Credit formalisation, state welfare transforming labour markets: SBI report

Self-employment has improved as government programmes take care of primary subsistence needs, it says

Credit formalisation, government welfare programmes and labour force entrepreneurship are strengthening self-employment, said a report by SBI Research on Tuesday, claiming economists have "wrongfully interpreted" the trend as shrinking of opportunities.

India’s labour market is undergoing a structural transformation with self-entrepreneurship in "all echelons" and higher educational attainment emerging as a key enabler, thus needing a change in the old fashioned rhetoric of interpreting the labour force data, it said.

Government programmes like MUDRA Yojana and PMSVANidhi are transforming labour markets through formalisation of credit for family enterprises that are growing in size.

“Also, with primary subsistence needs like food, shelter, medical needs being taken care of by the government through free ration for 80 crore people, Awas Yojana and Ayushman Bharat, apart from additional state schemes, people are making a clear trade-off between earnings and working in family enterprises,” said the report.

The latest periodic labour force survey (PLFS), released in November, reported an increase in self-employment to 57.3 per cent in FY23 from 52.2 per cent in FY18. The share of helpers in household enterprises increased to 18.3 per cent from 13.6 per cent in the same time period.

“This has been wrongfully interpreted by labour economists and others as a signal of shrinking employment opportunities. The central tendency of self employed in India’s labour force has always been trending much above 50 per cent, even during the NSSO's employment and unemployment survey (EUS) days through 1980s and 90s to 2000s,” said the report, referring to the National Sample Survey Office (NSSO).

The report said that the high youth (15-29 age group) unemployment recorded in PLFS survey is "wrongfully taken" as a proxy for shrinking unemployment opportunities for them, but in reality it is a reflection of changing employment-education pattern, with the men/women remaining in the education system at least until the age of 23-24 years which used to be only up to 17 years earlier.

“As this (youth) sub-group (41 million in 2020-21 per MHRD data, with 11 million from the northern states alone) is not counted in the labour force because it is still in colleges, this could be pushing up the unemployment rate in the 15-29 age bracket as a pure statistical artefact, with low denominator in terms of labour force,” it said.

The informal sector’s share in employment has remained nearly the same over the years and may be overstated in the PLFS. Meanwhile, the average monthly salary of a casual worker has increased by 1.3 times in FY18-FY23.

“The formalisation of the economy has improved significantly owing to various efforts of the government. The monthly EPFO payroll report provides data on establishments remitting first ECR (Electronic Challan-cum-Return) in a particular month. Based on this data we estimate that almost 6 million jobs have been formalised since FY19,” the report said.