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As India moves into the pivotal election season, the debate over jobless growth and unemployment has resurfaced in the political and economic spectrum. To provide a better picture, the NDA government has now decided to start counting jobs created in the non-farm informal sector. The government has asked Labour Bureau to keep a count of the jobs created in establishments deploying less than ten people. This is done, in order to tackle the long-standing problem of lack of timely and holistic employment and job data in the country. B.N. Nanda, senior labour and employment adviser at the Labour Ministry was quoted saying, “Last week it was decided to count jobs growth in establishments having less than ten employees. The move will give a comprehensive picture of the job scenario in the country and may help settle the jobs growth debate in the country.”[1] While the first report with these new standards is expected to be out in some month of 2019, it becomes increasingly important to understand the current policies pertaining to the informal sector of the economy.

The current definition of informal employment takes into account the employees that aren’t eligible for any social security benefits like provident fund, gratuity, pension, healthcare, and maternity benefit, etc. The share of informal employment is very high in the Indian context. At present, only 10% of India’s over 470 million workforces are in the formal sector.[2] In other words, 90% of India’s workforce doesn’t have the above-mentioned privileges. On the other hand, the informal sector accounts for an estimated 45-50 percent of output in the Indian economy; defying the notion the informal sector is the residual sector of the economy, whereas, in reality, it is the dominant sector.

It is important to understand why this definition needs to be altered. India lacks accurate data on jobs and unemployment because nearly three-fourths of the employment is in the enterprises with fewer than ten workers, and hence, the definition of a formal worker based on eligibility of social security benefits compromise the very idea of collecting data on unemployment. Understanding the need for a comprehensive picture of the job scenario in the country, the labour ministry will take the 2013-14 sixth economic census as the base for the new survey of informal jobs. Owing to this, the government will now count jobs created in establishments deploying less than ten people, which essentially means, that shops run by one owner and one employee will too be counted as employment generation.

Change in methodology isn’t new. The last time government altered the methodology of data collection was in 2015, when the job creation was touching new lows. According to the new method, service sectors like education, health and restaurants were added to the eight-key manufacturing sector for data collection for GDP and employment growth; where both parameters managed to get impressive results. Under the new method, the Indian economy reported an expansion rate of 7.5% year-on-year basis during the last quarter, higher than 7.3% recorded by China in the last quarter of 2015, becoming the fastest growing major economy in the world. This change in methodology was met with scepticism, due to the puzzling difference between the RBI’s projected growth rate of 5.5 % and the actual rate.[3]

The Modi government has been under fire recently for the failure of keeping its promise of providing two crore jobs per annum during its tenure. The latest data suggests that the July-September quarter witnessed an increase of 136,000 jobs, as against just 64,000 jobs in April-June 2017.[4] These figures are nowhere near the promised number. It is almost certain that the new methodology will inflate the job creation numbers, a report due before crucial 2019 general elections; the need for reliable and comprehensive data can’t be undermined.

One cannot deny that an economy needs to base its policies on objective data. Any step to better the process of data collection is welcome, for it will widen the ambit of how the quintessential worker in the economy is viewed. There is a very real opportunity to study, and eventually better, employment creation in the informal sector of the country and make economic policies inclusive by including the informal workforce in the formal narrative. One hopes that the same is accomplished, regardless of who wields political power. 


[1] Report by Hindustan Times, Establishment with fewer than 10 employees to now be included in new jobs growth metric, Published on March 13th, 2018, Accessed on April 8th, 2018; https://www.hindustantimes.com/business-news/establishments-with-fewer-than-10-employees-to-now-be-included-in-new-jobs-growth-metric/story-vWSjm1DhMzQfd0cZxdqCQP.html

[2] Employment Vision 2020, Page 1, Planning Commission of India, Published 2017, Accessed on April 8th, 2018; http://planningcommission.gov.in/reports/genrep/bkpap2020/32_bg2020.pdf

[3] Report by Business Line, IMF: At 7.5%, India to China in 2016, global economy to slow to 3.3% in 2015, Published on July 9th, 2015, Accessed on April 9th, 2018; https://www.thehindubusinessline.com/economy/imf-at-75-india-to-beat-china-in-2016-global-economy-to-slow-to-33-in-2015/article7404269.ece

[4] Report by Business Standard, Job creation more than doubles to 1,36,000 in July-Sept 2017: Labour Bureau, Published on March 13th, 2018, Accessed on April 10th, 2018, http://www.business-standard.com/article/economy-policy/job-creation-more-than-doubles-to-136-000-in-july-sept-2017-labour-bureau-118031200996_1.html

Image Source: Hindustan Times

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Written By Parth Gupta

Economics Undergrad (Batch 2019) | Panjab University, Chandigarh

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