Union Finance Minister Nirmala Sitharaman with Deputy Managing Director of the International Monetary Fund Gita Gopinath, during a meeting, in New Delhi, on August 17, 2024.
| Photo Credit: PTI

India has been a laggard among G20 nations in terms of employment generation and the country needs to create an additional 148 million jobs by 2030 given the population growth, IMF’s First Deputy Managing Director Gita Gopinath said on Saturday (August 17, 2024).

India on an average grew at 6.6% for the decade starting 2010 but the employment rate was under 2%, she said at the Delhi School of Economics Diamond Jubilee event here.

So, India’s employment rate is much less when compared to other G20 nations, she said.

“If you look at India’s projections in terms of population growth, India will have to create anywhere between 60 million to 148 million additional jobs cumulatively between now and 2030… we are already in 2024, so in a short period of time we have to create a lot of jobs,” she said.

Given the scale of what is needed, it is going to require basic reforms including land reforms and implementation of labour codes.

To generate more jobs, she said, there is a need for an increase in private investment as it is not commensurate with 7% growth in GDP.

However, she said, public investment is going well but private investment has to improve.

She also said that India should revamp its education system so that it can improve the skill set of its workforce.

Besides, she said, there is a need to further ease of doing business, improve the regulatory environment and broaden the tax base.

‘India will need more reforms to stay on growth path’

India will need to undertake more reforms to be able to continue on the path of raising economic growth and to make sure that enough job creation happens in the country, Ms. Gopinath said.

Ms. Gopinath further said that India will be required to reduce import tariffs if it wants to be an important player in the global supply chains.

“The significant improvements have been made by the government over the years in terms structural reforms.” While noting that the world is in an environment where trade integration has been questioned, Gopinath said it is important for India to remain open for global trade.

“Tariff rates in India are higher than in its other peer economies. If it wants to be an important player on the world stage and an important part of global supply chains, it is going to require reducing those tariffs,” the eminent economist said.

Gopinath said it is a tremendous aspiration to get to a developed country status but it does not happen automatically, and requires ongoing, consistent efforts, pretty broad scale, across many areas to deliver on that.

“India has grown well in terms of its overall growth rate, and at 7%, it is the fastest growing major economy in the world.

“The question is, how does one keep up the momentum and raise it further so that you can increase per capita incomes in India to get to being an advanced economy,” she said.

Responding to a question on taxation, she said India has parallels with other developing countries, where most of the tax revenue that is collected is indirect taxes and not direct taxes, not in form of income taxes.

“We have been advising other developing countries too, that it is helpful to broaden the personal income tax base and so that you can have more income coming from there,” she said.

Referring to the cut in corporate tax rate by the Modi government, Ms. Gopinath said although it was helpful it is less the tax rate that matters, but what matters is just making sure that there are no loopholes and there are not too many leakages that happen in terms of tax exemptions.

“It is very important to have sufficient progressivity in your tax system…making sure that you are (India) getting enough from your capital gains tax from your capital income tax is going to be critical,” she said.

Gopinath also suggested that now there is better technology to implement property tax and this is again another area where work is needed.

The story so far: The Union Budget for 2024-25 made it clear that employment was a major priority of the government, with the word getting 23 mentions in the Finance Minister’s speech. With many voters expressing their disenchantment with rising unemployment in the recent election, Prime Minister Narendra Modi has lent his title to a package of schemes on employment.

What is the current state of employment?

According to the Economic Survey, India’s workforce was estimated to be nearly 56.5 crore in 2022-23, of which more than 45% is employed in agriculture, 11.4% in manufacturing, 28.9% in services, and 13% in construction. Officially, the unemployment rate was just 3.2% in that period, but economists note that these statistics do not reflect ground reality, given the large number of underemployed people in the country and the fact that many job seekers continue to work on farms or the unorganised retail sector or as casual labourers. A person is categorised as employed if he pursued any economic activity for at least 30 days in the preceding year.

Almost one in five people in the workforce (18.3%), mostly women, do not receive any wages for their labour, as they are unpaid workers in household enterprises. The urban unemployment rate for the quarter ending March 2024 stood at 6.7%, while youth unemployment stood at 10% in 2022-23. The percentage of people in regular salaried work has dropped from 22.8% in 2017-18 to 20.9% five years later, despite policy efforts to formalise the workforce; many salaried workers do not have access to contracts or social security benefits that usually define a formal worker. The government cites enrolment in the Employees Provident Fund Organisation (EPFO) as evidence of formalisation. The EPFO has 7.3 crore contributing subscribers, though total accounts are 30 crore, including inoperative accounts and multiple accounts held by individuals.

What were specific schemes in the package?

