NEWS
18/01/2019 1:42 PM IST

Demonetisation, GST Together Led To Steady Fall In Jobs: CMIE's Mahesh Vyas

MUDRA loans are too small to generate employment; these are more like income supplements for poor families, said the CMIE MD.

Danish Siddiqui / Reuters
Unorganised sector workers sit on a footpath as they wait to get hired for work in Mumbai on November 6, 2017, a year after demonetisation.

At the beginning of this year, when the Centre for Monitoring Indian Economy (CMIE), a private business information company, released preliminary estimates that there were 11 million more unemployed people in India by the end of 2018, the news received widespread attention. Congress President Rahul Gandhi also took note, using the report to launch a political attack on Prime Minister Narendra Modi.

Mahesh Vyas, the managing director of CMIE, spoke to HuffPost India in an interview about how the firm arrived at this figure. This rise in the numbers of the unemployed, which began in December 2017 and continued a year later, is attributable, he says, to the two “major shocks” the Indian economy suffered during the Modi government’s tenure: demonetisation and the Goods and Services Tax (GST). 

“The effect of both these shocks has played out over a steady fall in investments. The steady fall in investments had reduced the rate at which new jobs were being created and the two shocks reduced the jobs on hand. The combined effect of these factors was the steady fall in employment,” he said.

He also disputes the Modi government’s statement that disbursal of MUDRA loans is tantamount to job creation. “The average ticket size of MUDRA loans is too small to merit an argument that these generate employment. MUDRA loans are more like income supplements for poor families. These cannot create even self-employment,” he said.

Edited excerpts from the interview:

CMIE’s 11 million jobs loss figure caught wide attention and created quite a stir. How did you arrive at this figure for losses in jobs for one year, ie, from December 2017 to December 2018?

CMIE generates regular employment/unemployment statistics. We release estimates every month, quarter and year. We also release fast frequency measures such as weekly estimates and a daily 30-day moving average measure. Besides, we release a detailed statistical profile of the employment / unemployment status in India. This provides detailed stat-level rural-urban estimates. All these estimates are based on CMIE’s Consumer Pyramids Household Survey (CPHS). CPHS is India’s largest panel survey of households that measures several indicators of household wellbeing, including employment. The estimate of an 11 million fall in the number of people employed at the end of 2018, compared with the beginning of the year, is based on this large survey.

Given that these are preliminary estimates, what is the extent to which we can expect a revision in absolute figures? Also, will the revision mean that the number of estimated unemployed will increase or decrease?

We do not expect a large variation in the estimates compared to the preliminary ones. While we would not like to hazard a guess on this revision, we feel it would be safe to say that the variation is unlikely to make a significant change in the larger picture of substantial loss of jobs in 2018.  It is not possible to predict whether the estimates would increase or decrease. Either ways, we do not expect to materially change the broader picture painted by the preliminary estimates.

You wrote that “employment estimates have been volatile in the recent four months (September to December) when month-over-month employment estimates have increased or declined by 5-7 million”. Could you explain why that is so?

We had seen a steady fall in employment month over month between January and August 2018. Compared to this steady fall, we notice that the estimates of the months September through December display a lot more volatility. We would wait for the final estimates, including the Statistical Profiles to be released later in January this year, to understand this volatility if it persists in the final estimates.

The India Today Group via Getty Images
Vyas says he was surprised by the large loss of jobs in rural India.

As per the CMIE data, decline in jobs began 13 months ago, in November 2017. Please explain what could be the likely reasons for this decline and also why there has been a largely secular trend, whereby we have seen increasing unemployment rates?

By the time we were in the second half of 2017, India was reeling from the effects of two major shocks. The first was demonetisation in November 2016 and the second was GST in July 2017. Both had a substantial impact upon employment. The effect of both these shocks has played out over a steady fall in investments. The steady fall in investments had reduced the rate at which new jobs were being created and the two shocks reduced the jobs on hand. The combined effect of these factors was the steady fall in employment.

You have estimated in your piece that the typical profile of a worker who lost her job in 2017-18 is “a woman, particularly a woman in rural India, is uneducated and is engaged as a wage labourer or a farm labourer or is a small-scale trader and is aged either less than 40 years or more than 60 years”. Could you elaborate as to why you have said this?

