Farms to factories and back

The Indian economy bounced back in the second quarter of fiscal 2019-20 from the deep chasm of the lockdown-infested first quarter. The inflation-adjusted gross domestic product (GDP) in the quarter ended September 2020 was 23.2 per cent higher than its level in the June 2020 quarter. It had fallen by 29.3 per cent by a similar comparison in the earlier, June 2020 quarter. The magnitude of this fall is extraordinary. 

Usually, in the June quarter, the GDP shrinks by about 3-4 per cent compared to the previous quarter. This is because there is seasonality in the GDP series. An interesting observation in this seasonal GDP series is that post 2013 the peak quarter shifted from December to March. However, the trough quarter has remained unchanged as the one that ends in June.  And so, the June 2020 quarter was expected to shrink compared to the previous quarter even if these were normal times.

But, the quarter of June 2020 was extraordinary as the country was put under a severe lockdown to contain the spread of Covid-19. While the GDP shrunk by 29.3 per cent in this quarter, the GVA (gross value added) shrunk by a lesser, 24.8 per cent. It even bounced back by a correspondingly lesser 19.4 per cent in the September 2020 quarter. Seasonality is much less pronounced in the GVA series than in the GDP series although both are two sides of the same coin. The former measures income, while the latter measures expenses. 

It is interesting to note the correspondence between the GDP and GVA series on the one hand and the employment series on the other. We know that in India, the correspondence between these is rather weak. We mostly see the GDP and GVA grow handsomely while employment remains either stagnant or even declines. India has demonstrated jobless growth for decades. Initially, this reflected structural transformations as people were moved out of farms into factories and offices. While the net effect of this was almost no growth in employment, the structural shift from farms to factories in the 1990s improved labour productivity. But, in recent times, such a structural shift is not evident. Nevertheless, jobs continue to not increase but the GDP has continued to grow quite handsomely.

In the June 2020 quarter, when the real GDP contracted 29.3 per cent over the previous quarter and the real GVA contracted by 24.8 per cent by a similar comparison, employment  contracted by 21 per cent. This is interesting. If, in the past, the economy has managed to grow handsomely without deploying additional labour commensurately, it has also demonstrated an ability to shrink without shedding labour commensurately. 

The results of the September 2020 quarter GVA/GDP data and employment data are interesting in more ways. Labour has gained well in the impressive recovery process of this quarter. Employment expanded by 23.2 per cent compared to the June 2020 quarter.  This is the same as the expansion in real GDP during the same period, which was also 23.2 per cent. Real GVA growth was relatively modest at 19.4 per cent.

The higher growth in employment compared to growth in GVA implies a fall in labour productivity in the September 2020 quarter. This is a result of the movement of labour from factories to farms. As factories and offices shut down or reduced operations and as employment opportunities in the unorganised non-farm sectors also shrank, large contingents of labour migrated back to the farms.  As a result, employment in farmlands increased. 

This reverse migration from construction sites, factories, workshops and markets to farms began in the June 2020 quarter.  Employment in farms increased by an estimated 9 million in this quarter compared to the earlier, March 2020 quarter. This translates into a 7.9 per cent increase in employment in agriculture. However, the inflation-adjusted agricultural GVA in the June 2020 quarter contracted by a substantial 14.3 per cent. The additional inflow of labour into farmlands did not translate into additional farm produce. On the contrary it declined. Evidently, the increase in farmland employment was just disguised unemployment.

Although the economy recovered substantially in the September 2020 quarter, the reverse migration from factories to farms did not stop during this quarter. Employment in agriculture increased by an estimated 1.3 million in the September 2020 quarter compared to the employment in the June 2020 quarter. Employment increased by one per cent but, real agricultural GVA growth in the September 2020 quarter was 16.4 per cent lower than it was in the June 2020 quarter.

It is true that India experienced an excellent kharif crop following a good southwest monsoon. Inflation-adjusted agricultural GVA in the September 2020 quarter was a respectable 3.4 per cent higher than it was a year ago. But, by the same year-ago comparison, employment had increased by a much larger 10.6 per cent.

Given the low labour productivity in agriculture in India currently, it is imperative that labour is re-channelized into factories, offices and markets. The promise held out by the comparatively stellar performance by the manufacturing sector could be elusive as much of it reflects extraordinary profits of listed manufacturing companies in the September 2020 quarter. These do not look sustainable in the near term. Labour requires a better recovery story.