Unemployment rate down but still high.

- Out of the list of 43 countries, more than 30 countries have performed better than India in controlling the unemployment rate.

In January 2023, the unemployment rate in India fell to 7.1 percent. This rate was 8.3 percent in December. This is a big drop in the unemployment rate not only from December's level but also from its level two months ago. During the two months before December, the unemployment rate was close to 8 percent. However, despite the reduction, rates remain high. This is a high unemployment rate for a country like India which claims to be the fastest growing economy in the world.

Only nine countries have higher unemployment rates than India. These countries are Greece, Italy, Spain, Turkey, Brazil, Chile, Colombia, Egypt and Saudi Arabia. In the list of 43 countries, more than 30 countries have performed better than India in controlling the unemployment rate. Many of these were countries where the possibility of a recession was also being expressed. India's estimated unemployment rate of 7.1 percent in January compares with the latest figures from other countries. Data available for other countries is up to December 2022. If compared with December's unemployment rate of 8.3 percent, only five countries - Greece, Spain, Turkey, Colombia and South Africa - fared worse than India.

Incidentally, India was the first country to provide unemployment rate figures for January 2023. Monthly estimates of India's unemployment rate have shown some volatility. This fluctuation is due to the high share of informal employment in the unorganized sector. By comparison, the unemployment rate can be estimated more precisely in the long run.

In this sense, CMIE's consumer pyramid household survey wave (4 month period) can be considered a good time frame. The unemployment rate was consistently above seven percent in all four waves of the survey (September-December 2021 to September-December 2022) following the lockdown imposed in the wake of the Covid pandemic. The average unemployment rate during all four waves was 7.4 percent and ranged from 7.3 to 7.5 percent. It is a matter of concern that the unemployment rate in India is consistently above 7 percent.

In this context, it becomes necessary to understand the extent of unemployment rate in January 2023 and the true meaning of its decline. The decline in the unemployment rate in January 2023 compared to December 2022 may be largely a result of temporary factors.

The unemployment rate is generally low in January as employment increases and the number of unemployed people falls. If we look at the old figures, the number of unemployed has decreased by about 3.3 percent compared to December and employment has increased by about 37 lakh in January. This makes the unemployment rate lower in January than in December.

The employment figure in January 2023 was 40.93 crore, which was close to 41.05 crore in January 2020 before the Covid pandemic. This is the highest employment figure since demonetisation.

The three highest monthly employment figures since demonetisation in November 2016 have been seen in January 2020 (41.05 crore), December 2022 (41.02 crore) and January 2023 (40.93 crore). Despite the decline, the unemployment rate in the last two months to January 2023 has been higher than any period since the Covid pandemic and most of the period since demonetisation.

In January, large numbers of unemployed exited the labor market. As a result, the labor force participation rate fell from 40.5 percent in December to 39.8 percent in January. Fluctuation and decline in labor participation rate is a major problem for India.

When the availability of employment decreases, workers begin to exit the labor markets. When they leave, they are not counted as unemployed, so the unemployment rate appears to be falling and the labor market appears to have improved, but this is an illusion. The drop in the unemployment rate in January is not providing any relief. This reflects a decline in the labor participation rate.