[News] Experts Explain: Understanding the nature of India’s economic recovery

[_Happy boy]

Marianne Bertrand, Rebecca Dizon-Ross, Kaushik Krishnan, Heather Schofield

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.

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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-po[CENSORED]tion 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.

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-po[CENSORED]tion ratio, or ‘Epop’. This is also called the employment rate or the Worker Po[CENSORED]tion Ratio (WPR). It is the number of people employed as a fraction of the total working age po[CENSORED]tion. A reduction in this measure implies an overall reduction in employment.

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