GS PAPER II
India’s unemployment crisis predates Covid-19
Why in News
Covid-19 worsened what was already joblessness crisis in early 2020. The National Statistical Office (NSO) began conducting annual labor force surveys in 2017-18, which hitherto had been undertaken every five years.
National Statistical Office (NSO)
- NSO just released its third annual survey (2019-20), which covers the period until June 30, 2020.
- In 2017-18, NSO reported that unemployment reached a 45-year high, and youth unemployment tripled between 2011-12 and 2017-18 to over 18%.
- Thereafter, poor management resulted in economic growth slowing up to March 2020 compounded by the pandemic and its economic aftermath.
Labor Force Participation Rate (LFPR)
- At first sight, the slight rise over the three years from 2017-18 in the Labor Force Participation Rate (LFPR) and Workforce Participation Rates (WPR), which is measured as a share of those of working age 15 years and over, may be seen as a positive development.
- However, India’s LFPR at 40.9% (2019-20, a rise from 38.1% two years earlier) is miles short of the world average of 60.8% in 2019 (which fell to 58.6% in 2020).
- But a rise in WPR and LFPR at a time when India’s economy was slowing over 2017-18 to 2019-20, needs to be explained.
- In a slowing economy, incomes are not rising, and distress is increasing. When it comes on top of pre-existing falling trends in employment and wages, the pressure on household resources becomes overbearing.
- What we have seen in 2019-20 is that while male LFPR and WPR have remained roughly the same, it is females who are searching for, even finding, work.
- There is little change in male LFPR or WPR over these three years.
- There are, possibly, two forces pushing up LFPR and WPR of women:
- The first is a wider phenomenon: Girls are being educated at various levels.
- From 2010 and 2015, the enrolment rate at the secondary level (classes 9-10) shot up from 58% to 85%, and this happened with gender parity.
- Most states began to incentivize girls’ secondary schooling in 2010, by offering girls who finished class 8 and continued to class 9 and 10 a scholarship or a bicycle so that they could come to school.
- These girls then had better chances of getting urban jobs.
- So, female work participation, having fallen for decades, is now finally turning upwards — as it happens in most countries when women’s education levels improve.
- This, however, is likely to be a weak contributory factor, given how weak the growth process has been, and how only the service sector was creating a limited number of jobs.
- Women were indeed benefitting from the growth in the service sector in urban areas. However, that trend has reversed in 2019-20.
- Worse, according to the Centre for Monitoring Indian Economy (CMIE), since mid-2020, women have lost work first, even after the lockdown ended; and this trend has continued into 2021.
- The latest PLFS also reveals that the share of regular jobs has fallen in 2019-20, reversing a trend noticed since 2004-2005.
- The share of regular wage work was increasing at the expense of self-employment and casual wage work.
- The second reason is more worrying. Improvements in WPR and LFPR are distress-driven. While these rates may have increased slightly, and may appear to be positive at first sight, it is accompanied by several distressing trends.
- First, the 2019-20 data shows that the share of agriculture in the total workforce, which was consistently declining for two decades, has stopped falling, and, in fact, has increased, as the reverse migration from cities in 2020 showed.
- The increasing share of agriculture in the workforce is a retrogressive step in a developing economy attempting a structural transformation.
- At the same time, the share of manufacturing in employment, which fell between 2011-12 and 2017-18, fell in 2019-20 again.
- The share of construction in employment also fell.
- Second, women dropped out of regular work, and became self-employed.
- This was driven by distress, and is demonstrated by the fact that the share of women who are unpaid family helpers in the household increased sharply from 2018-19 to 2019-20.
- That means women were engaged in economic activity (that shows up in an increase in WPR/LFPR), but it is unpaid work.
- Third, precocity and informality increased from 2018-19 to 2019-20, reversing an ever so slight trend that had set in between 2011-12 and 2017-18, that the share of regular workers who had no social security was falling.
- Those in regular work without any social security increased from 49.6% of all non-farm regular workers to 54.2% between 2018-19 and 2019-20.
- Fourth, for all types of work, the average number of hours worked in a week fell sharply in the April-June 2020 quarter, when the economy contracted by 23.7%.
- Naturally, earnings fell for all households.
- Thus, on every reasonable measure of the quality of work, there was a perceptible decline.
Conclusion
- Finally, if anyone still thinks that the fall in the unemployment rate between 2018-19 and 2019-20 from 5.8% to 4.8% is a positive development, think again.
- By the current weekly status, which is close to the international standard for measuring unemployment, there is no improvement in the unemployment rate between 2017-18 (8.9%) and 2018-19 (8.8%) to 2019-20 (8.8%).
- These rates remain the worst in the last 48 years since measurement began.
GS PAPER III
A delayed intervention
Why in News
- Recently, the Government has notified the rules and rates based on which exporters can claim rebates on taxes paid on their outbound cargo.
- It took nearly eight months to come up with these critical details after the scheme promising such rebates kicked in has meant that exporters have had to conjure up additional working capital to the extent of taxes paid but not refunded during this period.
Remission of Duties and Taxes on Exported Products (RoDTEP)
- A new scheme was necessitated to replace the erstwhile merchandise exports incentive scheme after the WTO dispute settlement body held it was not compliant with the multilateral trade watchdog’s norms.
- The Government is confident that the new scheme, Remission of Duties and Taxes on Exported Products (RoDTEP), and effective from January 1, is WTO-compliant.
- Covering 8,555 tariff lines, or roughly 65% of India’s exports, the remission rates now notified, range from 0.5% to 4.3% of the Freight On Board value of outbound consignments.
- For some goods, there is a cap on the value of the exported items.
- Steel, pharmaceuticals and chemicals have been excluded from the RoDTEP.
- Some sectors are concerned about the rates being lower than expected, while engineering firms are worried that taxes on key raw materials are not adequately offset.
- Fine-tuning may be needed, but a vacuum has been plugged at last.
- There can be no doubt that Prime Minister’s call to scale up exports to $400 billion this year helped expedite the disentangling of inter-ministerial red tape over the RoDTEP scheme.
- A new foreign trade policy, a couple of smaller export-related schemes and a mechanism to fork out the last two years’ pending dues under the earlier export incentive programme are expected by September.
- This urgency must not be lost. Having opted out of RCEP, India is looking to re-ignite free trade pact negotiations with Australia, the U.K., the EU and the U.S.
- The global economy is on the cusp of one of its strongest rebounds as COVID-19 vaccination drives cross a tipping point in many advanced economies.
- As they look to go beyond China to service domestic consumption demand, India needs to aggressively step up to the opportunity.
Conclusion
- Although the second wave’s damage on the economy is less severe than the wreckage from last year’s national lockdown, domestic recovery is still feeble and uneven.
- Consumption may see some pullback on pent-up demand as well as the impending festive season, but its sustainability is fragile.
- Till those firms up, private investments are unlikely to take off.
- That leaves public capital spending and exports as the two growth engines with feasible firepower to aid the recovery momentum.
- There is no time to dither on either of these fronts.