The first Budget of the third Narendra Modi government has proposed taking a prioritised approach in the fields of employment and skilling. The Union Budget has proposed five schemes with an outlay of Rs 2 lakh crore to generate jobs for the youth. This is what we are told by newspapers; it is possible that the total amount that may be spent in five years amount to that sum. On that, we shall see.
The schemes related to the Employees’ Provident Fund Organisation are merely to support formalisation, not new jobs. Government economists will not tell you this basic fact. There has been a rising number of contract workers in the organised sector: if they are begun to be shown in the employers’ payroll for regular workers, then their EPFO costs will be – for a limited period – be borne by the government. This is unlikely to create new jobs. This is not stated, but it is the reality.
The reader can assess by reading the FM’s scheme text below:
“Our government will implement following 3 schemes for ‘Employment Linked Incentive’, as part of the Prime Minister’s package. These will be based on enrolment in the EPFO, and focus on recognition of first-time employees, and support to employees and employers.”
Scheme A: First timers
This scheme will provide one-month wage to all persons newly entering the workforce in all formal sectors. The direct benefit transfer of one-month salary in three instalments to first-time employees, as registered under the EPFO, will be up to Rs 15,000. The eligibility limit will be a salary of Rs 1 lakh per month. The scheme is expected to benefit 210 lakh youth.
How many it will actually benefit remains to be seen.
Scheme B: Job creation in manufacturing
This scheme will incentivise additional employment in the manufacturing sector, linked to the employment of first-time employees. An incentive will be provided at specialised scale directly both to the employee and the employer with respect to their EPFO contribution in the first 4 years of employment. The scheme is expected to benefit 30 lakh youth entering employment, and their employers.
Scheme C: Support to employers
This employer-focussed scheme will cover additional employment in all sectors. All additional employment within a salary of Rs 1 lakh per month will be counted. The government will reimburse to employers up to Rs 3,000 per month for two years towards their EPFO contribution for each additional employee. The scheme is expected to incentivise additional employment of 50 lakh persons.
Also read: The Deep Crisis in the Informal Sector Is Still Keeping the Lid on Real Wages
Participation of women in the workforce
They also claim that they will facilitate higher participation of women in the workforce through setting up of working women hostels in collaboration with industry, and by establishing creches. In addition, the partnership will seek to organise women-specific skilling programmes, and promotion of market access for women Self-Help Group enterprises.
However, if that is all they plan to do for promoting women’s work, then the women of India, who are getting much better educated than 15 years ago, will continue to remain excluded. This is minimalist approach to promoting female Labour Force Participation Rate. India’s women deserve better.
Skilling programme
The FM announced a new centrally sponsored scheme for skilling in collaboration with state governments and industry. Twenty lakh youth will be skilled over a five-year period. A thousand Industrial Training Institutes will be upgraded. Course content and design will be aligned to the skill needs of industry, and new courses will be introduced for emerging needs.
There is nothing new about this kind of effort. It has been tried before. Let us remember that there are over 2,500 public sector ITI and another 12,000 private ones. Upgrading 1,000 of about 15,000 is a drop in the ocean. More importantly, upgrading alone is not good enough. The foundational problem with India’s skill development programmes for 15 years has been that they have been government driven, and government financed and managed. They have very little industry engagement. We wait to see what form industry engagement takes this time around. Under UPA too, Industrial Management Committees were created across some reformed ITI in public sector, with little to show for it.
Skilling loans
The Model Skill Loan Scheme will be revised to facilitate loans up to Rs 7.5 lakh with a guarantee from a government promoted fund. This measure is expected to help 25,000 students every year, according to the finance minister. This is merely part of the effort to increase student loans. For helping our youth who have not been eligible for any benefit under government schemes and policies, the finance minister has announced support for loans upto Rs 10 lakh for higher education. E-vouchers for this purpose will be given directly to one lakh students every year for annual interest subvention of 3% of the loan amount.
The foundational problem with India’s skill development strategy, regardless of regime, and regardless of the five pillars that form that strategy, is that they are supply driven, and not demand driven. The countries that have run successful skill development programmes (German, China, South Korea, and Singapore) all have very demand driven, as they are industry driven, programmes. Industry also tends to finance most of that effort, as they are the ultimate beneficiaries of the outcome. Unless India’s efforts become demand-driven they are unlikely to be show much improvement, in either quantitative or qualitative terms. The reasons are straightforward.
