9.1 C
California
Tuesday, October 19, 2021

“PANDEMIC PARADOX”: Demand falls but inflation rises, employment revives but labor force participation drops

Must read

The government sends notice to vacate houses to several eminent artistes including Pandit Birju Maharaj

Last month, a lot of eminent artistes who gained their repute and mass respect in India were served notices to vacate government accommodation in...

Why has the US put India on its currency watchlist?

For one more time, the United States has placed the Indian subcontinent in its monitoring list. This list contains all the countries with potentially...

Nike Japan’s advertisement highlighting discrimination faces public criticism

The last week of November this year saw controversy being generated around a video titled ‘The Future Isn’t Waiting’ released by Nike Japan. The...

Know how the pandemic fueled divorce rates around the world

Couples that have never discussed splitting up before the pandemic are now filing for divorce. The experiences are becoming more and more common, with...

As the stringent lockdowns imposed to contain the novel coronavirus are being lifted up, the economic activity is reaccelerating and picking up its pace. Although the economic recovery is very well appreciated it is throwing out some weird paradoxes in front of us.

  1. Employment is facing a revival while the labour force participation is further deteriorating. 
  2. Demand is weaker than ever before while the inflation rate is on a continuous surge.
  3. The future outlook surveys, as well as stock market, shows green growth signals while the condition on the ground is actually worsening with every passing day.

Paradox 1- Labour market phenomenon and employment

As the lockdowns were slowly and gradually being lifted in the month of September, the Indian labour market witnessed the unusual phenomenon. The data collated by the Centre for Monitoring Indian Economy (CMIE) shows that there were many workers who got jobs and many who did not went on to leave the labour force. It is a known fact that when more people find jobs, an even larger number of job-seekers come up looking up for more jobs. Rather than this, the September period witnessed an entire reversal of the trend.

READ  Will Ed-tech startups be the new normal in the post covid world?

This unexpected reversal in the number of job-seekers and job-getters is explained using the rural-urban disaggregation of the data. On analyzing this we come to know that the employment rates in India are rising because of an increase in jobs in the rural areas of the Indian society while urban employment is desperately plunging. This gives us the clarity that even though the employment data shows quantitative improvement, the quality of growth puts India in a major threat. This means that the urban strata with better quality and higher-paying jobs are slipping down a slide and is being substituted and compensated by an increase in the lower quality and lower-paid jobs in the rural areas. This also indicates that a reversal of people migrating back to find work in the cities or urban areas is not happening to the extent it should have, leading to lesser job seekers in the cities.

READ  Palantir Technologies-Tech Industry's Next Big I.P.O

The September data collected by CMIE shows that the overall employment in the country jumped from 392.5 million to 397.6 million, marking an increase of 5.1 million. The data also showed that the rates of unemployment slipped from 35.7 million to 28.4 million, indicating a drop of 7.3 million. This magnum drop in the unemployment numbers no doubt show that the country has seen more number of people getting new jobs. But it comes against the fact that a lot of people also exited the market as the labour force shrank by 2.2 million from 428.3 million in August to 426 million in September.

On disaggregation of the above-stated statistics, we realized that the rural employment jumped up by 7.4 million and unemployment plunged by nearly 5 million. This comes on account of a post-harvest-led rise in economic activity. On the other hand, urban employment has dropped by 2.3 million and unemployment by 2.3 million leading to the labour force reducing by 4.6 million in urban localities in the month of September. The quantified value of which comes to 3.3 per cent, which is the highest monthly fall in the labour force since the meltdown month of April 2020.

This biggest losses in employment sector come by the means of a reduction in quality jobs or salaried employment, which offer better terms of employment and wages. The households with salaried jobs are better savers and have a higher standard of living which in turn, makes them better placed to borrow. Therefore, this reduction in quality jobs may have a negative impact on consumption trends and the recovery process in India.

READ  Can coronavirus mark the beginning of a digital financial revolution?
READ  Covid-19 vaccine almost ready, supplies likely to begin from 2021

Paradox 2- Rising inflation with weakened demand

It was generally expected that the enormous pandemic driven demand shock would overshadow any supply shock leading to the situation to be disinflationary. But interestingly, the opposite has happened in India with the CPI inflation consistently surging from just over 6 % in June to 7 % in July and September. Although a considerable part of this inflation surge was led by food inflation while the unexpected part was in the rise in core inflation, that is non-food and no fuel inflation. This non-core inflation came as a surprise, especially when GDP growth is expected to witness a record contraction.

India falls in the exception category when the major areas of the world are witnessing lesser or negative inflation trends. Even though three sessions of hikes in last one year in excise duties on fuel along with a jump in state levies of sales tax/VAT are responsible for retail inflation.

In September, though core inflation eased down to 5.67 per cent from 5.77 per cent recorded in August, it has stayed above 5% for the fifth consecutive month. The only satisfactory explanation we have for this is behind the “supply chain disruption” faced by businesses all over the world post-March. The locally and nationally imposed lockdowns majorly disturbed the supply chains which led to shortages, adding on to the commodity prices.

The Indian Gross Domestic Product (GDP) is expected to contract with record-high numbers in the current year reflecting both demand and supply shocks. At this time, consumer price inflation remaining at higher levels is quite weird with supply shocks outweighing the softening impact expected from weaker demand. The Reserve Bank of India said in its latest MPC report, “These counterintuitive inflation dynamics have complicated the macroeconomic outlook”.

READ  A satire: Government can lend money to states but cannot pay them their GST dues!

 

More articles

Leave a Reply

Latest article

The government sends notice to vacate houses to several eminent artistes including Pandit Birju Maharaj

Last month, a lot of eminent artistes who gained their repute and mass respect in India were served notices to vacate government accommodation in...

Why has the US put India on its currency watchlist?

For one more time, the United States has placed the Indian subcontinent in its monitoring list. This list contains all the countries with potentially...

Nike Japan’s advertisement highlighting discrimination faces public criticism

The last week of November this year saw controversy being generated around a video titled ‘The Future Isn’t Waiting’ released by Nike Japan. The...

Know how the pandemic fueled divorce rates around the world

Couples that have never discussed splitting up before the pandemic are now filing for divorce. The experiences are becoming more and more common, with...

Tracking the stock market movement

On Monday, the Indian stock market ended at an encouraging high remark with several green signals in pharma, banks, metals, and FMCG stocks. The...
%d bloggers like this: