Watch: Budget 2024 | What is in store for labour?

In her seventh budget speech, Finance Minister Nirmala Sitharaman announced three new employee-linked incentive schemes in the Union Budget for 2024-25. The three schemes, which are part of the Prime Minister’s package, will align with enrolment in the Employee Provident Fund Organisation and focus on the recognition of first-time employees, as well as support to both employers and employees.

The schemes will facilitate employment, skilling and other opportunities for 4.1 crore youth over a five-year period with a central outlay of ₹ 2 lakh crore. The Centre will provide ‘Employment Linked Incentives’ to employers based on enrolment in the Employees Provident Fund Organisation. One of the major proposal among this is to provide internship opportunities in 500 top companies to one crore youth for 12 months.

Students will get an internship allowance of ₹ 5,000 per month along with a one-time assistance of ₹ 6,000. Companies will have to bear the training cost and 10 per cent of the internship cost from their CSR funds. Many have interpreted this as the next Agniveer scheme given the casual nature of this scheme. Trade unions also seem to be not happy with the budget as their long pending demand of restoration of Old Pension Scheme is ignored this time too.

KOCHI, Kerala, 27/01/2023 : Job seekers attend a job fair. File
| Photo Credit: Thulasi Kakkat

The economic loss, particularly to India’s informal sector owing to the cumulative impact of macroeconomic shocks since 2016, including the demonetisation of high-value currency notes, the rollout of the Goods and Services Tax (GST) and the COVID-19 pandemic, is estimated at 4.3% of India’s GDP in 2022-23 or ₹11.3 lakh crore, India Ratings and Research said on Tuesday.

Noting that the sector was “severely impacted” by recent macroeconomic shocks, India Ratings’ principal economist Sunil Kumar Sinha estimated that 63 lakh informal enterprises shut down between 2015-16 and 2022-23, with about 1.6 crore jobs lost. “This period also coincided with the rise in the formalisation of the economy, which has led to robust tax collections. While formalisation of the economy is the way forward, the reduced unorganised sector footprint has implications for employment generation,” Mr. Sinha said.

In 2022-23, the Gross-Value Added (GVA) in the economy by such unincorporated enterprises was still 1.6% below 2015-16 levels. Moreover, their compounded annual growth rate (CAGR) was 7.4% between 2010-11 and 2015-16, but slipped into a 0.2% contraction since then, the rating firm reckoned based on the recently released findings of the government’s Annual Survey of Unincorporated Sector Enterprises (ASUSE).

As per the survey, the number of establishments in the non-agricultural sector increased to 6.5 crore in 2022-23 from 5.97 crore in 2021-22, with employment rising to 10.96 crore from 9.79 crore workers. However, this was lower than the 11.13 crore people employed in the sector in the ‘pre-shock period’ of 2015-16. This was primarily due to a decline in manufacturing jobs which stood at 3.06 crore in 2022-23, compared with 3.6 crore in 2015-16.

The latest data suggests that the real GVA of unincorporated firms in manufacturing, trade and other services (MTO) was ₹9.51 lakh crore in 2022-23, with an 18.2% share in India’s real MTO GVA, falling sharply from 25.7% in 2015-16.

“The shrinkage has been sharper in other services and trade, with the informal sector’s share dropped to 32.3% and 21.2% in 2022-23 from the pre-shock level of 46.9% and 34.3%, respectively. In the manufacturing sector, the share of the informal sector fell to 10.2%, from 12.5% during the same period,” the firm said in its report.

Had the macro shocks not taken place during the post 2015-16 period and the growth in these enterprises followed the pattern between 2010-11 and 2015-16, the total number of such firms would have reached 7.14 crore in 2022-23, with the number of workers employed rising to 12.53 crore, India Ratings concluded.

The unorganised sector contributes over 44% to the country’s GVA and employs nearly 75% of the work force employed in non-agricultural enterprises, as per the 2022-23 Periodic Labour Force Survey.

The size of unincorporated sector enterprises (USE) was ₹15.4 lakh crore in 2022-23, growing at a CAGR of 4.3% between 2015-16 and 2022-23l, compared with a CAGR of 12.9% recorded between 2010-11 and 2015-16. “Had the pace of growth of USE remained at 12.9% during 2015-16 to 2022-23, their size in 2022-23 would have been ₹26.9 lakh crore,” India Ratings explained.

Former NITI Aayog Vice Chairman Rajiv Kumar. File
| Photo Credit: BIJOY GHOSH

Prime Minister Narendra Modi led-NDA government in its third term must tackle the problem of unemployment in India, especially in the unorganised sector and in small and medium enterprises, former NITI Aayog Vice Chairman Rajiv Kumar said on June 10.

