|»Vivek Kaul's Diary|
How to Manage Jobs Data, Modi Govt Style
2 MAY 2018
The ministry of labour and employment will now publish regular payroll data. The data, which was published a few days back, along with the spin accompanying it, tells us how to draw conclusions which favour the job creation narrative that the Modi government wants to promote.
Take a look at Table 1, which shows the increase in the number of subscribers to the Employees' Provident Fund (EPF), during the period September 2017 and February 2018.
Table 1 tells us that the number of subscribers to the EPF went up by around 31.1 lakh between September 2017 and February 2018, a period of six months. The publishing of these data points led to the economist Rajiv Kumar, the Vice Chairman of the NITI Aatog, tweeting:
Another first by Government. @LabourMinistry releases #EPFO and #ESIC pay roll data, shows that 3.11 million [31.1 lakh] jobs were created between September 2017 to February 2018. On pro rata basis this implies creation of 6.22 million [62.2 lakh] jobs in 2017-18. Cassandras should please give up.
EPFO stands for Employees' Provident Fund Organisation and ESIC stands for Employees' State Insurance Corporation.
What the NITI Aayog Vice Chairman was basically saying is that 31.1 lakh jobs were added between September 2017 and February 2018. This basically means that 62.2 lakh jobs (31.1 lakh multiplied by two) were added during April 2017 to March 2018. QED.
| --- Advertisement --- |
The Bombay Investing Society…
For over 16 years, members of the exclusive Bombay Investing Society have had access to solid safe stock recommendations…
Recommendations that generated double, even triple digit returns!
And the best part is…
This exclusive society is currently accepting new members.
Click here to find out how to join this exclusive society…
The addition of 31.1 lakh new subscribers to the EPF does not mean that a similar number of jobs have been created. We are sure the Vice Chairman of the NITI Aayog realises this and we will show that he does. But given that the Modi government places optics management over everything else, he doesn't really have a choice. Let's look at a few points:
1) The Employees' Provident Fund and Miscellaneous Provisions Act 1952 applies to establishments engaging 20 or more employees. Hence, the moment an establishment engages the twentieth employee, it needs to become a part of the EPF. In this situation, the addition of one employee, leads to twenty people joining the EPF.
This clearly does not mean that twenty new jobs have been created. This is a basic problem with equating the increase in the number of people subscribing to the EPF, with the number of jobs created. The twain don't meet.
Interestingly, Kumar is quoted as saying the same thing in The Financial Express: "One has to be careful in estimating addition to jobs. What happens is that companies start to contribute to the EPFO when their head count increases from 19 to 20. So, all 20 workers come into (EPF) picture in one go, while it is not that all 20 were not there (with jobs) earlier." This tells us that Kumar understands this rather basic point. The question is, then why send out the tweet that he did.
2) Let's look at another issue here. 31.1 lakh subscribers were added to the EPF between September 2017 and February 2018. Rajiv Kumar used this data point to claim that 62.2 lakh jobs were created in 2017-2018. Given that 31.1 lakh jobs were created in six months (or so he claimed), 62.2 lakh jobs would have been created during the course of the year.
How correct is this? As on March 31, 2017, the total number of average contributing subscribers in the EPF were at 4.49 crore. This figure is basically obtained by taking the total of contributions made over a period of twelve months and dividing it by 12.
In April 2018, the total number of contributing subscribers as per EPFO data was 4.61 crore. This basically means that a total of 12 lakh new subscribers (4.61 crore minus 4.49 crore) joined the EPF between March 2017 and April 2018.
Nevertheless, 31.1 lakh subscribers were added between September 2017 and February 2018. But between March 2017 and April 2018, only 12 lakh subscribers were added to the EPF. What does this mean?
This basically means that subscribers dropped out of the EPF in the months other than those between September and February 2018.
It further means that people working in the formal sector lost jobs during those months, and stopped contributing to the EPF. This explains why the total number of subscribers added between March 2017 and April 2018 is lower than the total number of subscribers added between September 2017 and February 2018.
It also means that just because a trend is true for a period of six months, it is not necessary that it will be true for a longer period as well. Rajiv Kumar, given that he has to manage the optics on the jobs front, cherry picked data to make the claim that he did.
Further, if you wondered, why data was declared for a random period from September 2017 to February 2018, and not from the beginning of the last financial year i.e. April 2017, you now know the answer.
It also tells us that other than declaring the number of additions to the EPF, the number of contributing subscribers at any point of time, should also be declared in the same press release. This will ensure that cherry-picking of data does not happen.
3) An amnesty scheme was run for those firms which should have had their employees on EPF platform, but did not. This has also bumped up the 2017-2018 EPF numbers. As The Financial Express reports: "The amnesty extended to four months in FY18 (in April-May, 1.2 million [12 lakh] got enrolled, as per available data)."
Over and above this, the government had launched a scheme for the textiles and the garments sector in October 2016, where it pays a bulk of the employer's contribution to the pension scheme of the EPF. This has also boosted the number of EPF subscribers.
All this does not mean creation of jobs in any way. All it means is that the number of subscribers to the EPF is going up. And that is a good thing because more people now will have access to retirement funds than in the past.
4) The latest World Development Report points out: "Informal employment is more than 70 percent in sub-Saharan Africa and South Asia, and more than 50 percent in Latin America. In India, the informal sector has remained around 90 percent notwithstanding rapid economic growth. Many informal workers face limited prospects. Both wages and productivity are significantly lower for informal workers. They exist day-to-day without health insurance or social protection."
Kumar of the NITI Aayog tweeted to say that 62.2 lakh jobs were created in 2017-2018. These jobs were created in the formal sector. The formal sector forms 10% of the total employment in the Indian economy. This basically means that more than 6 crore jobs were created in total, just in 2017-2018.
If this is true, why doesn't it reflect in any other data point, is a question well worth asking. The investment scene in the country continues to be dull. As per the Centre for Monitoring Indian Economy(CMIE), the total value of projects scrapped/dropped in 2017-2018, reached an all-time high level. The drop between 2016-2017 and 2017-2018 was 60%.
As far as projects completed are concerned, they dropped by 34% in value terms in 2017-2018. As per the Reserve Bank of India (RBI), the capacity utilization of manufacturing companies for the period October to December 2017 (the latest data available) stood at 74.1%. With more than a fourth of their capacity free, it is difficult to see these companies create jobs.
Ultimately, if investments are down, and capacity utilization is weak, who is creating so many jobs?
Further, if so many people have found jobs, why is the economic growth in 2017-2018, expected to be at 6.62%, the lowest in four years? The growth in private final consumption expenditure in 2017-2018 is expected to be at 6.06%, the lowest in five years.
Typically, if 6 crore individuals found jobs in 2017-2018, they would have spent the money they earned, and this would have perked up economic growth, and easily pushed it beyond 7.5%.
Why has that not happened?
On that of course we will get no replies because that doesn't help in optics management.
Managing Editor, Vivek Kaul's Diary
PS: Have you heard about the exclusive Bombay Investing Society? It's a society that has given its members stock recommendations with a success rate of more than 70%. This exclusive society is now accepting new members. You too can join! Just click here...
© Equitymaster Agora Research Private Limited