Were 8 crore new jobs created in three years?

Debate over India's job creation claims using India-KLEMS data raises concerns about accuracy and political motivations.

Employment, or the lack of it, has been a major issue of debate among economists and policy makers in India in recent years. Recently, Prime Minister Narendra Modi claimed that India created “eight crore new jobs in the last three to four years”. The Prime Minister was using data from the India-KLEMS database hosted by the Reserve Bank of India (RBI). As per this database, the total number of workers in India rose from 56.6 crore in 2020-21 to 64.3 crore in 2023-24, that is, a net rise by 7.8 crore workers. Tailing this claim, the research team of the State Bank of India (SBI) published a validating report that claimed a match between the total number of workers in the India-KLEMS database and in the NSSO’s Annual Survey of Unincorporated Sector Enterprises (ASUSE), 2022-2023.

What lent an element of surprise to these claims was the rise in the number of workers over the two COVID-19 years and after. According to the International Labour Organization (ILO), the employment-to-population ratio between 2019 and 2023 was stagnant, if not falling, in East Asia, South-East Asia and the Pacific. Given such trends elsewhere, analysts have had serious methodological and empirical suspicions in relying on the India-KLEMS database to posit an outlier status for India in employment creation.

The India-KLEMS project began as an academic exercise financed by the RBI in 2009. From 2022, the RBI hosts the database. KLEMS stands for Capital (K), Labour (L), Energy (E), Material (M) and Services (S). It is a framework used to measure industry-level “total factor productivity” (TFP), which is considered by mainstream economists as a measure of the efficiency of all the inputs to produce a unit of output.

In other words, the objective of the KLEMS framework is not to produce data on employment. The employment figures are merely inputs into the database’s modelling framework. Further, the the RBI does not directly collect data on any input, including employment, that enter the India-KLEMS database. It sources sectoral data on employment, input usage and output from official sources, including the Central Statistics Office, Census of India, Annual Survey of Industries and the Periodic Labour Force Surveys (PLFS). It is amusing then that data sourced by the RBI from other official sources, and used as inputs to estimate TFP, are portrayed as “RBI jobs data” to make political statements on employment generation in the economy.

India-KLEMS borrows employment data from the PLFS, but not as absolute figures of the number of workers. The PLFS provides only the share of workers in the population, or the Worker Population Ratio (WPR). To obtain the number of workers, the WPR is multiplied with the total population. This is where the problem begins, as there is no official population figure for India after 2011.

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To obtain a population estimate for the intercensal years, demographers typically interpolate population numbers from the last available Census. But here, India-KLEMS adopted a strange solution. The estimates of population in 2017-18, 2018-19 and 2019-20 were borrowed from the Economic Survey (ES), 2021-22. The ES projected these populations by assuming that population growth rates between 2001 and 2011 were the same for the years after 2011. The WPRs were multiplied by these population projections to obtain the number of workers for each corresponding year.