Mr. Kumar also emphasised that the government now must finalise the four labour codes as it has been delayed beyond expectations.

“We must recognise that post-Covid economic recovery has been a K-shaped recovery. I think the most important reform that the Modi government must take is to tackle the unemployment problem, especially in the unorganised and the small and medium enterprises,” he told PTI in an interview.

According to a recent International Labour Organisation (ILO) report, the share of unemployed youths in India’s total unemployed population was nearly 83% in 2022. “The large corporations have done very well and those who are highly skilled have done well. But at the lower end, people are without jobs and firms are struggling to expand their capacity,” the eminent economist said.

According to Mr. Kumar, an important way to generate employment is to reduce the regulatory and compliance burden that SMEs face. “So they have to be tackled along with the State governments,” he said.

He said that the four labour codes need to be finalised and made into statutes.

‘Expand apprenticeship programmes’

Mr. Kumar stressed the need to give more attention to the skilling of youth, especially to apprenticeship development, saying schooling and the education system in India are lagging behind in this regard.

“Our apprenticeship programme needs a far bigger push than we have now and access to quality education should be ensured because ultimately, these are the factors which will determine the employability and employment generation potential for our economy,” he noted.

Coalition dharma and economic reforms

Responding to a question regarding the future of the government’s disinvestment programme, Mr. Kumar noted disinvestment has taken a backseat over the past five years. He pointed out that targets of non-tax revenue and non-tax capital revenue have not been huge in the successive budgets in the last five years, except one year when Air India was privatised. I am not sure at all that the coalition dharma will be the cause for pushing this (disinvestment) in the background,” he said.

The former NITI Aayog Vice Chairman emphasised that privatisation and generating revenues from it to reduce India’s public debt-to-GDP burden is a necessary and important reform measure that should be taken. “Also, to improve the efficiency of the public sector enterprises, especially the public sector banks, where I had advocated very strongly the privatisation of most public sector banks, except the State Bank of India,” he said.

On a question concerning the correlation between coalition governments and economic reforms, Mr. Kumar said the coalition governments have been far better in generating reforms.

He said being a coalition government, one should not believe that there will not be any reforms and they will be only populism. “I think all the three parties (BJP, TDP and JDU) who are coming together are pro-reform parties. And therefore, the pace reforms can and perhaps will continue, as in the last 10 years,” he said.

Kishore Jayaraman, president of Rolls-Royce, India and South Asia, spoke at a session on “Smart Manufacturing” organised by TexasVentures and CODISSIA in Coimbatore city on Friday June 7, 2024.
| Photo Credit: PERIASAMY M

Creation of jobs is key for advancement of the country, said Kishore Jayaraman, president of Rolls-Royce, India and South Asia, in Coimbatore city on Friday.

Speaking at the Global Manufacturing Cluster Vision 2030 conference on Smart Manufacturing, organised by Texas Ventures and CODISSIA as a part of the Intec 2024 industrial fair, Mr. Jayaraman said India has the brainpower and skills. Jobs should be created for these skilled people. The Micro, Small and Medium-scale Enterprises (MSMEs) need to scale up and generate jobs. Industries scaling up capacities is vital for India and job creation is key to advancement. The MSMEs are significant players to generate jobs.

Most of the western world wants to come to India to set up manufacturing capacities because of the skill capability available in the country. Significant number of jobs will be generated when a number of factories grow at the same time, he added.

Mr. Jayaraman pointed out that Coimbatore has some of the well-known large-scale companies that are present here for decades, over two lakh MSMEs, more than 75 engineering colleges, and ₹1.25 lakh crores worth manufacturing annually with ₹45,000 crores worth exports. It has engineering capability, skills, and the ability to scale up. But, it should also be able to talk loudly about its successes, he added.

K. Balasubramanian, chairman of Precision Group of Companies, spoke about the need for inventory management in companies. Sathiya Seelan, vice president – design styling of Ashok Leyland, highlighted the need for particularizing for a stable economy.

Subathra Mylsamy, partner of AK Mylsamy & Associates, and M. Thirumalai Kumar, head of Research Group, Autonomous Systems & Control – India, were the other speakers.

Since 2017, the Indian government has been using the Employees Provident Fund (EPF) scheme’s data as a measure of payroll employment and formal job creation in the country. The monthly data released as part of this initiative has generally shown net increases in the number of contributors and this has been portrayed as evidence of employment creation in the country. However, this is in stark variance with ground reports of unemployment and a dearth of jobs from various parts of the country. So, how does one square these divergent narratives and understand what’s happening to formal jobs in the country? If we move past the basic scheme enrolment numbers, the EPF data, in fact, provide important insights into what’s happening to formal employment in the country. It also reveals why official claims of job creation based on EPF enrolment numbers can be misleading.

