India’s labour market undergoing structural transformation with self-entrepreneurship: Report

Increasing women participation in mudra yojana is resulting in a better financial situation for women borrowers.

India’s unemployment rate is at a record low with the labour market altering substantially with self-employment, according to a State Bank of India (SBI) report.

“India’s Unemployment Rate is at a record low… India’s labour market is undergoing a deep structural transformation with self-entrepreneurship across all echelons and higher educational attainment emerging as key enablers….old fashioned rhetoric needs to be reinterpreted,” the report stated.

The recently released sixth annual Periodic Labour Force Survey (PLFS)  from the National Sample Survey Office (NSSO) gauging unemployment rates across rural and urban areas with different levels of disaggregation like gender, age, etc., reveal a significant decline in the unemployment rate from 6.1 percent in FY18 to 3.2 percent in FY23, with an accompanying increase in labour force participation rate (LFPR) from 36.9 percent to 42.4 percent, with the female LFPR far outstripping the overall gain in LFPR. The female LFPR jumped from 17.5 percent to 27.8 percent during the period.

Unemployment is always a contentious and political issue, more so for developing economies.

“Government emphasis on entrepreneurship through Pradhan Mantri MUDRA Yojana (PMMY) and even recent schemes post pandemic like Prime Minister Street Vendor's AtmaNirbhar Nidhi (PMSVANidhi) for those at the bottom of pyramid is imparting a structural transformation in labour markets in India through formalisation of credit for such family enterprises and it is heartening that the family enterprises are getting bigger and this is getting reflected through a rise in household helpers,” the SBI report said.

The growth in the percentage of self-employed within the employment estimates (57.3 percent in FY23 against 52.2 percent in FY18) with main traction coming from a rising share of household helpers evidentially has been wrongfully interpreted by labour economists and others as a signal of shrinking employment opportunities.

“With primary subsistence needs like food, shelter, medical needs being taken care of by the government through free ration for 80 crore people, Pradhan Mantri Awas Yojana (PMAY) and Ayushman Bharat, apart from additional state schemes, such people are making a clear trade-off between earnings and working in family enterprises. Earnings have actually increased across all categories,” the study said.

Secondly, the youth unemployment rate in the PLFS (in the age group of 15-29 years) shows a decline from 12.9 percent to 10 percent for the three-year period ended FY23, but it is still cited wrongfully as a proxy for shrinking unemployment opportunities.

“However, while there is a lot of noise about it being a barometer of serious youth unemployment, we believe it’s truly 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 subgroup is not counted in the labour force, this could be pushing up the unemployment rate in the 15-29 age bracket as a pure statistical artefact. If we re-estimate the unemployment rates for the 30+ group separately in the 15-29 age group, the PLFS unemployment rate for urban male at 13.8 percent comes down to 2.9 percent in the 30+ age group urban male. How does one account for such rapid shifts in education/employment pattern?” the report said.

Such a shift in the employment pattern after education will result in very different unemployment rates for higher age brackets. The PLFS report does not report unemployment rates for the 30-plus age group.

The report refutes many of the mundane and stereotyped rhetoric of interpretation of India’s unemployment data.

“The bulge in self-employment at more than 50 percent and within that the share of family members indicates the rapid formalisation of credit through government schemes like PMMY and PMSVANidhi for the informal labour force at the bottom of pyramid and thus such family enterprises becoming larger over time by getting linked with the banking system,” the report stated.

The labour force participation rate among females 15-29 years of age has increased across the major states with exception of Tamil Nadu and Assam. The maximum increase has been witnessed by Odisha, followed by Himachal Pradesh and Uttarakhand. Himachal Pradesh has the best ratio of 49 percent followed by Meghalaya at 45 percent, Sikkim and Nagaland at 44 percent, and Chhattisgarh at 42 percent. States in the northeast have performed much better on this metric.

“Increasing women participation in PMMY is resulting in a better financial situation for women borrowers. In the last six years (FY23 over FY16) per woman PMMY disbursement amount increased to Rs 49,157and the per woman deposits increased to Rs 42,500. Thus, PMMY is an effective power tool for women empowerment at grass root level,” the SBI report said.

The PLFS survey was started from 2017 to overcome issues with the earlier Employment-Unemployment Survey (EUS)-NSSO employment study that was based on consumption spending and, hence, had a downward bias in unemployment estimates.

Going forward, the PLFS survey must be the go-to survey for all researchers with minor tweaks in youth unemployment estimates and more integration of formal job creation data with PLFS, the report said.