, the high hopes placed on startups to drive India proved daunting from the point of view of stock market performance as well as hiring. It destroys jobs rather than creates them. We may have to wait for the traditional path of economic growth to gradually create spaces for more jobs.

The writer is chief economist, Bank of Baroda and author of Lockdown or Economic destruction. Opinions are personal

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