Employment Schemes Are Step In The Right Direction, But More Is Needed: Experts

A key focus area in the Union budget was to tackle India's challenge of creating enough jobs. While the employment-linked incentives announced might be a step in that direction, it remains to be seen if they are successful.

Along with fiscal consolidation and continuing capex, employment and skilling were evidently among the foremost focus areas of the government. Finance Minister Nirmala Sitharaman announced schemes and initiatives for education, employment and skilling to the tune of Rs 2 lakh crore over a five-year period for 4.1 crore youth.

The government's employment-linked incentives will be based on enrollment in the EPFO, focus on recognition of first-time employees, and support employees and employers. 

• The government announced that its direct benefit transfer of one month's salary in three installments to all first-time employees registered with the EPFO will be up to Rs 15,000. The eligibility limit will be a salary of Rs 1 lakh per month and the scheme is expected to benefit 2.1 crore individuals.

• In the manufacturing sector, an incentive will be provided at a specified scale directly, both to the employee and the employer, with respect to their EPFO contribution in the first four years of employment. The scheme is expected to benefit 30 lakh youth entering employment and their employers.

• For all additional employments within a salary of Rs 1 lakh per month, the government will reimburse employers by 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 for 50 lakh people. 

The government also announced skilling initiatives for 20 lakh youth over a five-year period and upgraded 1,000 Industrial Training Institutes, along with providing education and skilling loans.

"The fact that the government has announced this as a priority is an acknowledgement that there is slack in the labour market," Neelkanth Mishra, chief economist at Axis Bank Ltd., said in a conversation with NDTV Profit.

"In terms of the near-term impact, we will have to be reasonable about our expectations," said Mishra, who also heads the global research team at Axis Capital. However, he said that one aspect of the government over the past decade has been that it signals its approach and is then relentless in solving for it.

"If the informal economy is doing as badly as we suspect it is, some of the structural issues remain," said Amit Basole, professor of economics and head of the Centre for Sustainable Employment. Lacklustre private capex can continue to deter employment creation, he said.

However, the government has also announced its intent to deregulate and build infrastructure for MSMEs. Whether that will translate into job creation remains to be seen, said Basole.

At the central level, one option for the government is to try and create jobs themselves to significantly increase and expand employment, explained Mishra. However, that would mean a higher burden on the taxpayer and that option was likely considered and discarded.

The second option is to work with the private sector and make conditions conducive to greater macro-stability and future visibility, reducing compliance burdens, bringing down the cost of capital, etc. That is more sustainable and there appears to be an attempt to do that, Mishra said. Whether the government measures stimulate hiring in the private sector will have to be seen, said a note by Goldman Sachs.

"While we are encouraged by the budget's strong focus on productivity and job creation, some areas could benefit from further attention," said Sekhar Garisa, CEO at Foundit.

One key area is fostering public-private partnerships, he said. Encouraging collaboration between the government, private sector, and educational institutions can lead to more innovative and effective skilling programs, according to him. This collaboration is particularly important for bridging the gap between academic learning and industry requirements, especially in tier-2 cities where such integration can significantly impact local economies, Garisa said.

Additionally, strengthening digital infrastructure is crucial to support online learning and remote work. With 80% of employers now prioritising skills over degrees, continued focus and investment in these areas will be vital to fully realise the workforce's potential and meet the dynamic needs of the job market, he said.