IIM professor rebuts Jairam Ramesh’s politically motivated article on the payroll study

The official Twitter handle of Congress party tried to peddle Jairam Ramesh’s politically motivated article that sought to downplay the study conducted by IIM professor Pulak Ghosh and SBI chief economic advisor Soumya Kanti Ghosh. We had put out a summary of this study (Towards a Payroll Reporting in India) in our earlier report . The article by Ramesh, titled ‘A misleading story of job creation‘ published in The Hindu was shared by Congress party on Twitter.

Desperate efforts in mental gymnastics from the Congress’s side came up after PM Narendra Modi mentioned this study in his interviews to Zee News and Times Now. While answering questions on job creation he cited this  independent study which had unearthed 70 lakh new PF accounts that were opened in the past one year. The Prime Minister had also argued that formal sector employment is just 10% and the 90% of jobs are in the informal sector. He had also said that the loans given under Mudra scheme would have created jobs and employment opportunities that are not captured in official labor bureau statistics.

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Jairam Ramesh’s flawed analysis of the IIM’s payroll study

The article co-authored by Jairam Ramesh and Pravin Chakravarthy makes three key arguments

Most of the new PF accounts are due to formalization of informal jobs prior to demonetization and GST:

The Indian economy was subjected to massive external forces of formalization by the twin forces of demonetization in FY-2017 and the GST in FY-2018. As we know through numerous surveys, demonetization resulted in thousands of employers retrenching a large part of their informal workforce paid in cash and registering the remaining employees as formal workers with benefits such as provident fund.

In the process of formalization of these jobs, many informal jobs have been lost. They say:

In other words, if, say, for every five informal employees, four lost their jobs due to the GST and demonetisation and one became formal, this study will count it as one new job created. Instead, the truth would be that four jobs were lost and one job turned formal from informal, not new. Thus, the study conflates what could be formalisation gains with new jobs.

He further asserts that a study on new PF accounts for the years FY (financial year)-2015 and FY-2016, shows a poor growth of 7% and 8% respectively. Hence the huge jump of 20% in 2017-18 only shows that that job creation has been poor under NDA :

If one had to truly separate out GST- and demonetization-induced formalization effects, then the study should have compared the EPFO numbers of FY-2016 and FY-2015. We did exactly that. And what did we find? In FY-2015, the total number of contributing EPFO members grew 7%. In FY-2016, it grew 8%. But after demonetization, in FY-2017, it grew 20% and by December 2017, it had grown a further 23%. Are we then saying that the Modi government did not produce enough jobs in the first two years but, miraculously, after demonetization and the GST, there were jobs galore, as per the same EPFO data set?

After this they go on to make a pointless comparison of employment figures of the study to rise in bank deposits after demonetization. Employment data is not as straightforward as bank deposit data. This is the same as comparing apples with bananas.

Flaws in the arguments

A cursory glance shows that these arguments made to downplay a tedious piece of research are politically motivated. Firstly, there is no data to say how many were retrenched (if any) in the process of ‘formalization’ of the economy. Secondly, the data they have collected for FY-16 and FY-17 has not been presented clearly, unlike the study of researchers. Have they removed zero contribution accounts? Which age group did they focus on? These details are absent. Lastly, if the same logic is used, we can say that there were no jobs created under UPA as well, because all jobs showing up in labor bureau reports can be construed as informal jobs that were formalized.

Response of researchers

Pulak Ghosh and Soumya Kanti Ghosh, the researchers who collaborated on the study of payrolls have replied to the analysis of Jairam Ramesh  in an article titled ‘Payroll reporting works.’ They clarify the details of their methodology and also point out the baseless claims made by the Ramesh and Chakravarthy (emphasis added):

First, we considered only those who specifically joined jobs during that year in the age group of 22-25 years (most jobs in the 18-25 age group are clustered around 22). They are hence strictly first-time employees. Also, we only considered those first-time employees who had been making continuous non-zero contributions since their date of joining.

They bust the false logic propounded by Jairam Ramesh by clarIfying that new additions to EPFO data under the amnesty scheme had already been deducted from their final figures. They say (emphasis added) :

Also, the argument that EPFO contributions have jumped many times in FY-2017 and hence create a false narrative is not correct, as this is exactly the point that we are making but for a different reason. There were 10 million EPFO additions under the Amnesty scheme during January and June of 2017 and this has resulted in a surge in EPFO contributions, but we have not taken this into consideration for our analysis.

The researchers concluded that new jobs were being created and the economists in labor bureau had to improve their data output by using big data analytics instead of the current method of surveys. They conclude by saying :

Young people are getting jobs and contributing to Employees Provident Fund and Employees’ State Insurance and that is what the data shows. Even though we appreciate the enormity of India’s job challenge, we believe that the debate about jobs should move to adequate reporting, skilling and compensating our labour force. Until our well known labour economists understand this simple logic, they will continue to say that data analytics has gone berserk!

Thus the Congress party’s attempt to malign the employment record under the NDA government seems to have failed on the factual and logical front. It remains to be seen if the party tries to understand the researcher’s genuine concerns of employment data or continues to make politically motivated arguments to mislead the country.

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