4 years of Modi: Even as the debate over job creation intensifies with the Narendra Modi-led government completing 4 years, UBS notes that there has been conflicting data on job creation. In a report titled ‘Job Creation picking up?,’ UBS noted that while there are ‘two sets of data with conflicting outputs;’ slowing middle class is the real issue. “A study based on EPFO (employee provident fund) data suggests a likely 7 million “formal jobs” created in FY18 versus 7 million persons joining the labour force each year (our estimate). This number is a positive surprise to us and markets,” the firm said in the report.
While EPFO report has an optimistic feel, a recent report by BSE-CIME had painted a grim picture. “The BSE-CMIE index, which is household survey-based, suggests that not many jobs have been created in this same period and unemployment levels (formal + informal) may have started to go back up,” notes the firm.
Further, while formal jobs have indeed been created, muted household income and savings macro data suggest muted quality of jobs in aggregate. “Job quality is the real issue for Indian macro and markets, manifested in the slowing growth of the middle class,” Gautam Chhaochharia, Analyst and Sanjena Dadawala, Analysts at UBS said in the report.
Further, the report decodes that better reporting of jobs versus actual creation of new jobs is a potential reason for the robust data from EPFO. “This may be due to a general formalisation trend post demonetization /GST – a positive nevertheless,” said the report.
Sharing various reasons for the job creation, UBS says that it may have been driven by the government’s steps to get more workers under the ambit of retirement savings – such as: 1) increases in threshold salary levels; and 2) providing incentives for companies to hire on roll rather than through contract.
According to the firm, India can create 4 million jobs per annum in the next 5 years. “Our base-case estimate, based on detailed bottom-up analysis, is that India can create 4 million jobs per annum in the next five years, assuming some success in the Government’s policy push,” the report said. The key implications for middle class is clear- a likely worsening job quality mix implies a slowing middle in UBS’s proprietary household income pyramid.
“Mass-market home appliances and building materials may have some downside versus what is being built in by the Street. Beneficiaries from accelerating upper-middle/high-income households include premium consumer discretionary. Staffing companies benefit from any shift of the informal workforce to the formal set-up,” notes UBS.