Rising unemployment including among the salaried class and shrinking real incomes have led to a lack of demand that bodes ill for the economy, said Mahesh Vyas, managing director at the Centre for Monitoring Indian Economy (CMIE).
“Unemployment rising is not a good sign at all for the economy,” he said. “Labour participation rate recovered soon after the lockdown was eased last year, but has run out of momentum even before it could recover fully,” Mr. Vyas added.
Unemployment rose to 8% in April, from 6.5% in March, CMIE said. The labour participation rate (LPR) was 40% in April, according to the private economic forecaster. “The LPR is about two percentage points below what it was before April 2020. This is a very serious matter for a population of our size,” Mr. Vyas said.
Observing that the economy had recovered after the lockdowns were eased in 2020, he said, “All supply side indicators saw a robust turnaround. But where is the demand?”
Asserting that the lack of demand was a bottleneck for further growth, he said, “Income and consumer sentiment have also been hit. Income is lower than it was a year earlier. 90% of families have seen income shrinkage (i.e., real income, adjusted for inflation).”
Separately, RBI officials have flagged a ‘demand shock’ from the COVID-19 second wave. “Real economy indicators moderated through April-May 2021.The biggest toll... is in terms of a demand shock – loss of mobility, discretionary spending and employment,” they said in the monthly bulletin on Monday. “Although extremely tentative at this stage, the central tendency of available diagnosis is that the loss of momentum is not as severe as at this time a year ago,” they added.
“We can’t depend on exports,” Mr. Vyas said. “It is domestic consumption that will help the economy,” he noted, adding that it was critical to ‘put money in the hands of the consumer now’.
The strain in labour markets in April was not entirely because of the partial lockdowns but largely because the economy simply could not provide employment to large numbers who sought work, Mr. Vyas had said in a CMIE statement issued earlier this month.
Significantly, the size of the salaried class shrank for the third consecutive month in April, with 3.4 million jobs lost. During 2019-20, there were 85.9 million salaried jobs. As of April 2021, there were just 73.3 million, CMIE said. Agriculture too saw a loss of jobs, but April is a lean month as the Rabi crop is normally harvested by then and preparations for the Kharif crop begin only in May.
Mr. Vyas also pointed out that every time the economy faced a shock, women in the labour force were the most affected. “About 75% of men (in the age category greater than 15 years) are already part of the labour force. But, for women, it is only 10-12%. These shocks put them out of the labour force and [when that happens] we lose an opportunity to increase our national income.”
Observing that capacity utilisation in most sectors was currently low, he said it was imperative at this hour to take policy measures to revive demand. “Whatever the choice, even if the solution to increase demand is not perfect, don’t let that become” a victim of the quest for a perfect solution.
