Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

Sops for young firms, more investments seen improving jobs growth

  • Economic Survey says the private investment is the ‘key driver’ that drives demand, creates capacity and increases labour productivity
  • The recent NSSO report showed that India’s unemployment rate of 6.1% is at a four-decade high

NEW DELHI : India will have to create 5.5-6 million jobs each year over the next decade, the Economic Survey 2019 said on Thursday underlining that more private investment, labour reforms and incentivizing young companies will lead to ample employment generation.

“Investment, especially private investment, is the “key driver" that drives demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction, and generates jobs," the Economic Survey said.

“If we assume that the labour force participation rate (LFPR) would remain at about 60% in the next two decades, about 55-60 lakh (5.5 million-6 million) jobs will have to be created annually over the next decade," the Survey said.

Growth in micro, small and medium enterprises (MSMEs) not only create greater profits for their promoters but also contribute to job creation and productivity in the economy. “Our policies must, therefore, focus on enabling MSMEs to grow by unshackling them," the Survey said.

The Survey said, “restrictive labour regulations, which exempt small firms from such regulations, and other size-based incentives, which provide benefits to MSMEs irrespective of their age, have played a crucial role in providing perverse incentives for firms to remain significantly smaller in the Indian economic landscape," and recommended, focusing incentives on infant firms, i.e. firms less than ten years of age, with appropriate grandfathering of existing pattern of incentives to MSMEs.

The Survey said small firms contributed only 23% of the total employment in organized manufacturing in 2016-17 while large firms comprised over 77%. In a way, it indicated that small firms should not be incentivized to stay small.

“Inter alia, the Survey focuses on nourishing MSMEs to create jobs and become more productive so that they can become internationally competitive, enhancing legal reform, ensuring consistency of policy with the vision and the strategic blueprint, reducing the cost of capital, and rationalizing the risk-return trade-off for investments," it added.

The Survey said there is a general apprehension that high investment rate will substitute labour. This has led to much debate about labour-intensive versus capital-intensive modes of production.

Jobs has been a constant debate in India with the government stating that employment generation is not that bad where as critics argue that India is passing through a tough phase of jobless growth. The recent NSSO report showed that India’s unemployment rate of 6.1% is at a four-decade high.

The government believes that its pro-growth steps are leading to more formalisation of the jobs space. However, the Centre for Monitoring Indian Economy, a private data research organisation, has estimated that during 2018, nearly 11 million people lost their jobs—9.1 million in rural India and 1.8 million in urban India.


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