Budget Coverage

How Jaitley chipped away atthe ‘jobless growth’ problem

| Updated on February 02, 2018 Published on February 02, 2018

Not by addressing it squarely, but by subtly undoing labour market rigidities that inhibit employment

One of the most politically loaded issues to enliven the discourse in the run-up to the Budget was of jobs – or, rather, the lack thereof.

The perceived inability of policy-making and of targeted skills enhancement schemes, to generate adequate employment for the hundreds of thousands of new entrants to the jobs market every month, and to enhance their employability, has bedevilled the Modi government.

Pushed on the defensive by lingering questions and taunts over the phenomenon of “jobless growth” in the formal sector, Prime Minister Narendra Modi resorted last fortnight to an artless articulation of ‘Pakodanomics’ — arguing, for instance, that a roadside seller of fritters was, in his own way, gainfully employed and ought to be reflected as such in employment statistics.

That remark came in for much searing criticism from the Opposition and economic commentators.

Subtle changes

Given that backdrop, there was heightened expectation that the Budget would squarely address the problem of employment generation.

What it offered, instead, was a smattering of micro-proposals that addressed the issue on the margins, whose cumulative effect is somewhat difficult to fathom.

In his Budget speech, Finance Minister Arun Jaitley cited an “independent study” to advance the claim that the string of policy measures announced over the past three years would generate 70 lakh formal jobs this year.

That academic study by Pulak Ghosh, at IIM-Bangalore, and Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, was based on data from the Employees Provident Fund Organisation (EPFO), and amplified by subsequent newspaper articles in which the authors claimed that India creates more formal jobs (70 lakh) than the number of skilled workers entering the workforce every year (66 lakh).

Among the proposals that Jaitley cited were government contribution to the EPF in respect of new employees for three years; additional deduction provided to employers for up to 30 per cent of wages paid to new employees; and, introduction of fixed-term employment in the apparel and footwear sectors.

The increase in paid maternity leave from 12 weeks to 36 weeks, along with provision for creches in workplaces, had also provided the incentive for more women to take up employment in the formal sector, he noted.

He then expanded the scheme under which the government would contribute 12 per cent to the EPF of new employees to all sectors for three years. Likewise, the facility of fixed-term employment has been extended to all sectors.

From all available evidence, the introduction of fixed-term employment has had the effect of doing away with ideologically-driven rigidity in labour markets, and has — somewhat counter-intuitively — enhanced employment generation. The experience of job generation in the apparel sector, in particular, has been commendable.

Similarly, to provide additional incentives for women to take up employment in the formal sector, Jaitley said he was tweaking the EPF rules to lower women employees’ contribution to 8 per cent for the first three years of their employment, against the current 12 per cent (or 10 per cent). This will, he said, enhance the take-home wages of the women employees, but it comes at a cost to their savings for retirement, which is what EPF contributions are intended for.

Emphasis on social sector

In fact, the Economic Survey had cited enterprise-based GST data and statistics in respect of contributions to the EPF and the Employees State Insurance Scheme to make the somewhat striking claim that formal non-farm payroll in India is considerably higher than earlier estimates.

It is, perhaps, this consideration that allowed the government to address the issue of job generation on the margins, rather than squarely, and devote a greater part of the emphasis in this year’s Budget document to its social sectoral allocations.

Published on February 02, 2018
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