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ExplainSpeaking: What can Union Budget 2022-23 do to address the unemployment crisis in India?

Labour economists suggest it is time for India to adopt an employment-centric growth strategy instead of just fetishising GDP data.

The latest Budget will be presented at a time when millions of India’s youth are out on the streets protesting against persistently high levels of unemployment in the country. (Express file photo by Bhupendra Yadav)

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Dear Readers,

Tomorrow, February 1, Finance Minister Nirmala Sitharaman will present the Union Budget for 2022-23.

At one level, the Union Budget is nothing but the annual financial statement of the central government — how much did it earn (and from what sources) in the financial year that is ending, how much did it spend (and on what), and what it plans to do in the next financial year with the revenues it expects to raise.

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But at a different level, each annual Budget has to respond to the dominant concern of that year or phase of national life. In most years, the central demand is how the Budget will boost GDP growth. To a great extent, fast economic growth is assumed to be the solution to all economic problems. For example, it is assumed that fast GDP growth will automatically raise production to such an extent that the general price level does not overwhelm an average Indian’s purchasing power.

Similarly, it is assumed that fast GDP growth will allow the government to widen the taxpayer base and thus reduce the personal income tax rates. Also, and crucially, it is assumed that fast economic growth will automatically create millions of jobs, thus not only pulling millions out of poverty but also providing those above the poverty line a better quality of life.

Budget 2022-23, however, is going to be presented at a time when many Indians are openly questioning these assumptions and demanding the government to actively do something about it. In particular, the latest Budget will be presented at a time when millions of India’s youth are out on the streets protesting against persistently high levels of unemployment in the country.

Barood panap raha hai iss desh mein [There is gunpowder in the air of this country],” says Anupam, the founder and national president of Yuva Halla Bol, an organisation at the forefront of unemployment protests, and one which claims to be unattached to any political party.

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Over a telephone interview, Anupam delivers a grim prognosis: “If the government does not address the simmering anger over the unemployment crisis, I can guarantee you there will be even more widespread protests right across the country within the next 12 to 18 months.”

Supporters of the Congress participate in a nationwide agitation against unemployment, inflation and price hike of essential commodities in Mumbai in November, last year. (Express Photo By Ganesh Shirsekar)

Anupam breaks down youth discontent into two parts.

One is a broader problem of a flawed economic growth model in India which has resulted in unemployment levels reaching such a critical threshold over the past 3-4 years. ExplainSpeaking has written several pieces on the growing unemployment crisis and repeatedly argued that creating new jobs will be a bigger challenge for the government than just growing the GDP.

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Using data from the Centre for Monitoring Indian Economy (CMIE) as well as National Statistical Office’s (NSO) Periodic Labour Force Survey (PLFS), ExplainSpeaking has shown that total employment in India fell by 9 million between 2012 and 2018. Or that unemployment levels were the highest among the youth and worse still, that the unemployment rate typically rises with educational attainment. Or that the total number of people currently (as of end-2021) employed in India is actually lower than what it was in 2016.

While altering India’s growth model may be a long-term solution, Anupam says the immediate trigger for youth unrest can be easily addressed within the coming Budget. In his estimate, there are as many as 40 lakh (4 million) already sanctioned posts — at both central and state government levels across the country — that have not been filled.

The keyword here is “sanctioned” vacancies. In other words, governments have already accepted that these are valid vacancies and have even budgeted financial resources for them.

“The government does not have to call an all-party meeting to fill these vacancies,” says Anupam. “This is not an administrative flaw. This is a conscious political and policy choice,” he asserts. He links it to Prime Minister Modi’s belief that the government has no business to be running a business.

“But that does not mean you sell all profit-making entities and retain only loss-making one. What we are seeing is the privatisation of profits and nationalisation of losses,” he says, giving examples of the government acquiring a stake in debt-ridden Vodafone-Idea or SBI bailing out Yes Bank etc. “Of course, if you intend to sell off public sector banks in the future, why would you bother filling up those vacancies,” he says.

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So, what can the Budget do to solve India’s jobs crisis?

Anupam says the first thing for the government to do is to come up with a code or system that ensures that all sanctioned vacancies will be filled within the next 9 months. “If an MP or MLA seat is vacated, it is filled within 6 months via fresh elections. Why can’t sanctioned posts in different government departments, public sector banks and railways not be filled within 9 months?” he asks. “This can be announced in the Budget itself,” he says.

But even if that were to happen within a day, it would still only fill 4 million jobs. The fact is, if we were to use CMIE data, at 404 million (or 40.4 crore) at the end of December 2021, the total number of people with jobs is still 3 million below the December 2019 level. What’s worse, it is 8 million below the level (412 million or 41.2 crore) at the end of December 2016.

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And that’s still not taking into account the tens of millions who are without any jobs. For instance, according to one calculation done by Omkar Goswami just before the 2014 general election, India should have had anywhere between 523 to 540 million employed people by 2020. That’s a deficit of more than 130 million (or 13 crore). Of course, there might be differences in the comparability and assumptions between Goswami’s estimates and CMIE’s data but it gives a broad sense of the level of distress.

That brings us to the more fundamental question: What can be done, beyond just filling already sanctioned vacancies, to address this long-standing and worsening problem of joblessness?

