How new job schemes play out in India's employment paradigm

The budget lays a greater emphasis on jobs by marking “Employment & Skilling” priority number two but here’s what deeper analysis reveals. The reliance continues to be on boosting GDP growth with more incentives for manufacturing and schemes.

₹2 lakh crore has been earmarked for five years to create 41 million new jobs by way of contributions to internships in “500 top companies” and EPF to both employers and employees for those who land their first jobs. These are all in formal sector. The Prime Minister said this would “create crores of new jobs”.

What do these schemes mean?

More schemes for post-job situation

· The budget speech lists “Prime Minister’s package of 5 schemes and initiatives”, a new coinage, for formal sector jobs – with some tinkering in old schemes:

· Three EPFO-related schemes of incentives, now called ‘employment linked incentive’ (ELI) – with new element of cash transfer to new worker.

· One scheme for skilling – which began long back in 2008 with the setting up of the National Skill Development Corporation (NSDC), relaunched as ‘Skill India’ or PMKVY in 2015.

· One scheme for internships – which is a continuation of the National Career Service (NCS) scheme of 2015. Besides, the Pradhan Mantri National Apprenticeship Melas (PMNAMs) are being held every month since June 2022, with government-support for companies for government-mandated stipend as part of ‘Skill India’.

A day after the budget, Finance Minister Nirmala Sitharaman clarified that the ELI (either in EPFO or internships) was “not compulsory” but a “nudge” to industry. No one knows how many jobs these incentives created in the past. Besides, MoSPI data shows, “new subscribers” fell by 0.5 million in FY24 – from 11.5 million in FY23 to 11 million in FY24 – reflecting a fall in new job creation in FY24.

There are also credit schemes for informal sector and new tax incentives to industry:

Credit support to MSMEs and MUDRA loans.

PLI and DLI schemes not mentioned but new incentives for industry are listed: “Abolition” of angel tax for start-ups; “simpler tax regime” in tourism for foreign shipping companies operating domestic cruises; “safe harbour rates” for foreign mining companies selling raw diamonds in the country and corporate tax cut on foreign companies from 40% to 35%.

When asked why no PLI for labour intensive sectors has been launched (PLI and DLI are mostly targeted at capital-and-tech intensive sectors like IT, telecom, semiconductor, medical devices etc.), Sitharaman said: “As and when the proposals come to me, that window is still open.”

The big question remains why the budget didn’t go into direct measures to proactively create jobs. More so since (i) the ruling party lost the majority on its own in the Lok Sabha and (ii) lack of employment was Number 1 “issue” in both the Lok Sabha elections of 2024 (27.3%) and 2019 (19.2%) – having climbed up from Number 4 in 2014 (7.4%) (CSDS surveys).

The reasons could be many.

Evidence of job crisis

One, lack of jobs is indeed a full-blown crisis. It is evident in (a) Under Centre’s Government-to-Government (G2G) initiative, India sent thousands of youths to war-hit Israel for jobs since January 2024 (b) many Indians have been “duped” into fighting the Russian war and being “cyber slaves” in Cambodia (c) thousands are risking their lives and life’s savings every year to illegally enter into to the US, the UK, Canada, Australia and other countries (d) job stampedes were witnessed earlier this month in Mumbai and Surat and (e) thousands of highly qualified youth (PhD holders, PGs, engineers) are either queueing up or joining lowly jobs.

Two, conflicting narratives on job creation.

On July 8, 2024, the RBI published its KLEMS data to say that India added 46.7 million new jobs in FY24 (P) and 170.1 million new jobs in seven years between 2017-18 (coinciding with the first annual PLFS report) and FY24 (P) and 171.88 million in 10 fiscals of FY15-FY24.

The Prime Minister quoted this data on July 13, 2024 to lend credibility: “approximately 8 crore (80 million) jobs have been created in the last 3-4 years, thereby silencing the critics” (PMO). A PTI report quoted the Prime Minister as saying: “This figure has silenced those spreading fake narrative on jobs”.

Neither the budget (of July 23, 2024) nor the Economic Survey of 2023-24 (July 22, 2024) took notice of this data. None else did it in the past 10 years either.

Three, the Economic Survey 2023-24 flagged the job crisis by stressing the need to create 7.8 million jobs a year in non-farm sectors until 2030 – but it had little to offer as solutions. Instead, it passed the blame and burden to others:

(i) Corporate sector (particularly “private sector”): It said corporate sector was “swimming in excess profits” with PBT “nearly quadrupled” in three years between FY20 and FY23 and corporate profits-to-GDP ratio went up to “15-year high in FY24” – but “hiring and compensation growth hardly kept up with it”.

(ii) Artificial Intelligence (AI): About this it said: “Advent of Artificial Intelligence casts a huge pall of uncertainty as to its impact on workers across all skill levels – low, semi and high.”

(iii) State governments: It argued that “many (not all) of the issues that influence economic growth, job creation and productivity and the actions to be taken therein are in the domain of state governments”.

(iv) Youth and social media (for lack of skills and fostering bad habits): It argued: “For India’s working-age population to be gainfully employed, they need skills and good health. Social media, screen time, sedentary habits, and unhealthy food are a lethal mix that can undermine public health and productivity and diminish India’s economic potential.”