Three of the schemes provide employment-linked incentives. The first scheme is meant to support the hiring of first-time employees, with a wage subsidy of up to ₹15,000 paid to the employee, and is expected to cover one crore people. The second is aimed at the hiring of first-time employees, specifically in the manufacturing sector, with wage subsidies to be paid to both employees and employers for four years, with a maximum incentive of 24% of a ₹25,000 monthly wage. The third supports employers who hire new workers, not necessarily first-timers, by reimbursing up to ₹3,000 of their monthly EPFO contribution. In fact, all three schemes are dependent on employees being registered with the EPFO. The fourth scheme aims to upgrade Industrial Training Institutes and boost skilling efforts, with 20 lakh students expected to benefit. The final scheme, which garnered headlines partly because of its similarities to a proposal in the Congress’s manifesto, is aimed at on-the-job skilling, with an ambitious target of one crore youth to be given internships in India’s top companies with a monthly allowance of ₹5,000 for one year, with the companies bearing training costs and 10% of the allowance.

What is in the fine print?

Economists and small industrialists say the conditions and procedures built into these schemes may create obstacles for effective implementation. For instance, the incentive scheme for first-time employees, which offers a ₹15,000 subsidy is paid out in three instalments; the second instalment is only payable if the employee undergoes a compulsory online financial literacy course. “This is impractical. Why should employees in every unrelated sector be expected to do this? And why should this be a condition for this incentive?” asks Himanshu, who teaches at Centre for Economic Studies and Planning, Jawaharlal Nehru University (JNU).

More worrying is the clause stating that the subsidy is “to be refunded by the employer if the employment to the first timer ends within 12 months of recruitment.” If the employee switches jobs in 10 months, he has already received the benefit of the scheme, but the employer is required to bear the costs; labour experts say few small employers will be willing to take that risk. The scheme for creating jobs in manufacturing has a minimum requirement of hiring 50 people or 25% of their existing strength, which is a significant number of people to be hired at one go for any firm in return for marginal benefits.

How effective are these schemes likely to be?

These schemes essentially attempt to encourage hiring by reducing the cost of new hires. However, economists note that this is not the main constraint preventing employers from hiring new workers. Anamitra Roychowdhury, a labour economist at JNU, notes that India is already a low wage economy, with real monthly incomes falling over the last five years for the majority of the workforce. “Wage costs are a redundant constraint,” he says, adding that while skilling is certainly needed, it is not the central issue preventing hiring either.

“There is a bigger structural reason why the economy is not able to create jobs, and that is due to insufficient demand, caused by low consumption… and the lack of private investment. And if that comes up, then these costs won’t matter,” notes Amit Basole, professor at Azim Premji University. He adds that these schemes need to be pitched to the niche group of employers for whom such costs do matter, usually small firms with small margins. In fact, Finance Secretary T.V. Somanathan indicated in an interview with The Hindu that this may have been the government’s intention behind the scheme, noting that “fiscal incentives have a role at the margin”.

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With regard to formalisation of the workforce, Mr. Basole points out that apart from new people entering the workforce, there are also large numbers seeking to leave agriculture, petty trade, unorganised retail and domestic service. The need is to create formal jobs to keep up with the pace of the supply, which is not happening, as evidenced by the fact that the proportion of salaried workers has actually dropped slightly over the last five years.

What else is needed to create jobs?

“When we think of where we need to create jobs, it should not be in the top 500 companies which are largely capital intensive, but in the MSME (micro, small and medium enterprises) sector, in labour intensive sectors, in small towns. The need is to raise wages there, infuse money into MSMEs, which will have a multiplier effect,” says Mr. Himanshu, recommending a bottoms-up approach. If the urgent requirement is to stimulate demand by increasing consumption, another step could be to raise wages in MGNREGA, the rural jobs scheme, and create a similar employment guarantee scheme for urban workers, says Mr. Roychowdhury. “This would be the more direct approach to kickstart consumption,” he says, noting that the Centre has instead curbed MGNREGA funding.

The SLSWCC committee approved 26 projects involving more than ₹50 crore investment, totalling ₹5,750.73 crore. (representational image)

The State Level Single Window Clearance Committee (SLSWCC) on September 16 cleared 91 industrial investment proposals worth ₹7,659.52 crore with an employment generation potential of 18,146 within Karnataka.

The SLSWCC committee headed by Minister for Large and Medium Industries and Infrastructure Development M.B. Patil approved 26 projects involving more than ₹50 crore investment, totalling ₹5,750.73 crore. These alone have the potential to create 13,742 jobs.

Some of the top investors include Maruti Suzuki India, Aequs Consumer, South West Mining and Tata Semiconductor, and Krypton (India) Solutions Private Ltd. among others.

Of the total 91 proposals, about 57 investment projects were between ₹15 crore to ₹50 crore totaling ₹1,144.94 crore, promising employment generation potential of 4,404. Eight projects with an additional investment of ₹763.85 crore were also approved by the committee.

Some of thr major investment/project proposals approved include Pratibha Patil Sugar Industries, in Kannur Village, Vijayapur District with an investment of ₹489.50 crore, Gurudee BioRefineries & Allied Industries Private Limited at Tadavalaga, Vijayapura District with an investment outlay of ₹488.49 crore and Devashree Ispat Private Limited, at Halwarti Village, in Koppal which involves an investment of ₹470 crore.

Principal Secretary of Commerce and Industries S. Selvakumar, Commissioner for Industrial Development Gunjan Krishna, Secretary of Department of Labour Mohammad Mohsin were party of the meeting.