What do the data say about the nature and shape of India’s ongoing economic recovery?
There are many ways to measure recovery. We can look at summary measures of national economic performance, such as government revenues, industrial production, and GDP. Both tax and non-tax government revenues have grown year-on-year. Industrial output has also been steadily rising, though this slowed down for a few core sectors in October. Indeed, this is also reflected in the strong GDP numbers from Q2, which were fuelled by the growth in both private consumption and investment demand, though they are still lower than their corresponding levels from a year ago.
Another way to monitor recovery is to start from the bottom up. Household surveys allow researchers to study the economy at the level of individual households. The Consumer Pyramids Household Survey (CPHS) conducted by CMIE measures the well-being of over 174,000 households across a range of indicators at relatively high frequency. One measure of household economic well-being from CPHS is unemployment, which showed a remarkable recovery.
We were prompted by this sharp change to investigate whether other indicators of economic well-being confirmed this. In our work, we consider an alternative measure of labour market health, the employment-to-population ratio, as well as other measures of household economic health such as per-capita income and expenditure. Along these dimensions, there is evidence of a recovery, but it is less strong. We also document that the recovery is not evenly distributed across Indian states.
Unemployment shot up in the immediate aftermath of the Covid-induced lockdown. But the latest CMIE data suggest that the unemployment rate is back to pre-Covid levels. Is the stress of creating new jobs over?
No. The unemployment rate is just one measure of labour market stress. A high unemployment rate suggests that there are many people who want jobs, but are not able to get jobs. Indeed, after a sharp spike, the unemployment rate dropped to pre-pandemic levels.
Marianne Bertrand is Chris P Dialynas Distinguished Service Professor of Economics, Chicago Booth; Rebecca Dizon-Ross is Associate Professor, Chicago Booth; Kaushik Krishnan is Chief Economist, Centre for Monitoring Indian Economy (CMIE); and Heather Schofield is Assistant Professor, University of Pennsylvania
This could be because everyone who reported as unemployed and looking for work during the pandemic was able to find a job quickly. Another possibility is that workers who lost jobs during the pandemic were discouraged from even looking for jobs, and left the labour force entirely.
If workers left the labour force entirely, we should see a drop in the employment-to-population ratio, or ‘Epop’. This is also called the employment rate or the Worker Population Ratio (WPR). It is the number of people employed as a fraction of the total working age population. A reduction in this measure implies an overall reduction in employment.
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We find that while the unemployment rate bounced back, India’s Epop has not fully recovered. We are about 2 percentage points below pre-Covid levels. This suggests that India has 20 million fewer employed people than it did before Covid.
We also construct a slightly more conservative measure of Epop, which suggests that there might be 40 million fewer employed people now than before the pandemic. Such a large reduction can have severe long-term consequences.
Even if those people are not looking for jobs today, they might start looking for jobs as the country reopens. This could cause a surge in the unemployment rate in the months to come. 📣 Follow Express Explained on Telegram
What has happened to the level of per-capita incomes as a result of the Covid disruption? Which occupations or income groups were worst hit?
We see that household incomes remain depressed in June and July, by which time the economy had begun to “unlock”. Household per-capita incomes reached their nadir in April, when they were 44% lower than a year previously. They rose to be 25% lower year-on-year in June but the pace of the recovery reduced dramatically in July, when they were still 22.5% lower compared to July 2019. This is troubling.
This loss in income seems to be due to the fact that the majority of occupations were less remunerative during the lockdown than before. This continued to be the case even in July. So even if a worker managed to hold on to a job through the lockdown, she earned less compared to her previous wage. These losses were concentrated among subsistence farmers, smaller businessmen (such as shopkeepers or dhaba owners), agricultural labourers, and industrial and machine workers.
Across income groups, we find that middle-income groups suffered the worst relative to their pre-pandemic levels. The lowest 20% of the income distribution bounced back the fastest, whereas the highest 10% of income earners in India have taken the longest to recover.
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How far have government’s direct benefit transfers helped?
Direct benefit transfers did indeed pick up, but continued to constitute a very small portion of total household income. In the aggregate, they played little role in stabilising falling incomes. More research on this, focusing on at-risk groups certainly needs to be done.
This does not rule out the stabilising force that government intervention through the provision of NREGS work might have played. This is not separately captured in CPHS.
Finally, government intervention in the form of expanded PDS and free food could have played a large role. We see suppressed spending on cereals and pulses, which might be on account of this.
How was household spending altered by the changes in income?
The story on incomes is mirrored in household spending. After a partial recovery, things have stalled in July. Pre-pandemic, monthly per-capita non-food household expenditure was Rs 2,000 while food expenditure was Rs 1,500. This trend reversed itself at the height of the lockdown. Both food and non-food expenditure fell sharply, with non-food expenditure falling even lower than food expenditure.
Moving forward from April, non-food expenditure has struggled to recover and remained 35% below its pre-pandemic levels even in July. Food expenditure broadly picked up but was about 12% lower in July than in July 2019.
Per-capita food expenditure was remarkably constant prior to the pandemic. Worryingly, expenditure on protein-rich foods remained 10% lower in July than its pre-Covid level. Government intervention through the provision of free food is usually through cereals and pulses. A sustained reduction in food expenditure might have consequences on health and nutrition, especially in households with children.
What is the policy prescription at this stage of the economic recovery?
Our focus has been more towards documenting the facts. There is still more work to be done in just understanding what is happening. To suggest changes requires a deeper knowledge of the what, and also the why. Government response to economic crises is usually dominated by supply side interventions. At best, our work makes the case for more direct government intervention on the household side.
Based on the authors’ original paper ‘Employment, Income, And Consumption In India During And After The Lockdown: A V-Shape Recovery?’ (Chicago Booth School of Business)
Research assistance: Adarsh Kumar & Karthik Tadepallix