MSME support
The EPFO schemes for job creation are all for the organised sector, and that too for formalisation of existing jobs. There is a new welcome focus in the budget on MSMEs, that could, however, actually create jobs.
This budget provides special attention to MSMEs and manufacturing, particularly labour-intensive manufacturing. It claims to have formulated a package covering financing, regulatory changes and technology support for MSMEs to help them grow and also compete globally, as mentioned in the interim budget.
The FM announced the following specific measures.
Credit guarantee scheme for MSMEs in the manufacturing sector
For facilitating term loans to MSMEs for purchase of machinery and equipment without collateral or third-party guarantee, a credit guarantee scheme will be introduced. The scheme will operate on pooling of credit risks of such MSMEs. A separately constituted self-financing guarantee fund will provide, to each applicant, guarantee cover up to Rs 100 crore, while the loan amount may be larger. The borrower will have to provide an upfront guarantee fee and an annual guarantee fee on the reducing loan balance.
New assessment model for MSME credit
Public sector banks will build their in-house capability to assess MSMEs for credit, instead of relying on external assessment. They will also take a lead in developing or getting developed a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy.This is expected to be a significant improvement over the traditional assessment of credit eligibility based only on asset or turnover criteria. That will also cover MSMEs without a formal accounting system.
Credit support to MSMEs during stress period
The finance minister also announced a new mechanism for facilitating continuation of bank credit to MSMEs during their stress period. While being in the ‘special mention account’ (SMA) stage for reasons beyond their control, MSMEs need credit to continue their business and to avoid getting into the NPA stage. Credit availability will be supported through a guarantee from a government promoted fund.
Mudra loans
The limit of Mudra loans will be enhanced to Rs 20 lakh from the current Rs 10 lakh for those entrepreneurs who have availed and successfully repaid previous loans under the ‘Tarun’ category.
It is another matter that the Mudra loans have created only poor quality jobs, if any. The number and share of self employed in the workforce has grown in the last six years from 52 to 57%; this is the worst form of employment, with the lowest level of earnings, according to PLFS data. The majority of loans are in the ‘less than Rs 50,000’ category, and in fact, the average loan size here is only Rs 27,000; not much employment can be created from it.
Enhanced scope for mandatory onboarding in TReDs
For facilitating MSMEs to unlock their working capital by converting their trade receivables into cash, she proposed to reduce the turnover threshold of buyers for mandatory onboarding on the TReDS platform from Rs 500 crore to Rs 250 crore. This measure will bring 22 more Central Public Sector Enterprises and 7,000 more companies onto the platform. Medium enterprises will also be included in the scope of the suppliers.
SIDBI branches in MSME cluster
SIDBI will open new branches to expand its reach to serve all major MSME clusters within three years, and provide direct credit to them. With the opening of 24 such branches this year, the service coverage will expand to 168 out of 242 major clusters.
MSME units for food irradiation, quality and safety testing
Financial support for setting up of 50 multi-product food irradiation units in the MSME sector will be provided. Setting up of 100 food quality and safety testing labs with NABL accreditation will be facilitated.
E-Commerce export hubs
To enable MSMEs and traditional artisans to sell their products in international markets, e-commerce export hubs will be set up in public-private-partnership (PPP) mode. These hubs, under a seamless regulatory and logistic framework, will facilitate trade and export related services under one roof.
Measures for promotion of manufacturing and services: Internship in top companies
As part of the Prime Minister’s package, government will launch a comprehensive scheme for providing internship opportunities in 500 top companies to 1 crore youth in five years. They will gain exposure for 12 months to real-life business environment, varied professions and employment opportunities. An internship allowance of Rs 5,000 per month along with a one-time assistance of Rs 6,000 will be provided. Companies will be expected to bear the training cost and 10 per cent of the internship cost from their CSR funds.
This is by far the least likely to succeed. Large companies in the private sector have been unwilling to take apprentices. When they have not been hiring workers in the recent past, it is a bit unlikely that they can now be merely exhorted to take on interns (another name for apprentices) only because the government is offering them a stipend. Most large companies do not have the physical or human resource infrastructure to undertake training; setting those up itself will cost money, and it is not clear why they will do that. We will wait to see how they respond.
Santosh Mehrotra is an independent economist.
