Budget 2024: Govt seeks to boost job-creation through incentive schemes

The government is aiming to strengthen the ecosystem to create more employment; Image: Santosh Kumar/Hindustan Times via Getty Images

The government has, on Tuesday, gone full throttle in a bid to strengthen the ecosystem to create more employment, with incentives being provided to employers too. The need to boost employment, labour participation and skilling had become an electoral challenge, and a sensitive matter, for the government, which has been unsuccessful in creating more jobs and improving labour productivity.

Minister of Finance Nirmala Sitharaman announced a three-pronged strategy to boost job creation. The first is to provide one-month wages to all persons newly entering the workforce in all formal sectors. The direct benefit transfer of one-month salary in 3 instalments to first-time employees, as registered in 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.

The second proposal incentivises both the employer and the employee with regard to their EPFO contributions in the first four years of employment. This is aimed to benefit 30 lakh youth, besides their employers. The employer-focussed scheme will cover additional employment in all sectors. The government will reimburse 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 individuals.

Also read: Few jobs. Poor labour productivity. And no quick fixes

“There is a clear intention to reap the demographic dividend that India possesses, or at least work towards that,” Sakshi Gupta, principal economist at HDFC Bank, told Forbes India.

The estimated number of jobs that could be created through these measures is 8 million per year, as indicated by the Economic Survey. Economists have indicated that in recent terms of the NDA government, India has been creating between 5 and 6 million jobs each year. The country is a disappointing second-lowest among 15 global economies in 2023, based on GDP per hour worked.

Economists are hoping that India does not fall into the trap of creating pockets of skill and education through institutions such as IITs and IIMs in previous decades, and yet not be able to address near-term concerns of boosting jobs in manufacturing. “If we look at manufacturing, despite all the plans like Make in India and the China+1 strategy that is being talked about, the output growth in manufacturing is slow, relative to other sectors such as construction and infrastructure,” says Shreya Sodhani, regional economist at Barclays.

But India has structural problems to deal with. “We are not looking at the average labour productivity for the economy but getting carried away by pockets of skill and getting industries to respond to the availability of skill as we saw in the information technology sector. We need to focus on traditionally labour-intensive sectors,” Abheek Barua, chief economist at HDFC Bank, told Forbes India earlier in July. Government capex growth has not necessarily resulted in more jobs. “Construction has become equipment intensive. The labour-intensive nature of the infrastructure sector has fallen quite a bit.”

There is one concern that India faces with blue collar jobs. When the Covid-19 pandemic receded, hiring of blue-collar jobs rose, particularly in the contact services that had broadly shut down during the pandemic. However, migration of rural populations to cities for blue-collar jobs remain lower than pre-pandemic levels.

The Reserve Bank of India’s (RBI) KLEMS (capital, labour, energy, material and services) database—a systematic measure of productivity in India—shows that the growth rate of labour quality (measured by education attainment, earnings, etc) for the total economy has stagnated during Narendra Modi’s tenure as Prime Minister at 0.3 percent (provisional) for FY24, compared to the same 0.3 percent in FY14, based on RBI’s July 2024 data.