Rural unemployment rises, urban stabilises

After having remained well below the eight per cent mark in each of the four weeks of September, the unemployment rate has risen above the eight per cent mark in October. During the first two weeks of the month, the unemployment rate was 8.4 per cent and 8.6 per cent, respectively.

The increase has come about because of a reversal of the sharp drop in the unemployment rate in rural India. Unemployment in rural India had dropped to 6 per cent in September after having reached 7.5 per cent in August. At 6 per cent the rural unemployment rate was also the lowest in over a year.

This September fall in rural unemployment was the result of a sharp increase in kharif sowing activities because of a late recovery in monsoon rains. This led to a big increase in demand for labour in rural India. As the sowing season comes to a close by the end of September, we had expected this employment surge to recede.

Data for the first two weeks of October suggest that this is indeed true.

The rural unemployment rate in the week ended October 6 was 8.3 per cent and in the second week it was 8.2 per cent.

While a reversal of the exceptionally low unemployment rate of September was expected, the magnitude of the reversal surprises us. October is a month of festivals and the demand for casual labour, of the kind that usually gets absorbed in agricultural activities, is expected to remain high. We had therefore expected the rural unemployment to rise from the 6 per cent level of September to around 7 per cent. But, the data show a rise to over 8 per cent and that is surprising and, disappointing.

The data seems to suggest that while employment opportunities in rural India declined in the first two weeks of October, labour did not leave the labour markets. They continued to look for jobs. The labour participation rate was 44.3 per cent in the first two weeks of October. This is the same as it was in the month of September.

But, employment opportunities had declined. The employment rate declined, from 41.6 per cent in September to 40.7 per cent in the first two weeks of October, which is the same as the average of the preceding three months. The employment rate has reverted back to its average after having spiked momentarily in September.

Rationally, it can be expected that labour would retreat partially, during the remaining weeks of October as it becomes evident to them that job opportunities have declined. This would lead to a fall in the labour participation rate which in turn could reduce the rural unemployment rate. We therefore expect the rural unemployment rate to decline a bit, from its 8.2 per cent level in the first half.

It is assumed, in the above projections that the employment rate would continue to remain around 40.7 per cent and that the festival season till Diwali would have no further impact. This assumption could well turn out to be true because the first two weeks of October already include a part of the festival season.

The unemployment rate is higher in urban India. The average unemployment rate during the first two weeks of October was 9 per cent. This is lower than the urban unemployment rate in August and September which were 9.7 per cent and 9.6 per cent, respectively.

The small fall in the urban unemployment rate is welcome. It is not an insignificant fall.

The urban unemployment rate shot up sharply in the quarter ended September 2019. After remaining stable at 8.1 per cent in two consecutive quarters, March and June 2019, it shot up to 9.3 per cent in the quarter ended September. The recent urban unemployment figures suggest some weakening of its upward trajectory.

First, the September 2019 urban unemployment rate at 9.6 per cent was lower than it was in August. And, the September 2019 estimate was influenced by an unusual spike in the last week. This spike of the last week is offset by a sharp fall in the rate in the first week of October.

Urban unemployment rate data for the past few weeks is somewhat noisy. It had peaked at 10.8 per cent during the week ended September 29. But then it fell to 8.5 per cent in the next week before scaling up to 9.4 per cent in the week of October 13. The fall in September and then the fall in the first two weeks of October indicate that the urban unemployment rate could be stabilising at a little over 9 per cent but below 10 per cent.

But, the urban unemployment rate at 9 to 10 per cent is too high. The rate comparable to the official definition could be 12-13 per cent. It is imperative that these rates come down substantially.