Opinion: Budgets should focus on employment for the next 10 years

Hyderabad: Days after the 2024-25 Union Budget was presented in Parliament, I was asked by a business management college to be part of a panel to discuss the proposals.

As I looked at the audience comprising roughly 200 undergraduate and post-graduate students, I was reminded that just a few days earlier 1,800 young aspirants had turned up to interview for 10 vacancies at an engineering company in Gujarat’s Bharuch district. Such was the crush at the venue that a railing collapsed, taking several job seekers down with it.

In Mumbai, a similar thing happened for Air India jobs – 25,000 turned up for 2,216 vacancies for loaders’ posts. Fear of a stampede forced a quick dispersal of the crowd, among which were many Bachelor’s and Master’s degree holders who had travelled from the interiors of Maharashtra to try their luck.

India adds 10 million people to the job market every year. Unless there is enough employment, we are heading for a socioeconomic disaster, and violence. Across the world, male unemployment is highly correlated with violence.

Unemployment worries for the young

The average age in India is roughly 29 years, which makes it one of the youngest countries in the world. While this energy is an asset, it also means there is a large labour force looking for jobs. The news, unfortunately, is consistently bad.

In June, the unemployment rate climbed to its highest level in eight months: 9.2 per cent compared to 7 per cent in May, according to the Centre for Monitoring Indian Economy (CMIE). The actual count is almost certainly higher because data collection is done poorly in India.

The unemployment rate underestimates the problem. Such is the magnitude that many Indians signed up with Russia to fight the war in Ukraine and are going to Israel to work in conflict zones as construction labourers. Indians are even risking death to illegally migrate to countries like the US through the ‘Dunki’ route.

So, when Citigroup says India will struggle to create enough jobs for its growing workforce over the next decade even if the economy grows at 7 per cent, we should take notice. Citi estimated that India will need 12 million new jobs a year over the next decade. Even if we grow at 7 per cent, we will generate only 8 to 9 million jobs a year, the bank’s economists said in a report.

When growth was in the 8 per cent range between 2004 and 2014, non-farm jobs grew by 7.5 million per annum.

If we don’t hit that rate again, there’s no way we can create the 10 to 12 million jobs needed every year now. But most third-party projections don’t put India’s 2023 to 2030 growth rate close to 8 per cent. The Organisation for Economic Cooperation and Development’s projection is 7 per cent, while the International Monetary Fund’s is a much lower 5.6 per cent.

Gamechangers needed

The finance minister tried to put employment generation in mission mode through cash incentives for employers, raising Mudra loan limits for MSMEs – India’s leading employers – and facilitating more women’s participation through hostels.

The government also said it will work with India’s top 500 companies to provide internships to one crore youth over five years. While these might help, I’m not sure they will do the trick.

We need proper jobs, not internships. Also, the internship numbers work out to 20,000 per firm, or 4,000 every year. That doesn’t seem realistic to me.

Mudra loans have been doing well. In FY 2022-23, Rs 4.5 lakh crore was disbursed while in FY 2023-24 it was Rs 4.85 lakh crore – an all-time high. MSMEs need credit. Implementation, however, is the key and I hope that won’t a problem.

There are other proposals aimed at sparking growth and, therefore, jobs. These range from new industrial parks to a capital outlay of Rs 11.11 lakh crore. This will be largely invested in infrastructure.

However, there were no gamechangers. What we needed was something to shake up the status quo.

In conversations with policy researchers, strong concerns came up. Some spoke of jobless growth, others pointed to the unevenness of the benefits of our growth. In other words, the rich are getting much richer, the poor are getting poorer and the ground is shifting from beneath the middle class’ feet. It would take very little for those in the lower and intermediate bands of the middle class to slip back into poverty.

So, what should the finance minister have done?

● First of all, the hike in long-term capital gains tax is disheartening. It means your investments will fetch you less.

● There should have been a lowering of the income-tax rate. We do have slabs with lower rates for those who earn less, but there needed to be more even for those who fall within the 30 per cent bracket to encourage them to spend more, stimulate the economy and therefore create jobs.

● High inflation, especially soaring food prices, means that whatever monetary benefits you get will be spent on existing needs. It’s like being on a treadmill – running faster and faster to stay in the same place. The middle class is justifiably dejected.

