The policy measures announced in the Union Budget to boost employment comes across as an acknowledgement of the dire need to create jobs and reap the demographic dividend that we have all known as the Indian economy’s biggest strength. In a candid interview with India Today, India’s finance secretary TV Somanathan articulates the problem statement and the thinking behind these policy measures to push for employment-intensive growth.
“Given our demographics, especially the bulge in young population, employment will be critical in the next few years. We’ll have a huge number of them entering the job market. Now there are two things a government can do about this. Promote growth because a growing economy means more jobs. We have done this through a prudent fiscal policy, enhanced capital investment and various programmes to promote investment. But it’s a fact that in modern times growth can happen with less employment due to increasing mechanisation, automation and other technological developments. So the second is to push for employment-linked incentives to create jobs. But economic entities will not employ anyone just because the government is giving a subsidy. But at the margin, their decisions are influenced by fiscal incentives. So if somebody is planning to employ people, the provision of a subsidy over a period of time may encourage them to accelerate that hiring. There are always incremental choices to be made about greater automation and mechanisation versus greater use of labour. That being the case, we have come up with a package of fiscal incentives which will influence company choices in the direction of greater employment.”
As with this government’s fiscal policies in general, there is an intent to minimise leakage and get more bang for the buck:
“We needed a mechanism to know that the job creation is genuine. The reason for the EPFO linkage is merely to prevent fraud. The money will go directly to the employee in this first part, which is scheme A. Then there is a scheme B, which is for the manufacturing sector. If the industry employs at least 50 newcomers, then we give them a handsome subsidy which will run for four years. Here, the logic is that a company is taking the trouble to pick up these many unemployed/inexperienced people. They may need to give them training to bring them up to standard. And that is something the government is happy to subsidise.”
The finance secretary talks about parallels for this policy push and why it is innovative and significant in terms of scale:
“Fiscal incentives for employment, historically, have worked in many countries and they must be given a chance. It’s the big innovative push to ensure that India’s growth becomes more employment-intensive. It’s also huge because it hopes to help 40 million of our youth. And we’re not talking small change here, we’re putting Rs 2 trillion (2 lakh crore) behind it. It’s innovative because these schemes have no exact parallels, especially the involvement of the private sector and the linking of all these subsidies to employment rather than to investment or production.”
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