Budget 2018 and Unemployment: Job creation comes in the spotlight
New Delhi: Budget 2018-19 proposes several measures, including promoting exports and supporting fixed tenure jobs, to create employment.
Giving a sense of urgency to the task of job creation in his fifth budget presented on Thursday, finance minister Arun Jaitley’s proposals include enhancing infra spending; creating rural markets; giving tax sops to small industries; a special package for textiles; and a reduction in statutory employees’ provident fund contributions by new female employees.
Jaitley said creating and facilitating employment generation has been at the core of the government’s policymaking and indicated that it will keep focusing on labour-intensive sectors including textiles, leather, micro and small and medium enterprises (MSMEs) to aid jobs growth.
“The government had approved a comprehensive textile sector package of Rs.6,000 crore in 2016 to boost the apparel and made-up segments. I now propose to provide an outlay of Rs.7,148 crore for the textile sector in 2018-19,” the finance minister said.
Calling it a “major engine of growth and employment” for India, Jaitley allocated Rs3,794 crore to the MSME sector as credit support, capital, and interest subsidy and “promotion of innovations”.
“Massive formalization of the businesses of MSMEs is taking place in the country after demonetization and introduction of GST (goods and services tax),” he said underlining how the sector will play a key role in formalising India’s labour market.
The budget also announced a reduction in the contribution that new women workers make to the employees provident fund, from 12% to 8%, to promote women’s participation in the labour force as well as increase their take-home pay.
Women’s labour force participation rate in India is below 25% as against 40% globally. Economists and industry veterans point out that improving their participation will help boost the economy.
“To incentivize employment of more women in the formal sector and to enable higher take-home wages, I propose to make amendments in the Employees Provident Fund (EPF) and Miscellaneous Provisions Act, 1952, to reduce women employees’ contribution to 8% for the first three years of their employment against the existing rate of 12% or 10% with no change in employers’ contribution,” Jaitley said.
Currently, an employee contributes 12% of his or her basic salary as the statutory monthly contribution to EPF and a matching contribution is made by the employer. The budget announcement will mean that while employers’ contribution of 12% will continue, new women employees will be required to pay just 8% of their salary as EPF contribution.
Jaitley also announced that the government will now “contribute 12% of the wages of new employees to the EPFO for all sectors for the next three years” for the next three years.
This means companies across sectors will not have to pay the employer’s share of EPF contribution when they hire new employees. The move will reduce payroll costs of companies, and may encourage them to hire more.
To create quick jobs, the budget mentioned that the government is rolling out fixed-term contractual jobs across industry segments. Some experts say this will fuel the so-called hire-and-fire system. But both industry and the government believe it will add more jobs and reflect a shift in the government’s policy from job security to job creation.
The finance minister also went on to talk about “productive jobs in the farm sector”. “Our emphasis is also on generating productive and gainful on-farm and non-farm employment for the farmers and landless families,” he said. The budget also talked up self-employment and entrepreneurship as a means to create more jobs. It said the MUDRA Yojana launched in April, 2015 has led to sanction of Rs4.6 trillion in credit from more than 103 million MUDRA loans. More than three quarters of the loan accounts are held by women and over half by people from underprivileged segments.
“It is proposed to set a target of Rs3 trillion for lending under MUDRA for 2018-19 after having successfully exceeded the targets in all previous years,” Jaitley said, indicating how such loans will help job creation in the hands of small entrepreneurs. However, some experts feel the budget does not address the problems of employment creation in a holistic sense.
“It persists with short-term strategy of providing payroll tax sops and that too for just three years and encouraging fixed term employment contracts. This is myopic as this will just create “numbers” and not sustainable jobs and inclusive labour market strategy,” said K.R. Shyam Sundar, a labour economist and professor of XLRI Jamshedpur. “Nor is there much to incentivise private sector investment,” he added.
Jaitley said all the steps the government has taken have started yielding results and a better economy will add more jobs.
“Manufacturing sector is back on good growth path. The services, mainstay of our growth, have also resumed their high growth rates of 8% plus. Our exports are expected to grow at 15% in 2017-18. We are now firmly on course to achieve high growth of 8% plus,” he said in his budget speech.