Stimulus 3.0: Jobs in construction to get a boost, formal sector downbeat

The government increased the budget allocation towards the PMAY by over three times to Rs 26,000 crore, from the present Rs 8,000 crore in FY21

The government’s fresh stimulus package focuses on boosting jobs in the economy, with measures to incentivise private sector hiring and increased allocation towards government schemes.

The government announced the ‘Atmanirbhar Bharat Rozgar Yojana (ABRY)’ to subsidise Employees’ Provident Fund (EPF) contribution for jobs created between October 2020 and June 2021, with an allocation of Rs 36,000 crore (of which Rs 6,000 crore will be spent in this fiscal year, or FY21).

The government increased the budget allocation towards the Pradhan Mantri Awas Yojana (PMAY) by over three times to Rs 26,000 crore, from the present Rs 8,000 crore in FY21. This is expected to generate 7.8 million jobs in the construction sector — a key driver of jobs in the non-farm sector, especially in villages.

Further, the budget allocation towards the Pradhan Mantri Garib Kalyan Rozgar Yojana (PMGKRY) has also been increased by Rs 10,000 crore in FY21 — a scheme aimed to provide jobs to migrant workers who returned to villages. The PMGKRY, which is a convergence of several government schemes, including the Mahatma Gandhi National Rural Employment Guarantee scheme, is being implemented in 116 districts across six states that saw the highest reverse migration of workers.

Experts said the measures will bolster jobs in the construction sector but job additions in the formal sector may not be as significant due to a contraction in economic activities being witnessed at present.

“Focusing on the construction sector is a major boost as demand for housing has strong linkage to job creation, especially in rural areas where it is labour-intensive as against in cities where construction is more capital-intensive. Though the quality of employment generation in the construction sector remains poor in the long run, it’s an important measure in the ongoing pandemic,” Indian Council for Research on International Economic Relations (Icrier) fellow Radhicka Kapoor said.

Kapoor, who has done extensive research on the previous EPF subsidy scheme, said she didn’t expect a boost in formal sector jobs from a similar scheme announced at this juncture. “The overall mood in the economy is that of recession and there is no incentive to hire unlike in the past when the Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) worked well for formal sector job creation. The PF contribution covers only a small portion of the wage bill of employers,” she added.

This scheme is, however, a significant improvement from the previous EPF subsidy scheme announced in March when the government had decided to only foot the EPF contribution of firms with up to 100 workers and where 90 per cent of the workers earned up to Rs 15,000 per month.

The present scheme, similar to the Pradhan Mantri Rojgar Protsahan Yojana which was in place from 2016-19, will cover all establishments up to 1000 workers. Those with above 1,000 workers will only be able to seek subsidy for the employer’s share of PF contribution.

Under the ABRY scheme, all workers with monthly wage up to Rs 15,000, who were never a part of the EPF schemes in the past, and those who lost their job during the pandemic (between March and September 2020) will be eligible for the scheme. At present, both employers and employees contribute 12 per cent each of a worker’s wage towards schemes under the EPFO. The government will sponsor both the employer’s and employee’s share for firms. “About 65 per cent of workers under the formal sector and over 99 per cent of the establishments in the country will be covered under the scheme,” Finance Minister Nirmala Sitharaman said, while making the announcement.

A critical aspect of the scheme is employers will have to add at least two new employees if they have total workforce of less than 50 and employers will have to hire a minimum of five new employees if their workforce if more than 50.

Rishi Agrawal, co-founder and chief executive officer (CEO), Avantis Regtech - a TeamLease Company - said the EPF subsidy scheme does “does little to stimulate the economy in the short term” and the government should instead suspend EPF contributions altogether for the next one year. He, however, added that the production-linked incentive scheme, which has been extended to 10 more sectors, would lead to employment generation.

CARE Ratings said due to the monthly wage threshold of up to Rs 15,000, the scheme would only help “medium to smaller companies”.

The PMRPY scheme had benefitted 12.2 million workers in 152,899 establishments till date. The government had given benefits of Rs 8,300 crore to firms. In FY21, the government has already released Rs 73,504 crore towards MGNREG scheme which has led to 250 million person-days of employment.