Helping job-holders fund the jobless

TS Gopalan | Updated on September 24, 2020

A state-run fund should collect small sums from those in well-paid jobs, which can be transferred to the unemployed

Owing to the impact of Covid-19 on society, there is a grave apprehension that when normalcy is restored, there will be a substantial reduction in manpower requirement which will directly affect the migrant labour and workforce at the bottom line. So, apart from tackling the adverse impact of Covid, employment opportunities should be constantly augmented to arrest the job losses and tocreate opportunities for more fresh employment.

Employment opportunities in the organised sector and in public sector establishments are limited. Among them, for those who are income tax assesses, the same are even more limited. Further, those who secured employment by reason of communal reservation are actually privileged. They owe an obligation to the millions of unemployed youth in the country. The first category can contribute 1 per cent of its salary; the second 2 per cent; and the third category 3 per cent of their salary.

To this, the government should make a matching contribution, apart from utilising the funds under the Mahatma Gandhi National Rural Employment Scheme and the amounts to be spent as part of corporate social responsibility should be added. The fund should be placed at the disposal of a public sector registered society, which should be entrusted with the task of disbursing subsidies to the employers in their future recruitment.

A plan for employment

Preamble: The Indian economy faces a severe crisis because there is a lag in the market potential for goods. Buying power depends on more families with at least moderate incomes. One approach to boost buying potential is to decrease unemployment and increase earned wages. While the private sector has always been the driver of job growth, the government, too, must consider innovative strategies for job creation.

Here’s a model that envisions a government-administered cash subsidy to motivate corporate/private employers to hire new persons.

Rationale: Epidemics and technological revolutions are transformative not only in how societies function but in how they disrupt the job market: some jobs are rendered redundant while others are created anew.

Job security is not assured for anyone any more. It is now common for entire industries to disappear, compelling people to re-train and adapt themselves to the changing workforce needs.

Each country must, therefore, tailor safety nets to ensure that the lives of its citizenry likely to be upended every generation, does not engender waves of unemployment and uncertain futures.

One strategy is to design a job-creation subsidy fund that will perpetually sustain the engine of economic growth. The government must commit funds for this initiative. However, the burden is on all salaried employees to contribute a share of their income to this fund to protect their future and to ensure national well-being.

Fund: A Government of India Corporation should be formed to collect contributions and to disburse subsidies (Disbursement of Subsidy for Employment, DOSE). Initial funds for DOSE BHARAT will be through an en masse transfer of the Annual Budget for MGNREGA.

All salaried employees, who are income tax assesses, will be mandated to contribute 5 per cent of their taxable income to DOSE BHARAT. Likewise, government pensioners, but at 10 per cent of their pension.

An amount equivalent to the contribution made by government employees should be matched by the government.

Companies that have to make a provision for Corporate Social Responsibility should also be major contributors to DOSE (the formula can be worked out). Everyone with a stable income must contribute to a pool that strengthens national security through job creation. While the idea of matching funds has found great allure in charitable giving in India and abroad, its relevance in activities geared for public good has equal appeal and warrants serious consideration.

Subsidy: This proposal’s mainstay is to design a stimulus package that is partly self-sustaining. Briefly, employers should get a subsidy for the wages they pay their employees, albeit using a scale that is based on their number of employees (see chart).

The benefit of the subsidy will not be applicable to government undertakings. The subsidy should be made available to the unorganised service sector, including individuals who employ domestic help or geriatric-care personnel.

Beneficiaries and guidelines: The employers who enrol themselves upon payment of a modest amount of subscription to become member of DOSE BHARAT can make a claim for incentive on employment of persons. This enrolment cost will be used to offset administrative expenses.

Of course, DOSE BHARAT itself will be able to provide employment to many. Every fiscal plan must have adequate checks and balances built in. Some considerations in this regard.

Foremost, the subsidy claim must be filed by the employer, a DOSE BHARAT member. The employer should be a tax assessee and ensure that all employees follow KYC norms, there is adequate proof for disbursement of wages, and that all payments are made online to accounts.

Employers must inform DOSE of the identity (for example, Aadhaar), age (18-60 years), emoluments, etc. of all new hires to ensure that the bona fides of each employee and his/her wages can be verified. Each employee should be getting a remuneration consisting of basic wages and allowances (including contribution to PF and ESI, but excluding bonus, gratuity, leave benefits or perquisites, concessions and privileges) not less than ₹2.5 lakh and not exceeding ₹5 lakh per year.

The idea is for these employees to become tax assessees such that a part of their income will recycle back as income tax (and, of course, GST, depending on their spending). The above plan will not be applicable to those who are already on payrolls.

As reimbursement strategy, each employer must first file with DOSE the details of the new hires including the intended salary. The employer is then expected to pay the entire wage, and retroactively claim the subsidy from DOSE as an annual refund. The employee should be spared all paperwork other than his/her own tax filing.

Envoi: The livelihood of all citizens must always be at the forefront of all public finance initiatives, but the moral obligation of the “haves” to the “have nots” is inescapable. The roadmap, presented here reflects this fact. Economists and tax advisers to the government should fine-tune this framework if they consider the plan viable based on data.

The writer is Founding partner, TS Gopalan & Co.

Published on September 24, 2020

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