The fall in the number of seats the Bharatiya Janata Party (BJP) won in the recent elections has at least partly been attributed to the failure of its economic policy to respond to the challenge of unemployment. There was some expectation that the first budget of the new government would respond to this in some decisive manner. While there was a marked difference in the sense that the speech by the finance minister clearly posed unemployment as one of the biggest problems that the government was trying to address through the budget, the actual content does not show the kind of shift in priorities and policy outlook that the economy currently requires. The budget continues its emphasis on supply side measures with the hope that the private sector will respond with increased investment leading to greater employment opportunities.
A number of economists have been repeatedly pointing out that the problem facing the Indian economy is one of demand, particularly rural demand. Private consumption expenditure has not picked up sufficiently despite the ‘recovery’ post the pandemic, and even the pink papers have been raising this concern. It is not really puzzling that this is the case considering that real wages have been stagnant for most workers in the informal sector and even declining for some. The recent household consumption expenditure survey (HCES) as well the annual survey on unincorporated sector enterprises (ASUSE) also show low levels of consumption and earnings amongst the bottom deciles of the population. Obviously, poor consumption demand is a constraint to investment and growth.
The measures required to address this situation are in complete contrast to what the emphasis of Budget 2024 is. Reviving demand would require increasing the purchasing power of the majority of the population who have a high propensity to spend – these are largely people belonging to the working classes who earn their livelihoods through wage employment. A large proportion are also in self-employment, but these are more akin to wage work rather than entrepreneurship.
One way to achieve this could be to spend more on programmes such as the MG-NREGS which would create wage employment and also contribute to revival of rural demand. Increasing the wages given under the MG-NREGS to at least minimum wages levels (which are usually above the average market wages) could also contribute indirectly by putting upward pressure on market wages. Even filling up vacancies in government jobs and expanding government employment by hiring more teachers, nurses, anganwadi workers, ASHAs and so on would also help. Tax benefits targeted at those at the lower end of the tax-paying classes and also shifting the balance away from indirect taxes on mass consumption goods to direct taxes on the super-rich and big corporates would also be a measure in a similar direction.
Also read: The Deep Crisis in the Informal Sector Is Still Keeping the Lid on Real Wages
However, the current budget does the exact opposite. Spending on most social sector schemes that directly benefit the poor such as MGNREGS, the national social assistance programme (pensions for aged, single women and disabled) and so on are stagnant in nominal terms and reduced in real terms. As a percent of GDP and total expenditure of government, they have been constantly falling over the last ten years.
On the other hand, acknowledging the (political) need to respond to unemployment, a Prime Minister’s Package for Employment and Skilling has been announced which basically includes three employment-linked incentives (ELIs) schemes which are linked to EPFO enrolments and especially hiring of first-time employees with the government contributing to both employers and employees. The total central outlay for these three schemes over the next six years is projected to be ₹1,08,000 crores and from the budget speech it can be inferred that 2.9 crore people will benefit. In effect, the outlay per person per year is less than ₹8,000. It remains to be seen if that is an incentive enough for businesses to employ more workers in larger numbers than they normally would have. Probably, all this will do is increase the EPFO enrolments without actually increasing the number of jobs in the economy.
In terms of skilling, the main initiatives are upgradation of 1,000 ITIs and an internship scheme in the top 500 companies, with the government contributing to a stipend of ₹5,000 per month. The companies will be allowed to use their CSR funds towards supporting these interns. It is not clear what the obsession with the top 500 companies is or why they are indirectly being subsidised through this scheme. If the understanding is that a one-year internship in the top 500 companies guarantees a person a regular job, it is not clear what the basis is. On the other end, the MSMEs which are known to be more labour-intensive continue to get only some credit-incentives which are continuation of the policies over the last few years (covid relief and MUDRA) that have not delivered.
On the whole, the orientation of the government towards jobs is that employment generation is mainly the private sector’s problem. While it is indeed true that most jobs will have to be created in the private sector and that the government cannot absorb all or even the majority of those unemployed, it does not follow that there is no need for a government policy on employment. Rather than thinking about how it can intervene in the growth process to make it more employment intensive, this government only continues to support big corporates in the name of job creation. What we have as a result is a situation where the contribution of the corporate sector to direct tax revenue is now less than direct income tax, and the effective tax rate facing a company with profit of more than Rs 500 crore (~20%) is less than a company with profit in the range of Rs 1-5 crore (~25%). Although unequal growth is one of the main reasons for unemployment, government policy is perpetuating inequality rather than addressing it.
Dipa Sinha is a development economist.
