Self-employment fuels drop in unemployment in India: Entrepreneurial rise or coping mechanism?

The unemployment rate in urban areas decreased to 6.7 percent during January-March 2024

There has been an uptick in the self-employed category in India and the resultant decline in unemployment, according to various surveys, including the India Employment Report 2024 by the International Labour Organisation (ILO) and the Periodic Labour Force Survey (PLFS), which looked at the distribution of workers employed.

“The PLFS suggests that unemployment has declined. It's due to an increase in self-employment – Is this because of identifying coping mechanisms to job loss or rise in entrepreneurship is something we need to analyse further via disaggregated data,” National Institute of Public Finance and Policy (NIPFP) professor Lekha Chakraborty told Moneycontrol.

Globally, job creation is declining due to economic and geopolitical challenges. Despite this, studies indicate that Indian businesses are faring better than some major markets, economists and experts said.

Nearly two-thirds of the incremental employment after 2019 comprised self-employed workers, according to the India Employment Report 2024 by ILO.

The unemployment rate in urban areas decreased to 6.7 percent during January-March 2024 as compared to 6.8 percent in the corresponding period previous year for persons of age 15 years and above. The female unemployment rate decreased to 8.5 percent during January-March 2024 as compared to 9.2 percent in the corresponding period previous year, according to the PLFS.

“As per the PLFS, India's unemployment rate fell to a multi-year low of 3.2 percent in 2022-23. A closer look at the distribution of workers employed suggests that there has been an uptick in the self-employed category. Even employment in the agriculture sector remains higher than the pre-pandemic level,” Paras Jasrai, senior analyst, India Ratings and Research, told Moneycontrol.

Labour force participation

The labour force participation rate (LFPR) in urban areas shows an increasing trend from 48.5 percent to 50.2 percent during January-March 2024 as compared to the corresponding period in the previous year for persons of age 15 years and above. Female LFPR in urban areas rose to 25.6 percent during the same period, according to the PLFS.

The LFPR, the workforce participation rate and the unemployment rate showed long-term deterioration between 2000 and 2019 but improvement thereafter. Between 2000 and 2012, employment in India experienced an annual growth rate of 1.6 percent, while gross value added grew at a much faster rate, at 6.2 percent. This pattern intensified between 2012 and 2019 when gross value added continued to grow at 6.7 percent, but employment growth was nearly negligible, at 0.01 percent. After 2019 and due to the COVID-19 pandemic, there was a substantial increase in employment, with agricultural employment growth even outpacing the growth in agriculture gross value added, the ILO report said.

Manufacturing sector employment

Employment in manufacturing expanded by only 1.7 percent, even though the gross value added exhibited a high growth rate of 7.5 percent per year during 2000–19. From 2019 to 2022, employment and gross value added increased by 3 percent and 3.5 percent per year, respectively, prompted by the partial post-pandemic recovery. The significance of the manufacturing sector becomes evident when considering that most of the additional employment generated in the sector was regular and self-employment type, with much higher earnings and productivity compared to construction, agriculture and some services like trade, the ILO report said.

The improvement coincides with periods of economic distress, both before and during the COVID-19 pandemic, except for two peak pandemic quarters. The female LFPR, after declining significantly in the earlier years, took to a faster upward trend as of 2019, particularly in rural areas, the report added.

In 2022-23, the service sector was the major employer of the youth in the country with a share of 32.7 percent, followed by agriculture, forestry, and fishing with a share of 32.4 percent. A fifth were working in the construction sector and the rest in manufacturing. When compared with the working-age population, the share of young men working in the agriculture and service sectors was lower. Young men were more likely to be engaged in the construction sector. Younger women, on the other hand, were more likely to be working in services and manufacturing as compared to their working-age counterparts, according to the Centre for Economic Data and Analysis (CEDA) of Ashoka University.

Employment in India is predominantly self-employment and casual employment. Nearly 82 percent of the workforce engages in the informal sector, and nearly 90 percent is informally employed. Due to the nature of employment growth since 2019, the share of total employment, which is in the informal sector, increased, the ILO report said.

Labour Bureau’s Quarterly Employment Survey

The estimated total employment in the nine selected sectors, including manufacturing, construction, trade, transport, education, health, accommodation & restaurants, IT/BPOs and financial services, stood at 3.185 crore during April-March 2022, increasing by 50,000 in comparison to January-March 2022 at 3.180 crore.

The estimated total employment in the nine sectors stood at 3.21 crore during July-September 2022, increasing by 2.82 lakh from April-March 2022.