Sharp rise in unemployment in December

~Trinanjan Chakraborty

In a somewhat worrying development, unemployment rate in the country in December 2020 has gone up sharply to 9.06% from 6.50% in the preceding month, data released by Center for Monitoring Indian Economy (CMIE) shows. The last time the unemployment rate was this high was in June – just after the lockdown with several sectors still closed – when the unemployment rate stood at 10.18%. Despite clear signs of economic recovery and almost all sectors operating, the unemployment figures show that the economy is still not in a position to absorb a sizeable chunk of the labor force.

While the increase in both urban and rural, it is sharper in the latter:

Unemployment Rate last 6 months (in %) ~ source: CMIE

According to CMIE, the rise in unemployment is partially attributable to a recovery in the Labor Participation Rate (LPR) which went up to 40.6% from 40.0% in Nov’20. CMIE estimates that number of people looking for work went up to 427 million in Dec’20 from 421 million in Nov’20. A large chunk of this addition to the labor force failed to find work, resulting in increase in the unemployment rate. Typically, the farm sector in India absorbs maximum labor. However, December is a month when historically farming sector sheds manpower. Dec’20 also saw this trend continue and hence the addition to the manpower remained unabsorbed.

The unemployment rate in Dec’20 was highest in Haryana – a staggering 32.5%, followed by Rajasthan with 28.2%. The other states/UTs with double digit unemployment rate in December are given in the table below:

Source: CMIE

One of the key reasons of the unemployment situation especially in rural is the struggling condition of MSMEs which were hit the hardest due to the prolonged lockdown and are still largely unable to recover to pre-lockdown capacity. Faster recovery of MSMEs especially in rural will be a key to turning around the unemployment scenario in the country.

Against this backdrop, it will be extremely crucial how the upcoming union budget handles the high unemployment (more so in rural) and provide the needed support to MSMEs for their recovery.

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