Modi’s 39.3 lakh jobs in 7 months do not excite Dalal Street; not yet

NEW DELHI: Jobs data is important not only for the man on the Street, the ruling BJP or Opposition parties, but also to Dalal Street, which tries to look at it as an indicator of India’s growing middle class and find an investment theme around it.

Poor household incomes and low savings suggest muted job creation, or quality of jobs in aggregate.Job quality is a real issue for India’s macros and markets; it has implications in the form of the slowing growth of the middle class, global brokerage UBS said in a note.


Payroll data shows 39.3 lakh jobs were created during the seven months ending March this year, out of which, 6,00,000 new jobs were created in March alone.

Some analysts attributed the robust jobs data from the Employees’ Provident Fund Organisation (EPFO) to better reporting of jobs, and not actual job creation.

Economists say due to formalisation, organisations having less than 20 employees will count all these jobs as new. To that extent, the EPFO payroll data is only a rehash of existing jobs.
ECR (electronic challan cum return) data suggests some 28,627 establishments remitted their first ECRs during these seven months.

This number, is the proxy for existing organisations that migrated from less than 20 jobs, says SBI Economic Research.

“When we multiply the number of organisations, this gives us the total payroll due to formalisation. This comes to 5.8 lakh. Hence, new employment (excluding formalisation) during September-March 2018 was 33.6 lakh (39.3 lakh net of 5.7 lakh). This give us average formalisation of around 15 per cent,” the report said.

Conflicting data

EPFO data suggests a likely 7 million formal jobs were created in FY18. The number though conflicts with a household survey-based BSE-CMIE index, which suggests far less job creation during the financial year.

With less than a year left for the general election, the jobs data holds significance as the Opposition has been trying to corner the Modi government for doing little to lift employment growth rate.

The EPFO number is a positive surprise to us and markets, said Gautam Chhaochharia and Sanjena Dadawala, analysts at UBS Securities, India.

They believe the numbers are aided by a general formalisation trend post demonetisation and GST.

“The numbers might have been driven by the government’s steps to get more workers under the ambit of retirement savings, such as increases in threshold salary levels and providing incentives to companies to hire on rolls rather than through contracts,” they said.

What the macro data suggests

DK Joshi, Director & Chief Economist at CRISIL, said India does not really have any comprehensive data set to measure job creation.

“If I were to draw a picture based on the labour-intensive sectors, construction is one employment-intensive sector which has not been doing well. Manufacturing has not grown in a material way. The challenges continue to be there on the job creation front,” Joshi told ETNow.

Sectors/stocks in focus

Stock investors seek to look at jobs data as the number of people added to the middle class, which can have direct bearing on demand pattern for various sectors.

UBS’ base case suggests India can create 4 million jobs per annum in next five years, assuming some success in the government’s policy push.

A likely worsening job quality mix implies slowing growth of the middle class in the household income pyramid.

Mass market home appliances and building materials may have some downside against what is being built in by Dalal Street. It will influence beneficiaries from accelerating upper-middle/high-income households include premium consumer discretionary. Staffing companies may, though, benefit from any shift of the informal workforce to formal setup, the brokerage said.

What is happening globally

US, which has 315 million population, creates 2.5 million new jobs every year. It has a 200 million working population, translating into a 1.2 per cent of eligible work force with an annual growth rate of 2.5 per cent.

China, on the other hand, produces 15 million new jobs out of 780 million stock, which translates into 2 per cent eligible work force with an annual growth rate of 6.5 per cent.

In conservative estimates, India has a 480-500 million eligible work force. If we exclude 45 per cent of those engaged in agricultural activity, the 264-275 million population still remains in manufacturing and services.

“Even if we take 2 per cent of this, we are perhaps producing at least 5.3-5.5 million new jobs annually. When the economy is growing in excess of 7 per cent, is it too much or too less to expect?” asks SBI Economic Research.
What do you think about this research, do let us know in comment section.


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