● Introduce a ‘billionaire tax’. In 2020, economist S Subramanian estimated that a tax of just 4 per cent on the wealth of the 953 richest families would yield the equivalent of 1 per cent of GDP. These families would barely notice because the amount would be equivalent to fluctuations in their wealth that happen anyway through changing asset prices. It’s also the right thing to do at a time when wealth inequality is worse than it was during the British Raj. The wealthy will protect what they have aggressively – but, in my view, this should be done

● A large percentage of the workforce is in the informal sector, which means that they have no contracts or access to health or other benefits. The Budget should have created more safety nets for them

● To create jobs on a mass scale, India must modernise agriculture quickly and boost manufacturing. This needs infrastructure, for which there is a significant allocation, and easing the conduct of business. This is significant. The licensing, inspection and compliance requirements are onerous. Relative to history, this burden has lightened. Relative to where it ought to be, it is very heavy. This is one of the most significant hurdles to job creation. We can draw a comparison to the Depression-era US. They employed people to do everything under the sun – artists painted murals on public buildings and much of the infrastructure was built then

● Construction needs to continue and accelerate. You can also generate jobs through services exports. We have been strong in IT services but even health, education, travel, automobile services and BFSI can provide good-quality jobs

The growth of aggregate income in the economy is not good enough because it is not distributed adequately to all sections. I saw nothing in the Budget to correct that.

The quality of jobs being created is a problem too. Citi’s report said 46 per cent of the workforce is still employed in agriculture, even though the sector contributes less than 18-19 per cent of the GDP.

Manufacturing accounted for 11.4 per cent of jobs in 2023, a lower share than in 2018. This indicates that the sector hasn’t bounced back from the Covid-19 setback.

Worryingly, fewer people are employed today in the formal sector than before Covid — the share was 25.7 per cent in 2023, the lowest in at least 18 years, Citi’s report said. Only 21 per cent of the workforce — or about 122 million people — in India have jobs that pay a salary or wages, compared to 24 per cent before the pandemic.

Gender differences in employment rate

Coming back to CMIE data, what’s also worrying is that in June 2024 the female unemployment rate exceeded the national average, reaching 18.5 per cent, up from 15.1 per cent in June 2023. The male unemployment rate also rose slightly to 7.8 per cent in June 2024 compared to 7.7 per cent in the same month last year.

Between 2010 and 2020, the number of working women in India dropped to 19 per cent from 26 per cent, according to World Bank data. As Covid surged, CMIE estimated that female labour force participation would plummet to 9 per cent by 2022 – that puts us on par with war-ravaged Yemen.

India fares poorly on the education and training fronts, too, which means that degrees are often worthless in the job market. Several employers have said that less than half of the graduates entering the workforce are employable. This is why, those who can, study further, join their families in farming or simply stay home.

Indians have long believed that an education would guarantee a job. However, an International Labor Organization report said that 83 per cent of India’s unemployed population is young, while 66 per cent are young and educated. It found that those without degrees or even full schooling had a higher employment rate.

Therefore, skilling initiatives assume significance. The question is can we do that fast enough and impart the right skills? That brings us back to execution – you can have the best intent but, if it’s not effective, it’s pointless.

What are the measures to overcome the unemployment crisis?

Can India achieve growth of 8% again? If we don’t, we will have to keep funding social rescue programmes – that’s not a sustainable model.

Citigroup’s economists proposed several measures to ease the crisis: strengthen the export potential of manufacturing sectors, incentives to attract foreign firms and fill 1 million government vacancies.

These are all important because the worker-to-population ratio has declined from 38.6 per cent in 2011-12 to 37.3 per cent in 2022-23, according to the government’s own labour force surveys. The government has also failed to create jobs for the unskilled and the poor.

Neither the Make in India nor Production-Linked Incentive programmes made a serious dent in unemployment. So, the government sought to supplement these by spending more on welfare programmes related to food, health and even cooking gas. But there’s no substitute for jobs.

So, employment needs to be the theme of not just this Budget but all the ones that follow over the next decade. It needs the single-minded focus of the government. Without that, the students I addressed and the millions like them looking for employment are in for a very rough ride.

The views and opinions expressed in the article are those of the author and do not reflect the official policy or position of NewsMeter.