Opinion
The government’s job creation plan is flawed on multiple counts
Summary
- The budget’s employment-linked and other job generation schemes acknowledge a severe crisis, but are too onerous to work and err by looking at job creation in isolation of economic growth. Outsourcing the task to the private sector with unrealistic schemes won’t help.
The budget presented last month rightly seeks to address the issue of job creation, given the crisis on hand. Its grand announcements are the first sign of the government recognizing its severity. But the approach and measures proposed fail to address the issue.
The budget announced a ₹2 trillion package for employment and skilling, with the aim of creating 41 million jobs in the next five years. Under it, there are three schemes for job creation and one each for internship and upgradation of ITIs.
The employment-linked scheme for first-timers promises to pay ₹15,000 to every new employee in three instalments. The second scheme is primarily for the manufacturing sector and proposes incentives for employees and employers with graded payments for four years.
The third scheme is a subsidy to the employer, with the government contributing ₹3,000 per month as part of the employer’s provident fund contribution.
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While all three schemes are for enterprises registered with the Employees’ Provident Fund Organization (EPFO), thus catering only to the organized sector, the conditions for availing the scheme are onerous and likely to work as a disincentive.
The first scheme makes it conditional on the employee to attend an online financial literacy programme to get the subsidy for the second month. There is no rationale for such a requirement. It also stipulates that the employer must return the subsidy if the employee leaves the job within a year.
Similarly, for the second scheme, the enterprise has to hire a minimum of 50 workers or 25% of its existing workforce to get the benefit. Further, this scheme is not for new enterprises, but only those with a three-year track record of EPFO contributions.
Similar criteria are imposed on the third scheme. Some of these may have been designed for monitoring purposes, but they look set to place a financial and administrative burden on employers and thus defeat the purpose.
The scheme for internship in India’s top 500 companies is no better. It is applicable to youth in the age group of 21-24 years currently unemployed and not pursuing education. It excludes meritorious students from premier institutions (or with professional qualifications).
It also bars any youth whose family member is a taxpayer or working with the government at any level. Except for very low-skill roles, it is hard to imagine too many youth who would meet this stiff checklist.
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While the overall budgetary allocation for the package is ₹2 trillion over five years, the pro-rata estimate of expenditure for the first year is only ₹28,000 crore. The actual budget estimate is only ₹12,000 crore for creating 16 million jobs in the first year.
The real problem, however, is not the implementation design or meagre allocation, but the budget’s over-reliance on the private sector for employment. Faced with a slowdown in the economy after 2016-17, the budget in 2019 had announced a massive tax subsidy to the private sector.
As the Economic Survey points out, much of this was utilized by the corporate sector to increase profits and clean up balance sheets without any significant increase in their wage bill or employment creation.
The second problem is in the belief that employment creation is a standalone objective, independent of growth. In any economy, jobs are created in the process of growth as national output increases and/or investment takes place.
At a time when the economy is going through a period of deficient demand amid income stagnation, it is unfair to blame private businesses for not generating employment or investing enough. Incentives for job creation are unlikely to be useful in the absence of economic stimulus to produce more.
The primary responsibility of greater employment has to rest with the government. The jobs crisis in India is not just about providing employment, but also decent employment with a basic living wage. These require the government to use public expenditure to raise the incomes of workers.
This process is faster when the income multiplier effect of such public expenditure is higher. An increase in spending in rural areas and the informal sector not only raises incomes, but also creates jobs, as these are labour intensive fields.
Also read: Employment schemes aim to shift workforce from informal to formal jobs
Also, given India’s large deficiencies in education, health and other public services, creating public employment in these sectors would help bridge these gaps and improve worker productivity. It would also aid a large proportion of the marginalized and vulnerable population who may not benefit from schemes announced in the budget.