RBI-KLEMS jobs data

Going back to the RBI’s jobs claim, it is full of holes.

To begin with, the Economic Survey of 2023-24 (July 22, 2024) put the workforce at “56.5 crore” in FY23 (565 million) – up from 535.5 million in FY20 (Economic Survey 2021-22). But the corresponding number in the RBI’s data (for FY23) is 596.7 million (and 643 million at the end of FY24) – higher by 32.7 million.

Ironically, the two Economic Surveys of 2023-24 and 2021-22 and the RBI-KLEMS report said they relied on the PLFS reports (the RBI used other data too) for their calculations – but no PLFS report gives this number.

Assuming for a moment that the RBI’s data is correct, India would be job surplus. As against the need to create 7.8 million jobs a year (Economic Survey of 2023-24) or 8.2 million (World Bank of 2018), India has produced 171.9 million in ten fiscals of FY15-FY24 – thus covering the need for 21.5 years!

Where then is the need for corporate tax cuts to boost jobs, PLIs, DLIs, internships and EPFO schemes and the proposal for more corporate tax cuts (for foreign companies), abolition of angel tax etc. – or the distress rush to war-hit Israel and Russia, job stampedes and illegal migrations?

For all the hullabaloo it generated, the RBI (a) provided only two employment numbers for FY24 (P): (i) “Employment (in 1000s) – 643348” (64.3 million) – up from 596688.78 (in 1000s) in FY23 and (ii) “Growth Rate (Tornqvist Aggregation) – Per cent – 6.0”. It (b) didn’t give the jobs created in any of the 27 sectors it mapped for FY24 (P), although it gives job numbers in three broad categories – manufacturing, services and agriculture – for previous fiscals (beginning with 1980-81).

The RBI (c) didn’t disclose the actual values of variables it used for its estimates either. Rather, it provided a “manual” for measuring productivity and employment.

The relevant part of “manual” reads: “Measures of Capital (K), Labour (L), Energy (E), Material (M) and Service (S) inputs as well as Gross Output (GO), have been constructed using National Accounts Statistics (NAS), Annual Survey of Industries (ASI), NSSO rounds and Input-Output (IO) Tables. In building annual time series on gross output, five inputs and factor income shares, various assumptions are made to fill up gaps in industry details and link series over time. As we know that NSSO rounds of unregistered manufacturing, Input Output Transaction Tables, and Employment and Unemployment Surveys by NSSO are available only for certain benchmark years, the use of information from these data sources necessitates interpolation and assumption of constant shares for building a series of output and inputs. However, as the successor of NSSO's Employment Unemployment Survey, the Periodic Labour Force Survey (PLFS) data has become available annually since 2017-18, the labour input series no longer requires any extrapolation. The labour input series is being updated under each round of India KLEMS using available survey data from PLFS only.”

Two caveats are in order.

Caveat 1: Too many “various assumptions”, “assumption of constant shares”, and “interpolation” to “fill up gaps” in building “a series of output and inputs” (for jobs, Total Factor Productivity, GVA, GVO, Labour Employment, Labour Quantity, Labour Productivity etc.). This makes its estimates a statistical exercise. Further, Input-Output (IO) Table, key to converting inputs into output (for estimating the single most critical number, TFP) is of 2008-09 vintage. In the 15 years since then, these constants would have seen a sea change due to changes in capital intensity and technological advancements. Other benchmarks, for inflation (CPI) industrial production (IIP), too are more than a decade old.

Caveat 2: The last annual PLFS was for 2022-2023 (July-June period). There is no data for 2023-24 (July-June) – except “first visit” data collected (of four visits) for July-December 2023 (PLFS CY23). Hence, the RBI’s employment data for FY24 (P) is based on partial and unreliable PLFS inputs. The RBI’s data is for fiscal year (April-March).

There are further disconnects, particularly high job creations amidst the pandemic disruptions in FY21 and FY22. Here is how its yearly jobs data correspond to GDP growth:

· 1.8 million jobs in FY18 – impacted by demonetisation and GST severely damaging informal jobs; GDP growth fell to 6.8% in FY18 – from a high of 8.3% in FY17;

· 17.7 million jobs in FY19 – when GDP growth fell further to 6.5%;

· 41.8 million jobs in FY20 – when GDP growth plunged to 3.9%;

· 31.2 million jobs in FY21 – amidst 24x7 national lockdown and overnight loss of millions of jobs and small businesses; GDP growth plunged to a historic low of -5.8%;

· 11.9 million jobs in FY22 – amidst the second pandemic wave; GDP growth jumped to 9.7% due to the low base effect;

· 19.2 million jobs in FY23 – GDP growth moderates to 7% and

· 46.7 million jobs in FY24 – GDP growth jumps to 8.2% but below 8.3% of FY17.

It is not the RBI’s mandate to estimate jobs. Former chairman of the National Statistical Commission PC Mohanan says, the KLEMS database was created in 2009 as part of an international initiative to support empirical research and provide a measurement tool to monitor and evaluate productivity growth of the economy in broad sectors. Its database uses capital (K), labour (L), energy (E), material (M) and services (S) – hence KLEM. By venturing into employment numbers that don’t match with ground realities has given an elbow room for the budget to adopt business as usual approach and continue with the schemes of doubtful efficacy – thereby, kicking the concern down the road.