Creating employment

Budget takes an untested approach to job creation

The Union Budget, as presented by Union Finance Minister Nirmala Sitharaman on Tuesday, clearly reflected the political priorities presented to the government following its less than expected seat haul in the recent elections. One interpretation of that mandate was concern about employment in India. The Budget speech highlighted several new schemes designed to increase access to jobs among India’s aspiring and educated youth, who have high levels of unemployment. As a motivation and guide to policy, this cannot be discounted. However, it may have to go back to the drawing board when it comes to the specific provisions it outlined.
 

Consider, for example, the “employment-linked incentive” schemes for private-sector companies, which the Prime Minister in his remarks compared to the production-linked incentives (PLIs). He called PLIs a success in boosting manufacturing. These subsidise salaries and pension contributions for new employees registered by a company with the Employees’ Provident Fund Organisation. At the margin, this may incentivise a company to turn some of its regular but informal employees into formal ones. But it is unlikely to move the needle sufficiently to make a dent in youth unemployment. Certainly, in terms of incentivising employment generation by the private sector, it cannot compare in effect to the introduction of flexible and uniform regulations for the nationwide labour market. But the four labour codes designed by the government fall short of creating a flexible labour market — and, in any case, are still to be implemented. Then there is the promise of 10 million internships across 500 top companies in India. While apprenticeship schemes have seen some success in developed economies, there is again a question of scale that must be wrestled with in this specific case. Can all these companies absorb thousands of new interns? Will the government end up directing private companies to hire specific young people? If so, will this not swiftly become a patronage mechanism, with the private sector bearing the burden?
 

The real barriers to employment generation in India are well known, and these schemes do little to address them. A more transparent, predictable, and investment-friendly business environment would encourage companies to expand production and hire more people. Meanwhile, improvements in secondary education, alongside vocational training and lifelong skilling, would mean that there are more individuals worth hiring. It is concerning that, in a labour-surplus country, companies constantly complain that they struggle to fill vacancies with suitable candidates. The government did also announce the upgrade of 1,000 Industrial Training Institutes (ITIs), which are tasked with providing vocational education. Such efforts have not blossomed in the past because the barriers to get into ITIs have been too high, the costs excessive, and the skills imparted too unrelated to those required in the private sector. It is easy for the Indian state to push the problems it cannot solve on to the private sector. Companies will create jobs if they see productive opportunities with manageable risks, and if they have suitable candidates for possible vacancies. The government is trying to incentivise the process, but this too may be problematic. The government will have to do the hard work of pro-business reform and upgrading the entire educational system.