India’s unemployment rate must keep PM Modi awake at night:
According to the Center For Monitoring Indian Economy (CMIE), India’s unemployment rate rose to 8% as of May 1 2021. The unemployment rate is at 9.6% and 7.2% in urban and rural areas respectively. The data revealed, more than seven million jobs were lost during the month of April 2021.
Why India’s unemployment rate started to grow again?
The rise in the growth of Covid cases in India triggered a slowdown of factory production throughout the country. As the state governments impose more restrictions on people’s movement to curb the spread of the virus, people in the unorganized sector find it difficult to find employment. Delhi for example imposed a complete lock down of the state on April 19th for 10 days and further extended the lockdown period up to May 3rd 2021. States are left choice less but to act with restrictions as the union government left the situation to the state governments to tackle the spread of the virus.
In a statement, CMIE’s MD and CEO Mahesh Vyas mentioned the rise in the unemployment rate to the lack of growth in jobs. He also mentioned a decreased labor participation rate (LPR) as one of the reasons for the increase in India’s unemployment growth. According to him, there are approximately 48.3 million people who are willing to work but were not able to find employment as of March 2021.
India- 75 lakh people lose jobs in April as lockdowns return; unemployment at a 4-month high. #Unemployment rate touched 7.97% in April as @_CMIE data, with urban areas witnessing higher stress at 9.78% and rural joblessness at 7.13%.
— anshuman tiwari (@anshuman1tiwari) May 3, 2021
How is the unemployment rate going to impact India’s growth projections?
The current unemployment rate is still at a significantly lower than what it was compared to March of 2020 when India was first hit with the Covid wave. During March 2020, PM Modi announced a nation wide lockdown. This resulted in an unprecedented spike in the country’s unemployment numbers. In the below chart, the part highlighted in the yellow corresponds to the Covid hit period for India.
As shown in the breakdown above, almost every state in the country felt the impact created by the nationwide lockdown. The spike in the Unemployment rate is evident in almost every state. According to the latest CMIE data, the trend in the unemployment rate started to rise again in the first 4 months of 2021. Among the states, Haryana stood at the highest with an unemployment rate of 35.1 percent. This is followed by Rajasthan and Delhi at 28 and 27.3 percent. At the same time, there are good number of states, where the unemployment rate remained way below than 5%. Assam at 02%, Gujarat at 1.8% and Karnataka at 2%.
Amid the second wave surge and the recent unemployment rate, how is the outlook on India ?
In a meeting between PM and states CMs, PM Modi told the state chief ministers that they must resort to lockdown as the last option. There are no reports of complete lockdowns in any of the states so far in the country. However, various indicators are pointing to a worrying trend for the Indian economy.
- According to one statistic, the average railway freight volumes in India have dropped by 11% for April (month on month). A fall in the freight volume could be a leading indicator for the consumption levels down the months. When there is a less anticipation for demand, factories cut down production levels at the present.
- There is also a dip in the the average number of daily e-way bills generated in the country. In April there are approx. 20 lakh e-way bills as compared to 23 lakh in March 2021.
- According to latest Apple’s driving index, Indians are driving less in the month of April 2021.
- According to Bloomberg, Barclays bank reduced India’s economic projection by 1 percentage point. The bank now estimates the economy to grow at 10% for the rest of the year.
What is next for India?
To beat the spread of the Covid in India, Dr Anthony Fauci has suggested a lockdown for a few weeks in India. However, this comes with a huge economic cost for India.
5/5 Using Google mobility and CMIE-CPHS we find 10% decline in mobility associated with 7.5% decline in income. Useful to keep in mind for estimating impact of future lockdowns. Fig shows partial residual plot of income change and mobility change with state fixed effects. pic.twitter.com/sL0ytOIHW5
— CSE- Azim Premji University (@working_india) May 3, 2021
As Azim Premji univeristy pointed out, A 10% decline in mobility is associated with 7.5% decline in income. India must avoid a complete lockdown at all costs and should focus on ramping up of vaccination rate in the country. At the moment India suspended exports of almost 2.4 million vaccines daily that are produced by the Serum Institute of India.
— ANI (@ANI) May 1, 2021
Despite the efforts, there is a criticism on India’s vaccine strategy. As NY times pointed out: “Even if India could somehow solve its vaccine supply problem quickly, Dr. Gounder and others said, it might not help, at least, not in the short term. Vaccines take two weeks for the first dose to have an effect, and require an interval of about four weeks between the first and second dose.”