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Millennium Post

Fortifying the safety net

Sharp decline in rural job growth in August and the effect on the overall economy highlights the importance of scaling up MGNREGS; writes Satyaki Chakraborty

Fortifying the safety net
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The signs of job growth in rural India visible in June and July this year disappeared in August leading to a rise in the unemployment level in the countryside. The major factors were the loss of jobs under MGNREGS and the end of the showing of Kharif crops in several states of the country.

This has halted the overall employment rate in the country in August which fell marginally to 37.5 per cent compared to 37.6 per cent in July while significantly pushing up the unemployment rate at 8.4 per cent, the Centre for Monitoring Indian Economy said in its latest report.

The unemployment rate, which has been falling so far after scaling a peak of 23.5 per cent in April and May, increased from 7.4 per cent in July to 8.4 per cent in August. "This is a significant jump," CMIE said. Though the labour force increased from 424 million in July 2020 to 428 million in August, the increase only added to the count of unemployed which increased from 32 million to 36 million. This means that in just one month, the unemployed number went up by 4 million.

CMIE analysis shows the recovery in employment stopped or at least halted in August with employment in August 0.2 million lower than in July. Employment in August 2020 was 10.7 million lower than it was in August 2019 and continued to remain lower than in any month in the pre-lockdown period since at least January 2016 when CMIE started measuring labour statistics directly.

"On a net basis, none of the increase in the labour force could translate into an increase in employment. It just showed an increase in the count of the unemployed," CMIE said, adding the deterioration in labour market conditions in August was essentially located in rural India. The report further pointed out that rural India that led the recovery till July, got this jolt in August. Economists see it as a bad signal for the second quarter of fiscal 2020-21.

There are some significant indicators in the CMIE report. Labour participation rate inched up from 40.7 per cent in July to 41 per cent in August. The LPR has continued to rise since the fall of April 2020 albeit at a progressively slowing pace. But, the unemployment rate, which has been falling so far after April, increased from 7.4 per cent in July to 8.4 per cent in August. This is a significant jump. As a result, the employment rate fell from 37.6 per cent to 37.5 per cent in the same period.

The labour force increased from 424 million in July 2020 to 428 million in August. But, this increase only added to the count of unemployed which increased from 32 million to 36 million. On a net basis, none of the increase in the labour force could translate into an increase in employment. It just showed an increase in the count of the unemployed.

This deterioration in labour market conditions in August was essentially located in rural India. The labour force expanded in urban India but shrunk in rural India. Employment and employment rate expanded in towns and shrunk in the country-side. While the unemployment rate rose in both regions, it rose more in rural India.

The labour force expanded by 4.8 million in urban India in August, and it shrunk by nearly 0.8 million in rural India. Of the 4.8 million who entered the labour markets in urban India, 3.4 million got jobs and the remaining 1.4 million were left unemployed. This implies that the marginal unemployment rate was 29 per cent in urban India in August. But, this isn't bad at all compared to what happened in rural India.

As the CMIE report shows, in rural India, employment declined by 3.6 million. Most of these joined the ranks of the unemployed. The count of the unemployed in rural India increased by 2.8 million. The rest of those who lost jobs simply quit the labour market. And so, the labour force shrunk by 0.8 million in rural India.

Rural India, that led the recovery story till July has pulled back hard. The fall in rural employment in August seen in CMIE's CPHS ties very well with the employment trends seen in the Government's MGNREGS intervention. In June and July this year, the person-days of employment created under the scheme were twice the levels in the same months of 2019. This contributed hugely to the rural-centric revival story we've seen unfold so far. But, in August, the growth in MGNREGS person-days of employment was up by a mere 14 per cent. This is likely to be revised upwards but it is unlikely to come anywhere close to the more than 100 per cent growth seen in the preceding two months.

This is not all that is hurting rural India. The fall in MGNREGS employment coincides with a fall in farming activities in August. By July-end, 83 per cent of the Kharif sowing was complete. That left very little work for August. 40 per cent of the sowing was done in each of June and July 2020. In comparison, only 20 per cent of the sowing was done in August. Therefore, August could have absorbed a much lower quantum of labour compared to June and July.

This revelation about MGNREGS work in rural areas once again underlines that this largest job scheme in the country for the rural poor has to be expanded in a big way if the Government wants to prevent the income fall in the countryside. All leading economists have said that the MGNREGS has big potential in providing jobs. It is up to the Government now to take proper lessons and allot more funds for this scheme.

Views expressed are personal

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