Rising Unemployment and Lack of Demand in India

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    Recently, the Centre for Monitoring Indian Economy (CMIE) has highlighted that unemployment is rising among the salaried class which leads to shrinking real incomes and a lack of demand.

    Key Highlights

    • Data Analysis
      • Unemployment rose to 8 percent in April 2021, from 6.5 per cent in March 2021.
      • The Labour Force Participation Rate was 40 per cent in April which is about two percentage points below what it was before April 2020.
      • Income is lower than it was a year earlier and 90 percent of families have seen income shrinkage.
      • The economy recovered after the lockdowns were eased in 2020 with all supply side indicators seeing a robust turnaround and the real economy indicators moderated through April-May 2021.
      • 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 and as of April 2021, there were just 73.3 million.
      • Agriculture too saw a loss of jobs, however April is a lean month as the Rabi crop is normally harvested by then and preparations for the Kharif crop begin only in May.
      • About 75 per cent of men are already part of the labour force but for women, it is only 10-12 per cent.
    • Concerns
      • Unemployment rising is not a good sign at all for the economy, however, the biggest concern is of a demand shock from the Covid-19 second wave which is a bottleneck for further growth.
      • 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.
      • Shocks in the economy put people out of the labour force and the economy loses an opportunity to increase the national income.
    • Suggestions
      • The economy should not stay dependent on exports as only domestic consumption can help the economy.
      • It is critical to put money in the hands of the consumer now by providing them enough jobs and increasing their purchasing power.
      • Capacity utilisation in most sectors needs to be increased to take policy measures to revive demand.

    Centre for Monitoring Indian Economy

    • It is a privately owned business information company head-quartered at Mumbai.
    • It was established in 1976, primarily as an independent think tank.
    • Functions
      • Produces economic and business databases.
      • Develops specialised analytical tools to deliver these to its customers for decision making and for research.
      • Analyses the data to decipher trends in the economy.
    • It has built India’s largest database on the financial performance of individual companies.

    Real Income

    • It is how much money an individual or entity makes after accounting for inflation.
    • It is also called real wage when referring to an individual’s income.
    • It differs from nominal income, which has no such adjustments.
      • Individuals often closely track their nominal vs. real income to have the best understanding of their purchasing power.
    • Most real income calculations are based on inflation reported by the Consumer Price Index (CPI).

    Labour Force Participation Rate

    • It is a measure of the proportion of a country’s working-age population that engages actively in the labour market, either by working or looking for work.
    • The formula for the number is the sum of all workers who are employed or actively seeking employment divided by the total noninstitutionalized, civilian working-age population.
    • It is used in conjunction with the unemployment numbers, it offers some perspective into the state of the economy.
    • It provides an indication of the size of the supply of labour available to engage in the production of goods and services, relative to the population at working age.
    • The breakdown of the labour force (formerly known as economically active population) by sex and age group gives a profile of the distribution of the labour force within a country. 

    Source: TH