India's unemployment rate of 6.4% in September is the lowest in four years

Labour market conditions improved substantially in India in September 2022. The unemployment rate dropped from 8.3 per cent in August to 6.4 per cent. This is the lowest unemployment rate recorded by India in the past four years — since August 2018. This was not the only improvement. Stress on the employment front dropped on many other counts. The fall in the unemployment rate was achieved along with an increase in the labour participation rate (LPR). The LPR inched up from 39.24 per cent in August to 39.32 per cent in September. As a result of the increase in the LPR and a simultaneous fall in the unemployment rate, the employment rate rose from 35.99 per cent in August to 36.79 per cent in September 2022. The employment rate, which is the proportion of the population of 15 years or more that is employed, is the most important economic indicator.

Labour market conditions improved acr­oss rural and urban regions. But it was rural India that made the bigger contribution to the turnaround in labour conditions. Rural labour participation rate improved by 0.29 percentage points. It rose from 40.39 per cent in August to 40.68 per cent. In June 2022, the rural LPR had fallen below 40 per cent for the first time since the pandemic-stricken month of April 2020. It has recove­r­ed in each month since then and the performance in September indicates a con­ti­nu­ation of that process.

An increasing LPR implies that more people are actively looking for employment. Its increase reflects an expansion in the lab­our force. In spite of an increase in the rural la­bour force, the rural unemployment rate de­c­lined sharply in September. A smaller proportion of the increased rural labour for­ce was left without work. The unemployme­nt rate fell by 1.84 percentage points — from 7.68 per cent in August to 5.84 per cent in Sep­tember. As a result, the rural employm­ent rate shot up by 1.01 percentage points from 37.29 per cent in August to 38.3 per cent in September. This translates into an addition of 7.86 million rural jobs in September. Rural employm­ent went up from 270.39 million in Au­gust to 278.25 million in September.

The increase in employment in rural India was not led by agriculture. On the contrary, agriculture shed a million jobs in September. Rural jobs were created in the construction and manufacturing industries. Over 7 million jobs were added in the construction sector in rural India in September and another 5 million jobs were added in rural manufacturing industries. Mining and utilities also added to this. As a result, nearly 13 million jobs were added in the rural industrial sectors in India in September.

The total rural employment in industry crossed 76 million. This is its highest level since the pre-pandemic rural industrial employment level of 79 million in January 2020. The substantial increase in employment in rural industries is not abrupt. It is a combination of a rising trend at least since March 2022 and a sample-effect factor that recurs every four months. The latter suggests that employment in rural industries may drop a bit in October. But, the trend is likely to remain on a rising trajectory.

Employment in the services sectors in rural India saw a significant churn in Sep­t­e­mber. Rural retail trade saw an addition of 5 million jobs but personal non-professional services shed 6.2 million jobs and tours and travel shed another 3.4 million. This is likely a movement of labour employed informally in non-professional personal services to better jobs in retail trade. We believe this to be a movement towards better jobs because sa­laried rural jobs increased in September. Many of these could be in manufacturing, mines, and utilities but some could be in re­tail trade as well. This implies Sep­tember saw not just an increase in employment in rural India but also an improvement in the quality of employment in the hinterlands.

On a net basis, rural employment in the services sector declined by 4 million in Sep­tember, largely because of the fall in non-professional personal services. But urban employment in the services sector increased by nearly 3 million at the same time. In the towns, employment increased in travel and tourism and in education. Urban industries, on the other hand, shed 0.56 million jobs. As mentioned earlier, there has been substantial churn in jobs in September.

The unemployment rate in ur­ban India declined by a substantial 1.87 percentage points — from 9.57 per cent in August to 7.7 per cent in September 2022. But, un­like rural India, urban India saw a simultaneous fall in the LPR, of 0.31 perce­n­tage points — from 36.99 per cent to 36.68 per cent. A smaller proportion of people were looking for work in September and that hel­ped bring down the unemployment rate. Ho­wever, the fall in the unemployment rate was quite significant and may not be at­t­rib­uted entirely to the fall in the LPR. As a result, the urban employment rate increa­sed by 0.41 percentage points — from 33.45 per cent in August to 33.86 per cent in September.

While the improvement in labour conditions in India in September is truly worth celebrating, it is equally important to note that the employment rate at 36.79 per cent is still low compared to the 37.1 per cent recorded in April and May 2022, or the 39.5 per cent of 2019-20 and the over-40 per cent levels before that. Miles to go before sleep.

The writer is MD & CEO, CMIE P Ltd