Economic Survey: India’s Formal Sector Payroll Substantially Larger Than Estimated
India’s formal sector payroll substantially larger than believed, says Arvind Subramanian.
The Economic Survey 2017-18 suggests that India’s formal sector employment, especially the non-farm payroll, is substantially larger than believed.
The survey defined 'formal employment’ using two separate lenses. First, when employers are providing some kind of social security to their employees. Second, when firms are part of the tax net.
According to the survey, from a social security perspective formal employment amounts to 6 crores. If you add the estimated 1.5 crore of government workers (excluding defense) to this, you get a total of 7.5 crore. This, as per the survey, is 31 percent of the non-agricultural workforce, which is estimated at 24 crore based on the latest round of the NSSO’s Employment-Unemployment Survey.
The survey added that when ‘formality’ was defined in terms of being part of the Goods and Services Tax net, the formal sector payroll share was found to be 53 percent. In actual numbers, the formal employment from a tax perspective is 11.2 crore. Adding government employment to this yields a total count of 12.7 crore, said the survey.
Notwithstanding the caveats regarding the specific numbers, the broad conclusion is likely to be robust: formal payrolls may be considerably greater than currently believed.Economic Survey 2018
India does not have a proper data set to track job creation effectively. As such, economists tend to use various proxies to estimate job creation. A recent research paper tried to estimate job creation using EPFO (Employee Provident Fund Organisation) data on the number of accounts opened.
That research by Pulak Ghosh, a professor at Indian Indian Institute of Management, Bangalore, and Soumya Kanti Ghosh, chief economic adviser at State Bank of India, forecast that India will add 70 lakh jobs in 2017-18. Other economists, however, disagreed with this analysis. Former Union Minister Jairam Ramesh and economist Praveen Chakravarty in an article in Hindu newspaper said that new additions to EPFO members does not automatically mean net new jobs in the economy.
The government’s own Labour bureau, which conducts a quarterly employment survey across labour-intensive industries showed that between January and March 2017, job creation stood at 185,000 as against 122,000 in October-December 2016 and 32,000 in July-September 2016.
Watch this conversation with Mahesh Vyas of CMIE and Soumya Kanti Ghosh, chief economist at SBI Capital Markets.