... Can it Raise the Rate of Creation of Productive Jobs?

In a recent Op-ed article, Dr Ashima Goyal, Emeritus Professor, IGIDR and member of the Monetary Policy Committee, made an interesting observation: “The first priority for the new government is to raise the rate of creation of productive jobs in the economy”. Further, she also rightly observed that “sustaining high growth with a focus on labor-intensive sectors … is a precondition” for raising the rate of creation of right jobs. And it is indeed heartening to note that the Union Budget for 2024-25 made it clear that employment is the government's major priority by proposing five schemes for facilitating employment, skilling, and other opportunities with an outlay of Rs 2 lakh cr.

Of them, three schemes provide “employment-linked incentive(s)” and are based on employees’ enrollment in the Employees’ Provident Fund Organization (EPFO). The first scheme, which will cover about 210 lakh youth employed in all formal sectors in two years, will provide a wage subsidy of up to Rs 15,000 in three installments as a direct transfer to employees. The eligibility limit will be a salary of 1 lakh per month.

The second scheme will “incentivize additional employment in the manufacturing sector” by providing an incentive of 24% of a Rs 25,000 monthly wage directly both to employees and employers in the first four years of employment. Here again, the eligibility is limited to a monthly salary of Rs 1 lakh. This scheme is supposed to cover about 30 lakh employees and employers.

The employer-focused third scheme covers all additional employment within a salary limit of Rs 1 lakh per month. Under it, government reimburses employers up to Rs 3,000 per month for two years towards their EPFO contributions to each additional employee. It is expected to incentivize additional employment of 50 lakh persons.

The fourth scheme is meant to skill 20 lakh youth over five years in collaboration with state governments and industry by upgrading 1,000 Industrial Training Institutes in hub and spoke arrangements with outcome orientation. It is also proposed to align the course content and design to the skill needs of the industry.

The fifth scheme aims to provide internship opportunities in 500 companies to one crore youth in the coming five years. These internships shall provide exposure to real-life business environment of varied professions to youth for 12 months. Such exposure is expected to better their employment opportunities. The scheme provides for an internship allowance of Rs 5,000 per month for 12 months along with one-time assistance of Rs 6,000. The training cost and 10% internship cost shall be borne by the participating companies from their corporate social responsibility (CSR) funds. Participation of companies in the scheme is voluntary and the enrollment of interns shall be through an online portal.

Now, the big question is: Are these schemes sufficient enough to raise the rate of creation of productive jobs? The first reaction of economists is that the procedures and conditions prescribed under these schemes may create obstacles for their effective implementation. For instance, under scheme one, by the time the second installment of Rs 3,000 becomes payable, an employee must undergo a compulsory online financial literacy course, or else it will not be released. There is yet another disturbing clause: “Subsidy must be refunded by the employer if the employment of the first-time employee terminates within 12 months of his recruitment. Such conditions are termed by industry experts as impracticable. Similarly, analysts wonder if many firms would participate in the voluntary internship scheme, for participation through a centralized portal of government agency could be a daunting task.

Nevertheless, these schemes essentially aim at encouraging employment by reducing the cost of new hires. But is that what matters the most to businesses for creating jobs? According to development economists the answer is: ‘No’. For, it is the lack of sufficient demand in the market owing to poor consumption that is holding back private investment, which is mostly leading to unemployment. Secondly, it is not the big companies that create more jobs for they are largely capital-intensive.

Rather these schemes may work well if nudged through small, medium and large enterprises. At the same time, India, under the fear of automation, cannot afford to negate absorption of new technology. So, in the ultimate analysis what matters most for employment growth is the creation of a conducive atmosphere that “sustains high growth” by encouraging private investment in labor-intensive sectors duly backed by a stable financial sector and supportive inflation-targeting policies. Indeed, that is what is needed more for even availing subsidy offered in the budget by the businesses.