Business Standard

The third quarter could be worse

ON THE JOB

- MAHESH VYAS The author is the MD & CEO of CMIE

Alarge number of lead indicators tell us that the Indian economy is sinking further into mire. The fall in real GDP in the quarter ended September 2019 to 4.5 per cent, the lowest in over six years, was an official admittance of a fact well known for long. But it seems mild compared to what we see beyond the second quarter.

Available data tell us that the economy is headed for even greater trouble in the current quarter which ends in December 2019. Convention­al electricit­y generation in October 2019 was a whopping

13 per cent lower than it was in October 2018. Thermal power plants had to be shut because of lack of demand. This is perhaps, the most damaging evidence of a severe slowdown underway. Power generation has been falling month after month for five consecutiv­e months since June this year. But the fall in October has turned out to be exceptiona­lly nasty.

Natural gas production has been falling similarly and continued to do so into October. Coal imports were 12 per cent lower in October 2019 compared to a year ago. And crude oil imports were lower by 20 per cent in a similar comparison. Naphtha, aviation turbine fuel and diesel consumptio­n have been falling similarly as well till October. The overall consumptio­n of petroleum products in October was 1.5 per cent lower than it was a year ago. Railway freight was down by 8 per cent. Core sectors collective­ly logged a fall of 5.8 per cent in October.

Labour markets reeled in the face of these economic convulsion­s. The stress showed up in October in the form of a spike in the unemployme­nt rate. This shot up to 8.5 per cent, the highest in over three years.

In November, the labour force itself shrank as large chunks of labour seem to have left the labour markets that could not provide sufficient jobs. This, perhaps, is an early indication that the overall economic conditions have worsened in November. An exodus from the labour markets is a bigger indication of economic stress than an increase in the unemployme­nt rate.

Quarterly GDP estimates are prepared essentiall­y on the basis of data from the organised sectors. But during an economic downturn, the unorganise­d sectors are likely to have suffered more than organised ones. Contractio­n in their business or even a slowdown is inadequate­ly captured in the official quarterly GDP statistics.

Fast frequency labour statistics as produced by CMIE from its Consumer Pyramids Household Survey (CPHS) is a more comprehens­ive measure of the health of the economy. Since this is a large household survey it includes people working i n organised and unorganise­d sectors, in large and small organisati­ons and working age population­s in rural and urban regions. When this shows a big fall in the labour participat­ion rate soon after a spike in unemployme­nt, it suggests that the economy is under severe and widespread stress. A combinatio­n of high unemployme­nt followed by fall in labour participat­ion is a bigger indicator of stress than can be gauged by any one of these two indicators. Or, that can be gauged by the quarterly GDP estimates.

CPHS tells us that the labour force participat­ion rate shrank by 77 basis points to 42.37 per cent in November 2019. This was its lowest level since January 2016, when CMIE began these measuremen­ts. The labour force shrank by an estimated seven million in just a month. These are very big falls which cannot be explained by random statistica­l variations in a monthly series.

The fall was across rural and urban regions. In urban areas, the labour participat­ion rate reached its lowest level since January 2016, at 40.16 per cent. In rural India it fell to 43.49 per cent. There were only three months since January 2016 when the rural labour participat­ion rate was lower. The rate fell by 85 basis points in urban India and 73 basis points in rural India in November, compared to October.

The fall was across gender as well. Arguably, a very worrying observatio­n is the sharp fall in the male labour participat­ion rate. This fell by 119 basis points, from 71.74 per cent in October to 70.55 per cent in November. Again, the fall was across rural and urban regions for males. Female labour participat­ion rate i n India is extremely low. But even this fell by 9 basis points from 11 per cent to 10.91 per cent. Here, the fall was limited to urban women, where the rate fell 74 basis points from 10.16 per cent to 9.42 per cent. Rural women saw a small increase in the participat­ion rate.

Fifteen of the 25 states tracked by CPHS saw labour participat­ion rates shrink in November over October.

Besides labour statistics from CPHS, we see stress in the two additional fast-frequency indicators released so far. Car sales are reported to have fallen by 7.7 per cent in November. And the manufactur­ing PMI at 51.2 in November and 50.6 in October shows that the stress in the sector continues into the third quarter.

This large scale and widespread shrinking of the labour force in November, the peaking of unemployme­nt in October and the fall in lead indicators in October and November point towards a worsening of the slowdown of the Indian economy in the third quarter of 2019-20.

The widespread shrinking of the labour force in November, the peaking of unemployme­nt in October and the fall in lead indicators in October and November point towards a worsening of the slowdown in Q3 2019-20

 ??  ??

Newspapers in English

Newspapers from India