The imprint of the shock upset in the recently concluded election is all over the budget. There is, of course, the largesse to BJP’s key alliance partners in Andhra Pradesh and Bihar, but another aspect is the overt focus on creating jobs for youth. This marks a notable departure from before. In fact, a review of the three previous budgets shows no such focus on direct employment generation. Instead, all references to youth, employment, and skilling appear rhetorically as byproduct outcomes of other initiatives, largely investment in infrastructure. Evidently, the government has taken on board people’s disenchantment with its capital-led skewed growth model and is trying to make amends. This is a positive development and one expected in a democracy.
The government’s approach to generating employment has three main prongs: first, limited financial support to the employee and employer to encourage hiring (mostly) first-time employees and incentivise additional employment; second, upgrading ITIs for more industry-ready skilling; and finally, almost wholly underwriting 1 crore internships in the top 500 companies. Since the issue of employment is so central to our country’s progress and harmony, a deeper look at these interventions is required.
Also read: Ten-Year Record on Employment: Does the Reality Match the Promises or Claims?
Employment-linked incentives
The focus on employment-linked incentives, tied to EPFO enrollment, is a good way to encourage formal sector job creation. Furthermore, supporting both first-time employees and their employers may make it more attractive to hire new workers. However, since the bulk of the subsidies are exclusively for first-time employment, it is important to ensure that it doesn’t lead to firms substituting existing workers with new ones to avail of the incentives.
Upgrading and reorienting ITIs and skilling initiatives to “align with industry” has been repeated ad nauseam over the years, and it is a no-brainer. The real issue, of course, is implementation. There have been numerous reports and committees recommending reforms but the stigma associated with vocational education remains a significant hurdle, as does the lack of a clear progression from vocational training to employment and future growth.
The government’s ambitious internship programme too needs more thought. First, the numbers don’t seem to add up – especially for a scheme which is meant to be voluntary. The government has said that one crore internships will be facilitated in the top 500 companies over a period of five years. This translates into 4,000 interns per company per year, which will impose significant infrastructural requirements on the host companies. Moreover, it is not clear that the target set of host companies have the full-time employee base required to provide meaningful mentorship and learning opportunities to such a large number of interns. It is evident that the government would need a more expansive list of companies to support the sheer logistics of the internship programme.
Photo: Clem Onojeghuo/Unsplash
The second area of concern is that the companies are not required to hire any of the interns after completing the one-year internship. With the government largely underwriting the entire exercise and allowing the companies to use their CSR funds, it is not clear that the companies would take this exercise seriously unless there are some kind of benchmarks, such as hiring a certain percentage of graduating interns.
In addition, the internship has extensive exclusionary criteria, such as making ineligible those candidates with even one family member who is an income tax assessee or government employee. This criterion is too exclusionary. It also makes the scheme cumbersome to implement and may lead to unnecessary paperwork and verification processes. The list of exclusions could be limited to class A and B government employees and those with income above Rs 8 lakh (as defined for EWS eligibility). Moreover, the government should consider focusing on supporting marginalised communities and regions. This would align the scheme with the broader goal of promoting social equity and inclusion.
Finally, the stipend of Rs 5,000 per month may be too low for one year given the background of the targeted youth, especially without a clear incentive of at least a fixed percentage of interns getting hired full-time.
This leads us to the real challenge of employment in India. The core issue is that there are simply not enough good-quality jobs. If there were, large companies would not need to be incentivised through subsidies; they would have hired on their own and even conducted in-house training. This was evident in the IT services sector where companies ran extensive in-house training on large campuses.
The MSME sector can benefit from wage subsidies; however, the challenge there is often the mismatch between what our young aspire to and the kind of jobs available. This is why over 40% of graduates under 25 were unemployed as per the State of Working India 2023 report. This is also borne out by conversations with MSME heads who complain that (ITI) graduates are disinclined to work in their establishments.
A paradigm shift needed
It is evident that these sorts of direct interventions can only go so far in the absence of a larger paradigm shift in how the government governs. It has been repeatedly argued that the private sector remains hesitant to invest and expand production capacity – thus creating jobs – due to the twin concerns of an unfavorable regulatory environment and lack of a large domestic consuming class.
Knee-jerk policy announcements, agency raids, and headline-making GST notices disincentivise investment. Unlike services, expanding manufacturing capacity (which is where most of the jobs will come from) requires a level and type of investment which is not easy to unwind in the face of policy pivots or predatory action by the government.
The government must thus signal a commitment to policy stability as well as the rule of law, including for its own agencies. If Taiwan can be promised policy stability for the semiconductor industry, so can the rest of the country. Similarly, reviving consumption would require the government to change its Big Capital-led growth and trickle-down model to more direct ways of enhancing incomes at lower levels. This could include investments in social infrastructure, increased investments in the rural economy, rationalising personal income taxes to address the anomaly where personal income taxes now exceed corporate income tax.
The main takeaway is that meaningfully expanding employment opportunities cannot be divorced from the larger growth model and governance of the economy. The question remains, can the government change its basic governance style? If yes, that will be both good economics and good politics.
This article first appeared on the author’s blog, India: Politics, Power & Public Discourse.
