Year ends with worse unemployment rate than it began with

We make a living by what we get; We make a life by what we give
We make a living by what we get; We make a life by what we give

Labour Market distortion is clear despite economic recovery

By Dr. Gyan Pathak

The year 2021 is closing with an unemployment rate of 8.01 per cent in India as against 6.52 per cent in January. It is a great cause of frustration. In January, unemployment rate in the urban area was 8.09 per cent which was up on December 30 at 9.26 per cent, and for rural areas it was up at 7.44 per cent as against only 5.81 per cent. It all indicates a great labour market distortion despite a trend in the economic recovery in both urban and rural areas.


Unemployment has worsened at a time when a new Omicron variant of COVID-19 is spreading like wildfire both in India and several other countries, enforcing lockdowns and containment measures. There is great uncertainty in the labour market, and nobody knows what will happen next, chiefly because Omicron overrides immunity from vaccination. The year 2022 is thus opening with a gloom scenario, as against 2021 which had begun with a hope after a miraculous development of vaccines and rollout from January 16. It was hoped that market conditions would improve enabling unemployed to get employment.


Unemployment rate in December 2020 was 9.06 per cent. For urban areas it was even higher at 9.15 per cent. At that time the urban unemployment rate was 8.84. All India unemployment rate then began improving with the opening of almost all sectors of . By March it fell to 6.50 per cent which is the lowest for this year, with urban unemployment at 7.27 per cent and rural unemployment at 6.15 per cent. However, it was worse than the unemployment rate of 6.1 per cent in the beginning of 2018, which was at 45 years high for the country.


The situation had started worsening sharply from November 2016 after Modi’s demonetisation order which forced cores of business and industrial establishments, especially MSMEs to close. Millions others struggled to survive due to shortage of cash, and millions more cut their production up to 75 per cent. Crores of people lost their and by the beginning of 2018, unemployment in India was 45 year high. Unemployed were thus hit hardest in the Modi rule, which the outbreak of the COVID-19 pandemic made even worse. Lockdown order of March 24, 2020 put brake on the whole economy to a grinding halt, which began to open from June 1, 2020 in phased manner.


The country was hit by the second wave of COVID-19 in April, which necessitated further lockdowns and containment measures. Labour market suddenly deteriorated and the gains of the last three months were reversed. Unemployment rate rose to 7.97 per cent from 6.50 per cent just a month ago. Both the urban and rural areas were adversely affected and the unemployment rate rose to 9.78 and 7.13 per cent respectively.


May proved to be worst with the rise in the ferocity of the second wave. Markets were shut down and millions of establishments closed. Unemployment rate shot up to 11.84 per cent which is highest for the current year. Unemployment in the urban areas became even worse at 14.72 per cent while in the urban areas it was 10.55 per cent.


The unemployment scenario started improving thereafter and came down to 6.96 per cent in July, for urban areas 8.32 per cent and for rural areas 6.34 per cent. However, it was short lived, and by August all India unemployment rose to 8.32 per cent, with urban and rural unemployment at 9.78 and 7.64 per cent respectively.


The situation improved again in September that was the last month of lower unemployment rate of 6.86 per cent, which rose to 7.75 per cent in October, 7 per cent in November, and now 8 per cent in December. Unemployment in urban areas is more than the rural areas.


Among the states, as per the data of CMIE, the unemployment rate in November was highest in Haryana at 29.3 per cent followed by & 21.4, Rajasthan 20.4, Bihar 14.8, Himachal Pradesh 13.6, Tripura 13.4, Goa 12.7, and Jharkhand 11.3. The lowest unemployment rate was 0.6 per cent in Odisha, and only little more at 0.8 per cent in Meghalaya. The other states having unemployment rates less than 5 per cent were Uttarakhand, Uttar Pradesh, Telangana, Maharashtra, Madhya Pradesh, Karnataka, Gujarat, Chhattisgarh, and Assam. All other states have unemployment rate in the range of 5-10 per cent.


Given the high unemployment scenario in both the urban and rural areas, Modi government would need to take urgent steps to rectify the distortion in the labour market. Urban areas need more attention because of higher unemployment rate compared to the rural areas. Employment guarantee schemes for the urban areas may be an option for the time being similar to the programmes being implemented in the rural areas. The year 2020 is beginning with an additional ominous sign of Omicron spread, and therefore, unemployed must be helped. (IPA Service)