Consumer Pyramids Household Survey (CPHS) is a large panel survey that covers over 550,000 adult individuals. CPHS collects detailed information regarding the various characteristics and identities of this large sample of individuals. This allows us to make fairly reliable estimates of the employment / unemployment status by various types of people. As a result, CMIE’s Economic Outlook service provides various labour statistics measures based on CPHS. These include region (rural and urban), gender, age, occupation, religion and even caste. It is these cross-tabulations based on the very large sample of CPHS allows us to understand the larger picture of unemployment. The finding that it is women who suffer lower labour participation rates and higher unemployment rates is well-known. CPHS further establishes this.

CMIE has also estimated that 84% of the 11 million who lost jobs are in rural India. Does your survey give any indication as to why there were such disproportionately high number of jobs lost in rural India?

We are surprised by the large loss of jobs in rural India. Rural India is a buffer that usually absorbs surplus labour by providing them very low-paying jobs. Since the estimates are for the year as a whole, there isn’t any seasonal effect also.

We are surprised by the large loss of jobs in rural India. Rural India is a buffer that usually absorbs surplus labour by providing them very low-paying jobs.

According to your piece, both categories of workers have lost their jobs―wage labourers, agricultural labourers and small traders on the one hand as well as the “salaried employees”, though the bigger number of job losses are really concentrated in the former category. What are the likely reasons for the relatively more vulnerable to be at the receiving end of this sharp fall in jobs?

At this point it is difficult to answer the reasons for all the estimates that have turned out the way they have. If we try to answer all such questions we could easily stray into conjectures. What is important is that we have a measurement of what has happened. And, those results are pretty grim. An honest diagnosis of why this has happened is possible upto a point of detail and not beyond that.

What explains the 14 year low in new investments when the World Bank has said India is becoming a better economy to do business in as reflected in its annual Doing Business ranking?

Ease of doing business is not the only reason why people do business. If demand is low, investments have an economic reason to be low. Ease of doing business is a necessary but not sufficient condition to spur investments.

The central government’s standard response to the jobs question is that there has been an improvement in self-employment and one of the indicators of this is the high number of MUDRA loans disbursed to the needy. What do you make of this?

The average ticket size of MUDRA loans is too small to merit an argument that these generate employment. MUDRA loans are more like income supplements for poor families. These cannot create even self-employment.

The average ticket size of MUDRA loans is too small to merit an argument that these generate employment. MUDRA loans are more like income supplements for poor families. These cannot create even self-employment.

There has been substantial discussion in the recent past among economists and statisticians about India not having a credible official system to measure jobs. In this context, some believe private firms have their limitations when it comes to such data and should not be relied upon for a definitive national picture. How do you respond to this?

First, the government should improve its own statistical machinery to generate reliable information. Private firms face greater problems in conducting large scale surveys because they do not carry the imprimatur of an official agency. But, they can be better in terms of speed, innovations and also reliability. CMIE is a private firm and in case of employment / unemployment statistics it has outperformed the official statistical system. While the official machinery collects data for about 120,000 households, CMIE collects data from a much larger sample of 175,000 households. CMIE has deployed better technology than the official machinery has. CMIE also conducts these large surveys at a much greater speed than the official machinery. Its methodology is as good as the best practices in the trade. Its delivery is faster than any in the world on the subject. So, I can assert with confidence that criticisms that CMIE surveys cannot be relied upon are baseless to say the least. Criticisms must be credible and specific for us to respond. Sweeping statements which are no more than biased opinions cannot be responded to with a specific response. The problem is mostly that government, and government economists in particular, find it difficult to accept CMIE survey findings that the country faces a huge investments and employment challenge. CMIE’s surveys ― on investments and on employment ― are highly credible and are used by the best academics in top universities in the world and are used equally aggressively by businesses, globally. Even the government of India has used it very effectively in the past. I believe India should be proud of the work done in the private sector rather than dismissing it just because its findings are uncomfortable to some. 

We need to trust government and government institutions. This trust is damaged when the government deliberately holds back uncomfortable information such as the Labour Bureau survey and pushes in its place less credible information such as MUDRA to show employment

In the context of a recent Business Standard report, you have written that the unemployment rate in the year which saw the implementation of demonetisation was not the most revealing thing about the Labour Bureau’s sixth annual employment-unemployment survey but the fact that it was “deliberately held back”. Why is one less shocking than the other?

Government should not lose credibility. If it holds back information which is collected through credible systems of its own machinery then the government itself compromises its own credibility. We need to trust government and government institutions. This trust is damaged when the government deliberately holds back uncomfortable information such as the Labour Bureau survey and pushes in its place less credible information such as MUDRA to show employment. Labour Bureau’s sixth survey did not cover demonetisation effect adequately because it asked for the status of respondents during a reference period that was predominantly of before demonetisation.