Job seekers in Kerala. | Image Credit: The Hindu
TThe Employment chapter in the Economic Survey begins with the observation: “Employment is an important link between growth and prosperity, and its quantity and quality determine whether economic output can lead to a better quality of life for the population.” This “important connection” between the growth of economic output, measured by official GDP estimates, and the employment gained, especially decent in the formal economy, has become increasingly tenuous.
The survey cited official data to confirm the experience of unemployment growth. Factory employment in manufacturing will only grow by 32 lakh between 2013-14 and 2021-22, with only three States (Tamil Nadu, Gujarat and Maharashtra) accounting for 40% of total employment in the manufacturing sector in India. There is an overall reduction of 16.45 lakh in total employment in non-agricultural enterprises not incorporated in manufacturing and services (2015-16 to 2022-23).
India’s workforce is estimated to be around 56.5 crore by 2022-23, of which more than 57% are self-employed with an average monthly income of ₹13,347. More than 18% work as “unpaid workers in household enterprises”. The proportion of the workforce working in agriculture has increased from 44% in 2017-18 to nearly 46% in 2022-23. Against this backdrop, the Survey has estimated that the economy will need to generate an average of nearly 78.5 lakh non-agricultural jobs annually till 2030 to meet the rising workforce.
Supply side incentives
The Finance Minister has attempted to address the challenge of employment generation by unveiling three ’employment-related incentive’ schemes. The first proposed to give the first month’s wages to all first-time employees, who are registered with EPFO, up to a maximum of ₹15,000. The second scheme is also a wage subsidy for first-time employees in the manufacturing sector, to be paid partly to the employer and partly to the employee. The third scheme is for employers who provide additional employment, with compensation of ₹3,000 per month in EPFO ​​employer contributions for two years.
In addition, 1,000 Industrial Training Institutes are to be upgraded at a total cost of ₹60,000 crore over five years, of which the Union government will bear half and the rest to be borne by State governments and CSR funds. Further, a 12-month ‘Prime Minister’s Apprenticeship’ with a monthly stipend of ₹5,000 per month plus a one-time assistance of ₹6,000 has been announced, with youth aged 21 to 24 eligible.
The government has announced an outlay of ₹2 lakh crore over five years for the ‘Prime Minister’s Package for Jobs and Skills’ and has said that 4.1 crore youth will emerge as “beneficiaries”. It is clear that this has been designed to provide 78.5 lakh to 81 lakh annual non-farm jobs in the next decade.
The flaw with this approach
Whatever incentives are provided through the scheme, projects created in the short term are unlikely to extend beyond the subsidy period. The disposal of large-scale projects in the medium term could further complicate the situation. Enrollment-based incentive schemes of EPFO ​​can also be a channel to siphon public funds by falsifying salaries and misreporting wages.
If the government can set aside ₹2 lakh crore for job creation, why not try to generate direct employment by expanding MGNREGA to urban areas and extending the entitlement beyond 100 days? Why not expand capital expenditure by Central PSEs that generate profits in labour-intensive sectors of the economy?
The fundamental flaw with this supply-side incentive-based strategy lies in the assumption that labor demand in the non-agricultural sector is sufficient to absorb the first 80 lakh workers annually, and that only wage subsidies and labor skill development will reduce it. and big business to expand employment payroll, without concern for market conditions and profitability.
The problem here lies in part in the government’s insistence on the accuracy of official GDP estimates, the reality of which has been questioned by many. The latest provisional estimate of India’s GDP shows real growth in 2023-24 at 8.2% while nominal growth is estimated at 9.6%; which represents an annual inflation rate of only 1.4%. The Composite Consumer Price Index, however, showed retail inflation at 5.4%. This glaring discrepancy, due to the disproportionate weight given to the randomly estimated wholesale price index, is just one of the problems in India’s official GDP estimates.
The bottom line is that the economy is not growing as fast as official GDP estimates suggest. Lack of dynamism in private consumption and investment has been described in the Survey. Economic growth in the past few years has been driven by fiscal stimulus, which has led to an increase in the public debt to GDP ratio. Both the Survey and the Budget assume that the reduction of the fiscal deficit and the provision of supply-side incentives will drive a virtuous cycle of investment led by private enterprises.
Deep corporate tax cuts in 2019 are unlikely to boost capital spending by the non-financial private corporate sector. The Budget’s reliance on the same supply-side strategy to encourage private employment through wage subsidies and skills development, to tackle the unemployment crisis, reflects a dogmatic mindset that does not match reality.
Prasenjit Bose is an economist and activist
