Why Mohandas Pai & Rahul Gandhi are wrong

by Mahesh Vyas

Mohandas Pai claims that India produces about 5.5 million jobs every year. He arrives at the number by using membership of provident fund, national pension scheme, employee state insurance and government jobs. All of these overlap and EPFO is a superset of all. So, we study this data source below. He also draws inferences from the number of automobiles sold. (Watch: Left,Right and Centre, NDTV, September 22)

In 2015-16, there were 37.6 million contributing members to the EPFO, 2.7 million higher than in 2014-15. The increase in 2014-15 was 2.3 million. Data for 2016-17 are not released officially yet but, they are confounded by new state schemes such that they cannot be used to estimate employment.

Using EPFO data to estimate employment was always fraught with danger. EPFO’s 2015-16 Annual Report shows there were 171.4 million members. And, it can be inferred from past reports that EPFO membership grew by 41 million in 2014-15 and by 13 million in 2015-16. This would be an unbelievable metric for measuring employment.

In December 2016, the Ministry of Labour and Employment explained that the count of members included multiple accounts of the same member and also those with some balance with the Fund although they may not be contributing. This clarification gave out the count of contributing members. Hopefully, this does not suffer duplications. It tells us that on an average there was an increase of about 2.5 million in contributing members during 2014-15 and 2015-16. This implies that 2.5 million jobs are being added in the organised sector.

The use of EPFO numbers to measure employment is now confounded by a new problem. Between January 2017 and June 2017, membership shot up by 10 million when employers were given an opportunity to file declarations for unregistered employees with a nominal fine. As a result, membership shot up from 38 million as of March 2017 to 48 million as of July 2017. This is not new employment. It is merely enrollment of employed persons into EPFO.

Interestingly, the 38 million members as of March 2017 quoted in the media implies there was no addition to the contributing members count during 2016-17. This was the year of demonetisation.

India sells about 4 million commercial vehicles, cars and three-wheelers in a year. Most of these are sold to institutions whose drivers would be covered in the EPF numbers. For example, all trucks owned by mining and construction companies; buses owned by State Trading Corporations; cars owned by the various arms of government, corporates and tourism companies are covered under EPF. A good share of the sales is also replacement for old vehicles.

It is therefore, unlikely that the sale of automobiles would add much to the 2.5 million addition in EPF accounts seen till 2015-16. It cannot bridge the gap from 2.5 million to Mr. Pai’s 5.5 million. And, we cannot use EPFO data for 2016-17 to measure employment as explained above.

Mr. Pai believes that employment has been growing well, though not well enough, and urges the government to release the data it has to throw light on this. I think the government should heed this point and reduce angst around measuring employment.

Rahul Gandhi, in his interactions with academia in the US last week stressed that lack of jobs was the most urgent problem faced by India today. I agree. I also agree with his estimate that on an average about 30,000 people enter the job market every day. But then, he says that 450 of them find jobs. If 450 do indeed find jobs then I’d like to add that many more - 12,500 - were losing jobs.

We know from the BSE-CMIE effort to measure unemployment that on a net basis jobs are being lost. It is the inference from India’s largest household survey. 1.5 million jobs were lost in the first four months of 2017 and job losses have continued into the next four months as well. It is imperative that we pay attention to these results and find remedies to the problem.

It is apparent that there is an attempt to brush aside the results of all surveys that point to a deteriorating jobs situation. This is counter-productive. The Labour Bureau’s Quarterly Report on Employment Scenario was assailed for a small sample. But, the sample was raised from about 2,000 to 10,000 recently. The sample can always be raised further. Public institutions must be criticised constructively but, their efforts cannot be shunned in the manner in which the Labour Bureau’s efforts have been. A systematic effort to collect data on employment from establishments has been seriously compromised without an alternate in place. This will remain a great dis-service to the nation unless the damage is repaired besides alternatives being put in place.


First Published in Business Standard Link

CMIE STATISTICS
Unemployment Rate
Per cent
4.8 -0.0
Consumer Sentiments Index
Base September-December 2015
93.0 +0.8
Consumer Expectations Index
Base September-December 2015
91.0 +0.6
Current Economic Conditions Index
Base September-December 2015
96.0 +0.9
Quarterly CapeEx Aggregates
(Rs.trillion) Dec 16 Mar 17 Jun 17 Sep 17
New projects 2.32 3.77 2.02 0.88
Completed projects 1.00 1.91 1.13 0.70
Stalled projects 1.13 0.70 2.66 0.64
Revived projects 0.18 0.67 0.29 0.14
Implementation stalled projects 0.82 0.33 0.67 0.50
Updated on: 20 Oct 2017 8:20PM
Quarterly Financials of Listed Companies
(% change) Sep 16 Dec 16 Mar 17 Jun 17
All listed Companies
 Income 2.1 6.2 10.2 10.2
 Expenses 1.9 6.3 11.9 10.5
 Net profit 14.6 40.3 16.8 -18.9
 PAT margin (%) 6.9 6.1 6.1 5.4
 Count of Cos. 4,503 4,503 4,427 4,257
Non-financial Companies
 Income 0.6 5.9 11.8 10.9
 Expenses -0.2 7.2 15.5 11.1
 Net profit 26.7 24.6 -1.1 -24.3
 PAT margin (%) 6.9 6.2 6.3 5.3
 Net fixed assets -9.2 7.5
 Current assets 8.1 2.1
 Current liabilities 11.7 8.5
 Borrowings 3.1 4.9
 Reserves & surplus 8.4 6.5
 Count of Cos. 3,476 3,482 3,432 3,324
Numbers are net of P&E
Updated on: 20 Oct 2017 8:30PM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 12.6 10.0 5.1 1.1
 Expenses 12.8 9.8 5.2 1.2
 Net profit 1.0 -2.2 1.4 -12.6
 PAT margin (%) 3.5 3.2 3.2 3.0
 Assets 14.3 12.3 9.4 9.4
 Net worth 9.6 9.6 8.7 10.0
 RONW (%) 6.8 6.2 6.1 5.2
 Count of Cos. 26,117 23,850 23,499 19,777
Non-financial Companies
 Income 12.0 9.7 4.3 0.1
 Expenses 12.3 9.3 4.4 -0.6
 Net profit -8.5 -2.7 -5.9 11.6
 PAT margin (%) 2.4 2.2 2.1 2.6
 Net fixed assets 12.9 11.6 13.3 14.4
 Net worth 7.9 8.2 7.2 10.1
 RONW (%) 5.5 5.1 4.9 5.5
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.1 2.0 1.9 2.0
 Net working capital cycle (days) 72 69 67 66
 Count of Cos. 20,489 19,109 18,976 16,329
Numbers are net of P&E
Updated on: 20 Oct 2017 4:58PM

Time-series available since 2007-08