If one reasonably extrapolates the latest available i.e. 2012 NSSO data, India’s total working population would be 500 million; of which 220 million is farm sector and 280 million is non-farm. Of the non-farm population, 70 million is formal and the rest is informal. Assuming similar proportions, of the 10-11 million new jobs needed per year, the number of formal jobs needed would be about 2-3 million/year.
Now let’s look at the latest National Pension Scheme (NPS) and EPFO data. First of all, let’s acknowledge that it’s an encouraging move that this data is being disclosed. We only hope that this becomes a continuing data series and we get monthly updates going forward. The data release shows that during September 2017-February 2018 (6-month period) a total of 3.1 million new Employee Provident Fund (EPF) accounts were opened. Of the above, 1.9 million new accounts are in the age bracket of 18-25. According to an earlier research paper by Ghosh & Ghosh (January 2018), during FY17 and 1HFY18, 4.5 million & 2.8 million new EPF accounts were opened respectively in the 18-25 age bracket. The bullish interpretation of the data would be that the organised sector has created 4.7 million new jobs a year during FY17 and FY18. The government (central and state but not including the public sector undertakings or PSUs) job creation, according to NPS, is an additional 0.5-0.6 million per year. Cumulatively, it adds up to an unbelievably high number of 5.2-5.3 million annual additions on a base of 70 million total formal sector jobs. This cannot be the sustainable pace of job creation in the formal sector because assuming the 25-75 split according to the NSSO, informal job creation would be 15-16 million/year and hence total job creation would be 20 million+ a year or double the required pace. This cannot be real. Consequently, a large part of the incremental EPFO number has to be due to the formalisation of erstwhile informal jobs.
Since 2016, the government has been running with several schemes to incentivise employers to create new formal jobs. Some of the schemes include the central government offering to pay 8.33 per cent of salary for a new job created. For the garment industry, the central government pays 12 per cent employers’ contribution for every new employee hired based on the new Provident Fund (PF) number generated. Similar packages have recently been introduced for the leather and footwear industry. Recently, several Indian state governments, such as Jharkhand, Gujarat, Andhra Pradesh, Karnataka and Madhya Pradesh have announced significant employment-linked incentives for garment manufacturers, considering labour intensity associated with the segment. These states offer employee cost assistance, covering up to 75 per cent of labour costs for a garment unit for as long as seven years. Jharkhand government, for example, has introduced a policy to give wage compensation of Rs 7,000/month (vs minimum wage of about Rs 8,500/month) for a period of seven years for every new person employed by a garment firm. Besides, there is a one-time support of Rs 13,000/ person as cost of training an employee that is granted. Similarly, the Gujarat government has introduced a policy for garment firms whereby the state government would provide up to 50 per cent of wages for a period of five years as payroll assistance. These incentives are designed to formalise the labour market and hence considered as a welcome move. Leveraging digitisation of Provident Fund (PF) records, Aadhaar authentication etc., these incentives inadvertently tend to overstate the EPFO numbers in the sense that these are not new jobs. Therefore, we would wait for the next 12-24 months for all such schemes to stabilise and it’s only then the EPFO data can be taken at a face value. A steady state number of 2-3 million new unique EPFO accounts/year itself will be a good number, as explained earlier.
In the meanwhile, let’s not be excessively concerned with the lack of jobs creation. India’s informal sector is still quite vibrant. Our back of the envelope calculation suggests that the number of new auto drivers/chauffeurs needed in India alone is about 1.5-2 million/year for example. It’s very easy to cross-verify these numbers. For example, annual MHCV and LCV sales in India are about 0.85-0.9 million/year. Assuming one-third to be for fleet replacement, about 0.55-0.6 million commercial vehicles are sold to new buyers. Each of the vehicles needs a driver and a cleaner. This alone adds to about a million new jobs. Add auto rickshaw drivers, taxi drivers, private car drivers and the number will easily reach 1.5-2 million jobs.
Let me end today’s piece with my favourite anecdote. Currently in India, about 22 million new cars and two wheelers are sold every year. About 40 per cent of these sales are replacement demand. After removing the replacement demand, about 13 million first time car/two wheeler buyers are entering the market. If employment creation is such a big issue, where are these 13 million people coming from?
The writer is CLSA India Strategist 