Unlike the EPF monthly enrolment data, which generally depicts increases in contributors, the EPF Organisation’s (EPFO) annual reports reveal that the number of regular contributors to the scheme has remained relatively stagnant or even declined in recent years, as shown in Chart 1. Regular contributors to the EPF scheme are those enrolled employees whose PF contributions are made on a regular basis during the year. This is in contrast to those employees who are merely enrolled into the scheme at some point, but whose contributions are irregular or stop shortly after.

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Between 2012 and 2022, the number of regular contributors to the EPF increased from 30.9 million to 46.3 million. A significant increase occurred in 2016-17, when the Indian government encouraged firms with private PFs to join the government’s EPF and introduced other incentive schemes that paid the employer’s share of PF contributions. However, in the past five years, when the effects of such incentives and firm enrolments somewhat stabilised, growth in regular contributors slowed down significantly. Between 2017 and 2022, the number of regular contributors increased only from 45.11 million to 46.33 million. Strikingly, this occurred during a time when overall enrolments in the EPF increased from 210.8 million to 277.4 million as shown in Chart 2.

In other words, though the total number of EPF enrolments increased by around 67 million, the corresponding increase in regular contributors within that was only 1.2 million. The number of people enrolled in the EPF can generally be expected to be higher than regular contributors due to issues of duplication and old membership data, but it is concerning that in recent years, the gap between them has been noticeably widening. If the EPF data are to be considered as an indication of formal employment, then there appears to have been a net creation of only 1.2 million formal jobs in the past five years. For perspective, at current participation rates, there were an estimated 20-25 million new entrants into the Indian labour market.

The divergence between EPF enrolments and regular contributors indicates that the majority of enrolments into the EPF are linked to jobs that are of a temporary, subcontracted or casual variety — where PF contributions are irregular or cease shortly. Thus, though the Indian economy appears to be creating jobs – these are not formal, regular well-paid jobs that can provide good quality, long-term employment.

The EPF numbers are broadly in line with longer employment trends of the country, thus indicating that formal employment in India has become increasingly standardised in terms of EPF enrolment, rather than the creation of new formal jobs per se. With the government paying the employer’s share of PF contribution, smaller firms and employers have been enrolling their employees into the EPF scheme in order to avail of its benefits and reduce their wage expenditures. However, many of these incentives are applicable only to employees earning Rs 15,000 or less per month. Preliminary accounts suggest stagnation around this wage level, possibly or at least in part due to such schemes.

Middle-class’s woes

As India overtakes China as the most populous country in the world, it faces an increasingly educated and growing working-age population that requires good-quality employment. However, the relative absence of formal, well-paid, regular employment in the country is striking. This inhibits the expansion of its middle class — a factor that was central to China’s economic growth — but which has largely been missing in India. The lack of quality jobs in the Indian economy gets revealed in instances of large numbers of over-qualified youth applying for a few public or private sector job openings, showing a dissonance with claims of strong economic growth. Despite the Indian government’s outward rhetoric of a strong economy, there are indications that it is cognisant of the lack of job creation in the economy. This is revealed in its promotion of Rozgar Melas (employment fairs), public sector recruitment drives, factory incentives as well as attempts to internationalise skills transferability and worker mobility.

The stagnation in formal employment in India can be partially attributed to the pandemic. In fact, the number of EPF contributors declined (somewhat predictably) during the COVID pandemic. At the time, the EPFO used to publish information on regular contributors on a monthly basis. However, after the decline in EPF contributors was noticed by news media, the EPFO subsequently disputed its own numbers and stopped publishing this monthly data series altogether.

Unfortunately, over time the Indian government has neglected other sources of formal employment and labour data that could have been used to verify these numbers and trends. For instance, the employment market information collected by the Directorate General of Employment and Training (DGET) has not been published since 2013. The DGET data were historically the original source of formal sector payroll employment data in India (since the 1950s). The Reserve Bank of India utilised it as the main source for formal sector employment numbers and related calculations in the country. However, this data are no longer available, even to the country’s central bank.

The EPF scheme is potentially a good alternative source to gauge payroll employment, but it requires significant standardisation and de-duplication. Moreover, it should be recognised that a single data source is insufficient to understand formal employment and jobs in the country. Understanding and addressing issues of job creation or job quality cannot be achieved without a wide range of standardised, stable and publicly available labour statistics. Despite their importance, recent Indian governments have neglected several of the country’s labour and employment statistical sources leading to questionable decision-making, making national labour and employment policies appear inchoate, lacking both, clarity and direction.

Secki P. Jose teaches at the University of the West of England, Bristol, U.K.

Source: EPFO Annual reports

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