Budget 2024-25- Job creation thrust

The budget is seen as having an almost unprecented focus on job creation through subsidies and incentives. Will these work? Here are a few thoughts.

A few weeks before the budget, the RBI put out data that showed that the economy had created about 9 crore jobs in 9 years or about a crore a year in industry and services. The Economic Survey for 2023-24 says the economy needs to create about 8 million jobs every year. So where is the problem? Are industry and services generating jobs more of the unskilled variety so that educated unemployment is the issue? What explains the budget's almost unprecedented focus on job creation through subsidies and incentives?

There are three schemes in the budget for boosting job creation. The first is a payment of up to Rs 15,000 for those entering the workforce in the formal sector. This is a sort of top-up to the wages they will be paid. It can't lead to job creation, it only rewards those who manage to get jobs. 

The second is employment-linked incentives to the employer as well as the first-time employee in manufacturing. It will be by way of a payment towards the EPFO contributions of the two parties. To the extent that it reduces the burden on the employer, it will help job creation. It is expected to benefit 3 million youth.

The third is for all sectors and will reimburse to employers up to Rs 3000 per month for two years towards their EPFO contribution to employees. This is expected to create 5 million new jobs.

At the margin, the second and third schemes lower the cost of an employee in all sectors. They may, perhaps, help in businesses where the labour cost as a proportion of sales is relatively high. 

Then we have the Internship scheme for 1 crore youth at 500 top companies over five years. The government will provide Rs 5000 as stipend and the companies will have to bear 10% of the internship cost and the cost of training. As many have pointed out, this means each company will have to give internships to 4000 youths. What happens if they don't oblige? 

Monitoring and enforcement at private companies is a huge challenge. The government has a number of schemes that it implements through banks- Jan Dhan Yojana, Jan Awas etc. It is the public sector banks that bear the brunt. Private companies get away with doing very little. The same is likely to happen with the job creation schemes. We need to track exactly how many additional jobs are created through these schemes. The finance ministry has said that all these schemes are not mandatory, they are only intended to nudge companies, so we mustn't expect a great deal from the private sector.

If the idea is create jobs on a crash basis, filling vancies in government is a better idea. If unemployed youth are to be provided help until they can find a job, a direct transfer seems more sensible- give every educated unemployed youth a monthly allowance. 

What exactly is the government spending on employment generation? The budget speech mentions expenditure of Rs 2 lakh crore over five years or about Rs 40,000 crore in each year. For FY 24-25, the specific increase in expenditure on account of employment generation is a little less than Rs 10,000 crore.