Were you thinking bad jobs data will hurt Modi? Well, think again

Unemployment in 2017-18 was a 45-year high of 6.1%, says the labour survey of the government’s National Sample Survey Office. This report, long suppressed by the government, has leaked to the media. Unemployment was only 2.2% in 2011-12, meaning it has skyrocketed since. In 2017-18 it was higher in urban areas (7.8%), the BJP’s main support base, than in rural areas (5.3%).Equally dramatic is the reported fall in labour force participation (the proportion of people in the 16-64 age group looking for work). This has fallen from 43% in 2004-05 to 39.5% in 2011-12 and further to just 36.9% in 2017-18. This suggests a major job crisis, not just under the NDA but under the previous UPA government too.Job growth was Narendra Modi’s main promise in the 2014 election. The data suggests he has failed dramatically. The trends are worst for youngsters, who are great Modi supporters. Between 2011-12 and 2017-18, unemployment for youths 15-29 years old shot up from 8.1% to 18.7% for males, and from 13.1% to 27.2% for females.This seems electorally devastating.Once, the only source of job data was the government. But in recent years, the Centre for Monitoring the Indian Economy, a private establishment, has been tracking employment using a very large sample. This has shown unemployment rising very high to 7.4% in December 2018. Critics said this was too high to be true.But the government’s own NSSO report now estimates unemployment at 6.1% in 2017-18, not far from CMIE’s estimates. CMIE shows deterioration throughout 2018, causing the loss of 11 million jobs, culminating in 7.4% unemployment in December 2018.But now comes the paradox. An employment crash of the catastrophic sort indicated by the NSSO and CMIE typically occurs only in terrible, deep economic depressions. But India has been averaging over 7% GDP growth, and is the fastest-growing major economy in the world. Never in history has a miracle economy, growing at over 7%, witnessed a collapse of employment.The investment rate has come down under Modi, bank credit is growing much more slowly, and exports have stagnated. If employment has also been falling, it implies that India must be having a miraculous explosion of productivity, to be able to grow at 7% despite having no additional labour and very little additional investment. There is no independent evidence of this. Besides, if India had a productivity explosion, exports should have boomed. Instead, they have stagnated.The mystery gets deeper and deeper.There is also a complete disconnect between what the employment data suggests and what election results have shown since 2014. You can ignore labour data and declare that the employment situation has been good enough for Modi to win an unprecedented cascade of state elections since 2014. Till last December, he ruled as many as 21 states. Then in December he lost the three central Indian states of Rajasthan, Madhya Pradesh and Chhattisgarh.But even in Rajasthan and Madhya Pradesh his party won almost the same vote share as the Congress party. This is far from a debacle. Indeed, the BJP hopes to do very well in these states in the coming general election, when the contest will be seen as being Modi vs Rahul Gandhi, a far more one-sided contest than Vasundhara Raje vs Ashok Gehlot at the state level.Critics say demonetisation in November-December 2016 caused immense distress and job losses. However, in the Uttar Pradesh state election in April 2017, the BJP absolutely swept the state with a three-quarters majority. Whatever the employment data may show, the job situation was good enough for Modi to win in a landslide.The switch from a multitude of taxes to an all-India GST in July 2017 has been hailed as a great reform, but one that caused much initial disruption. It will check tax evasion, but that also means it will hit many small industries that earlier survived only because of tax avoidance.Critics say the combined impact of demonetisation and GST glitches has hit employment and caused immense distress. But that seems contradicted by the excellent election performance of the BJP in UP and its sharp improvement in Karnataka. It lost ground in the central Indian states, but this could be attributed to normal anti-incumbency and falling farm prices. Had these factors been buttressed by a job collapse, the BJP should have fared far worse.One day, the mystery will clear up. Till then, we can only say that job data have so little correlation with election outcomes that nobody should assume that high unemployment will cause a Modi defeat in the general election. That remains to be seen.Views expressed here are the author's own, and not Economictimes.com's

from Economic Times http://bit.ly/2MN93T0