By Surajit Das The National Statistical Office (NSO) of the Government of India released a press statement on March 14 on the unemployment rate. According to the periodic labour force survey (PLFS) data, the unemployment rate stood at 13.4% in urban areas in the financial year 2020-21. Female unemployment rate was over 15% and for […]
By Surajit Das
The National Statistical Office (NSO) of the Government of India released a press statement on March 14 on the unemployment rate. According to the periodic labour force survey (PLFS) data, the unemployment rate stood at 13.4% in urban areas in the financial year 2020-21. Female unemployment rate was over 15% and for male around 13% on average. These rates were 9.8% and 7.3% respectively during October to December 2019 before the lockdown (see graph).
The urban unemployment rate, of course, increased from 9% in the first quarter of 2020 to 21% in the second quarter due to the Covid-induced lockdown. It came down gradually to around 9% during the first quarter of 2021 and increased again to 12.5% in the second quarter during the second wave. These unemployment rates are calculated by assuming workers with zero income to be employed. There has been a huge surge in this category of unemployment following the lockdown, particularly among the self-employed that constitutes more than half of the workforce in India.
Labour-force Participation
If we consider workers with zero income to be unemployed, the urban unemployment rates would be substantially higher under the lockdown period. There was a sudden fall in the labour-force participation rates also during the lockdown, which was not really voluntary but, forced by the situation. If we adjust for that, the unemployment rates would be even higher.
In this situation, there was a cry for extending the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) to the urban areas as well. The current wage rate (in 2021-22) under this scheme is only Rs 209 per day, on average. The estimated fiscal cost of providing universal employment guarantee at the minimum wage rate is less than 1% of the GDP. There is a huge stock of foodgrains lying idle with the Food Corporation of India (263 lakh MT rice, 283 lakh MT wheat, 493 lakh MT unmilled paddy and 3 lakh MT of coarse grains as of February 2022), which is way above (more than double) the foodgrain stocking buffer norms. Part of the MGNREGS payment can easily be met in terms of foodgrains as well. Even if the fiscal deficit rises by 0.5% of the GDP because of providing universal employment guarantee in the country, it should be prioritised under the current situation.
Driving Recovery
Denying employment of last resort to the poorest section of the population is not only cruel under a situation of huge involuntary unemployment, but it is also an act of macroeconomic imprudence. The marginal propensity to consume is the highest among the poorest section. Therefore, if some income and purchasing power can be generated for this section through government expenditure, the multiplier effect of that public spending in enhancing the growth would also be the highest. The demand for wage goods and necessities would increase at the aggregate level and the economic recovery would be faster. Hence, the universal employment guarantee programme would not only help in solving the humanitarian crisis, but it would also help in expanding the market size for the businesses at a faster pace.
If the growth rate revives through a relatively better distribution of income, the future revenue flows in the Central and State government exchequers would also rise and the fiscal deficit to GDP ratio can come down gradually.
The estimated size of the labour-force in India is around 51 crore, including rural and urban areas. Even if we assume the unemployment rate to be 10%, the number of unemployed people would be around 5 crore. If all of them have to be provided 100 days of employment in a year, the total 500 crore person-days of work have to be financed in a year.
The average days of employment provided per household has been less than 50 (48.13) in the current financial year (2021-22) as of now. Households that completed 100 days of wage employment comprised only 6.5% of total households that worked in 2021-22 till date. All the 5 crore unemployed people may not seek employment under the MGNREGS. There could be more than one unemployed person in one household also. Therefore, generation of 250-260 crore extra person-days can effectively address the issue of huge involuntary unemployment with zero income to a great extent.
Making it Work
This financial year, 340 crore person-days have already been generated so far with a total expenditure of around Rs 1 lakh crore till 15th March 2022 (those who have got jobs have been considered to be already employed). Even if the average wage rate under the scheme becomes Rs 300 instead of Rs 209 and 600 crore (260 340) person days are generated in a year, the total expenditure comes to around Rs 1.8 lakh crore. Including the administrative and other costs for equipment etc (assuming 30% of total cost), the total cost would not exceed Rs 2.57 lakh crore. The GDP assumption for 2022-23 was Rs 258 lakh crore as mentioned in the union Budget document. So, 1% of that would be equal to Rs 2.58 lakh crore. Therefore, it is perfectly possible to have a universal employment guarantee programme in the country with a cost of merely 1% of GDP and less than 4% of the combined government expenditure in the country.
The government is already spending more than Rs 1 lakh crore on the rural employment guarantee scheme. So, the extra expenditure to provide universal employment guarantee would be around Rs 1.6 lakh crore, which is around 0.6% of GDP or 2.5% of total government expenditure in the country. It would have an enormous positive impact on the human development indicators in the country without any shade of doubt. It is well known that the unequal burden of lockdown was borne by the poor.
If the universal employment guarantee can be ensured with just around 0.5% of GDP amount of extra government expenditure (and some foodgrains which are rotting in the FCI godowns), why should we not have it to eradicate absolute poverty in this vast country? Not prioritising universal employment guarantee in India would also not be prudent even from the point of view of fiscal and macroeconomic policies, in general.
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