Sentiments raise hopes amidst low LPR

by Mahesh Vyas

During the week ended November 12, 2017, the labour participation rate was 42.8 per cent and the unemployment rate was 6 per cent. In the corresponding week a year ago i.e. during the week ended November 13, 2016, the LPR was higher at 45.6 per cent and the UER was lower at 5.8 per cent. Note that November 13, 2016 was the week of demonetisation. Ergo, exactly one year after demonetisation, less people were participating in the work force and a lower proportion of those that were seeking jobs were able to find them.

Is this a freak one-week phenomenon or can we generalise, at least prima facie? Let us look at the averages for four weeks preceding demonetisation and the corresponding weeks a year later.

During the four weeks preceding demonetisation, the average labour participation rate was 47.2 per cent and the unemployment rate was 6.2 per cent. A year later, using similar averages of four weeks, the labour participation rate was much significantly lower at 43.7 per cent although the unemployment rate remained at around the same level as before.

Soon after demonetisation, the LPR and UER fell. Now, a full year after demonetisation, the LPR continues to be lower, but the UER has risen above the level around demonetisation. These comparisons are still not adjusted for seasonal effects and it will take a while before we have sufficient data to make seasonal adjustments. But, the picture emerging from year-on-year comparisons doesn’t look quite good.

The Chief Statistician of India T C A Anant has shown that according to the NSSO’s 2011-12 data, there are almost wild movements in and out of the labour force quarter over quarter. The number of people employed during April-June according to this data is 7.3 per cent lower than during October-December. However, GVA during April-June was higher by 4.6 per cent nominally and 0.03 per cent in real terms compared to the October-December period. This throws up more questions. How do 7.3 per cent lesser people produce more national income? Is it possible that when 7.3 per cent people stop working, they have no impact on national income? Either the government’s employment numbers are off the mark or their national income numbers are.

The problem is that seasonal adjustments cannot be done by just one year’s data and so, it is still not a settled issue over how much of the movements in the estimated number of employed people are because of seasonality and how much of these are due to changes in sample or other factors including demonetisation. I therefore think that this is a problem best left to academics to resolve through thorough research and peer review after we have sufficient time-series data.

Causality apart, what is important is that post November 2016 (which just happened to be the month of demonetisation), labour participation fell and it continues to remain significantly lower than what it was before November 2016. The unemployment rate is higher than it was a year ago. And, the unemployment rate has been rising.

Six per cent is not a worrisome unemployment rate. But, a low labour participation rate is. During the week ended November 12, 2017 the LPR at 42.8 was close to its lowest level of 42.6.

The LPR did fall sharply soon after demonetisation but, it stopped falling any further after April 2017. In fact, the LPR was on a recovery trend during August, September and October 2017. But, we did see a little weakness in the LPR towards the end of October when the ratio fell to 42.9 per cent in the week of October 22 and then again to 42.8 per cent in the week ended November 12.

While the LPR languishes at sub-45 per cent levels, the UER has risen to around 6 per cent.

There is slender glimmer of hope in the consumer sentiments index. Somewhat surprisingly, the index of consumer sentiments has seen a sharp increase of 5.8 per cent in the week ended November 12. This is driven almost entirely by rural India.

It is unclear yet, what has driven the rural index of consumer sentiments. But, that does not deny that rural folks are signalling something very positive.


First Published in Business Standard Link

CMIE STATISTICS
Unemployment Rate
Per cent
4.6 -0.0
Consumer Sentiments Index
Base September-December 2015
95.8 -0.2
Consumer Expectations Index
Base September-December 2015
94.8 -0.3
Current Economic Conditions Index
Base September-December 2015
97.3 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Dec 16 Mar 17 Jun 17 Sep 17
New projects 2.33 3.82 2.07 1.04
Completed projects 1.01 1.94 1.16 1.00
Stalled projects 1.13 0.73 2.67 0.67
Revived projects 0.18 0.67 0.30 0.29
Implementation stalled projects 0.83 0.33 0.68 0.62
Updated on: 12 Dec 2017 4:20PM
Quarterly Financials of Listed Companies
(% change) Dec 16 Mar 17 Jun 17 Sep 17
All listed Companies
 Income 6.2 10.2 9.8 8.4
 Expenses 6.3 11.9 10.0 9.7
 Net profit 40.2 16.0 -19.6 -17.7
 PAT margin (%) 6.0 6.0 5.3 5.8
 Count of Cos. 4,509 4,444 4,318 3,364
Non-financial Companies
 Income 5.9 11.8 10.4 8.4
 Expenses 7.2 15.6 10.6 8.4
 Net profit 24.5 -2.3 -25.0 -5.0
 PAT margin (%) 6.2 6.2 5.2 6.6
 Net fixed assets 6.9 9.5
 Current assets 2.6 2.4
 Current liabilities 8.8 10.4
 Borrowings 4.8 3.3
 Reserves & surplus 6.3 8.0
 Count of Cos. 3,484 3,440 3,352 2,533
Numbers are net of P&E
Updated on: 12 Dec 2017 4:20PM
Annual Financials of All Companies
(% change) FY14 FY15 FY16 FY17
All Companies
 Income 10.0 5.2 1.1 6.7
 Expenses 9.9 5.2 1.2 6.9
 Net profit -2.3 1.4 -13.1 20.6
 PAT margin (%) 3.2 3.2 2.9 6.4
 Assets 12.3 9.4 9.7 8.6
 Net worth 9.6 8.7 10.6 7.9
 RONW (%) 6.2 6.1 5.1 9.2
 Count of Cos. 24,045 23,818 20,791 4,756
Non-financial Companies
 Income 9.7 4.3 0.1 6.7
 Expenses 9.3 4.5 -0.6 7.5
 Net profit -2.7 -5.8 11.6 14.6
 PAT margin (%) 2.2 2.1 2.6 6.3
 Net fixed assets 11.6 13.3 15.5 7.3
 Net worth 8.1 7.1 11.0 6.3
 RONW (%) 5.1 4.9 5.4 10.3
 Debt / Equity (times) 1.1 1.1 1.1 0.7
 Interest cover (times) 2.0 1.9 2.0 3.4
 Net working capital cycle (days) 69 67 66 49
 Count of Cos. 19,288 19,270 17,281 3,624
Numbers are net of P&E
Updated on: 04 Dec 2017 11:59AM

Data added for HPI at Assessment prices and HPI at Market prices