The Narendra Modi government has been seen as lagging in its efforts to generate employment. However, its latest step, announced late on Thursday, of lowering of the salary contribution of both industrial workers and employers towards the Employees’ State Insurance Scheme (ESI) from 6.5% to 4%, the first such reduction in two decades, could be one in the right direction. The ESI, administered by the Employees’ State Insurance Corporation, applies to organizations with 10 or more employees and provides medical, cash, maternity, disability and dependant benefits to employees drawing a salary of up to 21,000 per month. A large chunk of the medium and small-scale enterprises (MSMEs), which collectively form the country’s biggest employers, fall in the bracket.

The reduction of the ESI contribution will bring some much-needed financial relief for workers in the lower end of the economy. Perhaps as importantly, it will benefit the employers as well, since it will reduce their financial liability, which in turn could lead to an expansion in hiring. This is a welcome development, since the MSME sector was dealt a body blow by the twin shocks of demonetization—when 86% of banknotes were rendered invalid—in November 2016 and the rollout of the goods and services tax a few month later, and many MSME s went belly-up.

To really cash in on the country’s so-called democratic dividend, providing employment for India’s youth bulge is the state’s biggest challenge. On this front, where unorganized sector jobs are a suboptimal solution, being much less productive than formal jobs, it falls upon the government to increase the benefits of formality. With this provision, the Modi government seems to have ticked the correct box—but many more such boxes remain to be ticked.

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