In summary, when the pandemic hit, the Indian economy was in the midst of a serious slowdown triggered by global and domestic, short-run and long-run, incidental and structural factors. The fact that the slowdown turned out to be as prolonged as it did also indicated the structural and institutional constraints in undertaking effective counter-cyclical policies. Fiscal policy was rendered less effective than it could have been due to self-imposed institutional constraint of meeting deficit targets.
Though the RBI responded to the slowdown by pursuing a loose monetary policy, it was ineffective in bringing about a recovery to any significant extent.
There were at least two reasons for the
ineffectiveness of monetary policy. The first reason pertained to a weak transmission mechanism from the repo rate to long run interest rates (Anand and Azad, 2019).5 The second reason relates to the downward rigidity of interest rates in developing countries like India, as interest rates are kept higher than the ones prevailing in developed countries to avoid capital outflows. With sharp reduction in output growth rate and expectations at given interest rate and in the midst of downward rigidity of interest rates, the effectiveness of monetary policy remained limited.
In general, the constraints in undertaking demand- management policies does not become apparent in the midst of buoyant global demand. The period of global boom during the early years of this century is one such example where the Indian economy registered high growth rates despite sharp reduction in fiscal deficits. However, during a global slump, the possibility and the extent of recovery depends critically on the extent of fiscal support.
The unprecedented shock delivered by Covid-19 has made fiscal intervention all the more urgent. We
2. The Indian economy prior to the pandemic
Further, the LFPR as well as the WPR fell for all demographic groups, men and women, urban and rural (Table 2.3).7 An absolute fall in the number of people employed as well as the sudden increase in
the UR were both unprecedented phenomena since the time labour statistics have been available in independent India.
Working age population Labour force
Employed
Unemployed [(2)-(3)]
Outside labour force [(1)-(2)]
Labour Force Participation Rate Workforce Participation Rate Unemployment Rate
2011-12
853.4 475 464.6
10.4 378.4
55.7 54.4 2.2
2017-18
968.9 482.7 453.3 29.4 486.2
49.8 46.8 6.1
2018-19
986.3 495.7 466.7 29 490.7
50.3 47.3 5.8 Table 2.2 :
India’s labour market since 2011-12
Sources and notes: NSS 2011-12, PLFS 2017-18 and PLFS 2018-19. Numbers pertain to individuals aged 25 years and above (see text for explanation). UPSS definition of employment (see Glossary). Absolute numbers are calculated using population projections as described in Nath and Basole (2020).
(Millions)
(Percent)
Labour force participation rate
Workforce participation rate
Unemployment rate
2011-12 2017-18 2018-19 2011-12 2017-18 2018-19 2011-12 2017-18 2018-19
Males
81.3 76.4 76.4 80 72 72.2
1.7 5.7 5.5
Females
35.8 24.6 26.4 35.2 23.7 25.5 1.6 3.8 3.5 Table 2.3 :
Key labour market indicators by demographic group
between 2011-12 and 2018-19
Sources and notes: NSS 2011-12, PLFS 2017-18 and 2018-19. Numbers pertain to individuals aged 25 years Males
76.4 74.5 73.7 74.1 69.3 68.6 3 6.9
7
Females
20.5 20.4 20.4 19.5 18.2 18.4 5.3 10.8
9.8
(Rural) (Urban)
1 2 3 4 5
1 2 3
Even by the liberal NSSO UPSS definition (see Glossary), employment growth fell well short of working age population growth for men and women in rural and urban areas (Table 2.4). The rate of growth of population among those aged 25 years or above was around 2.5 per cent per year (compounded annual growth rate or CAGR), but the rate of employment growth (on a much lower base) was around 1.5 to 2 per cent. For rural women, it was negative. That is, the absolute fall in the workforce at the aggregate level was driven largely by rural women. The absolute number of women engaged in subsidiary activities (including those engaged in a principal activity alongside the subsidiary activity) fell by around 32 million between 2011-12 and 2017-18. More importantly, the total number of women engaged only in subsidiary activities fell by close to 23 million during this time. This fall is not due to women opting to move out of the labour force into education as much of the decline (around 62 per cent) took place in the age bracket of thirty years and above. This decline in employment could be due to factors such as a rising education levels as well as rise in family incomes resulting in withdrawal of women
from the workforce8 or a decline in availability of work (Deshpande and Kabeer 2019). Much of the decline in the number of female workers engaged in subsidiary activities was in the agricultural sector, followed by manufacturing and construction.
A more stringent definition of employment is the Usual Principal Status, which only considers a person as employed if they have worked for at least six months of the preceding year. As the difference between the two measures in Table 2.4 indicates, the decline in employment was confined to subsidiary activities. However, even if we do not see an absolute decline in employment by the UPS definition, the rate of employment growth still falls far short of the rate of population growth for all groups except urban women. For example, among urban men for employment to have kept pace with population growth, the former should have grown by 15 million over six years (Table 2.4, Hypothetical difference). Instead, it grew by 8.7 million (Table 2.4b, Actual Difference). The corresponding figures for rural men are 30 million and 17 million. Thus, the concerning fact to be emphasised is that even for men aged 25 and above, (in rural and urban
Rural men Rural women Urban men Urban women
Working age population
growth
2.51 2.47 2.52 2.56
UPSS growth
1.46 -3.17 1.53 1.92
UPS growth
1.47 0.34 1.54 3.67 Table 2.4 :
Growth in working age population compared to growth in workforce between 2011 and 2017
Sources and notes: NSS 2011-12 and PLFS 2017-18. Numbers pertain to individuals aged 25 years and above (see text for explanation). See Glossary for definitions of UPS (Usual Principal Status) and UPSS
Hypothetical difference
(UPS) 30.25
12.73 14.99 3.64
Actual difference
(UPS)
16.90 -14.01 8.73 2.66 Compounded annual growth rate (%) Change (millions)
2. The Indian economy prior to the pandemic
areas), employment grew at 60 per cent the rate of population growth.
The result was an increase in open unemployment as well as a fall in the labour force participation rate.
To sum up, two points are worth emphasizing with respect to the employment trends between 2011- 12 and 2017-18. First, for men as well as women, the pace of employment creation fell far short of what was required given the rise in working age population. Second, there was an absolute decline in the number of women engaged in subsidiary economic activities in agriculture. We investigate the implications of this for India’s structural transformation later in this chapter.