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Ravi Srivastava — who is currently the Director of Centre for Employment Studies, Institute for Human Development, and who was earlier Professor of Economics and Chairperson, Centre for the Study of Regional Development, Jawaharlal Nehru University, and full-time Member (2006-09) of the National Commission for Enterprises in the Unorganised Sector (NCEUS) — is someone who has studied this issue at great length.

“The first step, of course, is for the government to acknowledge the nature and scale of the problem. And this holds for both governments at the Centre and the states,” says Srivastava. In particular, he singles out the tendency among top policymakers to obfuscate the matter by looking at sectoral job creation instead of looking at the net job creation. In other words, when the Finance Minister says X number of jobs were created in say the shared taxi ecosystems such as Uber or Ola, she shifts focus from the fact that more jobs are being lost in other sectors of the economy.

“The second big step is to recognise the centrality of the informal sector and MSMEs (Medium, Small and Micro Enterprises) in job creation,” says Srivastava. “What India requires is an employment-centric growth strategy, not this constant fetishising of GDP growth,” he warns. In other words, if over 90% of all jobs are in the informal sector, the Budget should focus on giving incentives for promoting such enterprises.

A construction worker at work amid the Covid-19 pandemic. (Express File Photo by Vishal Srivastava)

A good example is the much-celebrated Production Linked Incentives scheme. “PLI should focus on labour-intensive sectors and target long-term employment generation,” says Srivastava.

Santosh Mehrotra, also a former Professor of economics in JNU and currently a Research Fellow, IZA Institute of Labour Economics, Bonn, also highlights the same point.

“As of now, most of the PLIs are for capital-intensive and skill-intensive sectors…so it is no surprise that they are not generating enough jobs,” says Mehrotra. He points to the trend when even before the Covid pandemic, manufacturing sector jobs had started plummeting since 2016, notwithstanding the Make In India initiative. Here is a detailed explainer on why Indian manufacturing has been losing jobs since 2016:

“Who generates the most jobs in the country?” he asks. “If the MSMEs do that, and you also know that they are the ones who have been the hardest hit by Covid and that they were already reeling from demonetisation and hastily-implemented GST, then they are ones that need the most help,” he says.

In Mehrotra’s view, MSMEs need four types of support.

1> credit support “because most banks shirk away from advancing a loan to MSMEs”

2> upgrading their technology

3> spotting and reaching new markets

4> design development

He further underscores the need to provide greater emphasis on skilling as well as using the funds for infrastructure in such a way that it helps in the development of different manufacturing clusters.

Srivastava also brings in the need for dovetailing the strategies of Centre and states.

“Such policies were discarded after the reforms of 1991 but there is a need to look at the regional dimension of job creation,” he says. For instance, landlocked states such as UP and Bihar may not be able to compete on job creation with states such as Maharashtra or Tamil Nadu.

Amit Basole, Professor at the Azim Premji University and lead author of the annual State of Working India reports, chooses to break the desired government response into two parts.

One, the Budget should increase direct income support to deal with the caustic effect of the pandemic. This would involve allocating more money under the Mahatma Gandhi National Rural Employment Guarantee Act (MG-NREGA), extending food support, cash transfers and starting an urban employment guarantee scheme to help the jobless and their families tide over the transition.

Two, is the question of how to create well-paying good quality jobs in the economy. “Typically, the government approaches this issue by underscoring the role of capital expenditure and its multiplier effect on the economy,” says Basole. But even if that is the route the government wants to follow, it should focus on creating local infrastructure. In other words, choose to build several small roads instead of one big highway.

“Improve the last mile because that is where private firms struggle and often stop investing,” says Basole. This is quite similar to what Mehrotra also suggested when he talked about developing local infrastructure and strengthening clusters.

But Basole also highlights a few other ways to boost jobs. “Another way for the government is to push for direct job creation,” he says. “We need health and education workers. So the government must regularise those who have already been working and fill all pending vacancies. Spend all the allocated Budget at least,” he says.

A National Employment Policy?

Basole ends with pointing to the State of Working India report for 2021, which stated that a comprehensive National Employment Policy is the need of our times.

“Such a policy will need to bring together various supply and demand-side dimensions of the labour market and speak coherently to existing trade and industrial policy regimes,” stated the SWI 2021 as it provided a detailed conceptual framework of such a policy (see table).

Source: USENET, UBS

Some of the key policy interventions in the proposed National Employment Policy are:

1> Udyog Sahayak Enterprise Network (USENET):

“A key aspect of increasing labour demand in the private sector is enabling the scale-up of micro-enterprises,” states SWI 2021. It proposes a national entrepreneurial system to improve ease of doing business (EDB) and assist scale-up of micro-enterprises. USENET is imagined as “a support system which will make MSEs go digital, find markets, secure credit, avail of government schemes, and meet compliances.” The SWI proposes the creation of 18 lakh Udyog Sahayak Enterprises (USEs) to be created over 5 years as part of the USENET project.

2> Universal Basic Services (UBS):

According to SWI 2021, a key public sector intervention that operates on the demand side, as well as the supply side of the labour market, is effective spending on health and education. It proposes the creation of a Universal Basic Services (UBS) programme that will expand the current public system of delivering key services creating millions of good jobs in the process.

3> Urban Employment Guarantee (UEG):

SWI 2021 states that “the pandemic revealed that India’s rural safety net is far more effective than its urban net. Both PDS and Jan Dhan have a wider penetration in rural areas and MGNREGA only exists in the countryside. Three states have introduced limited urban wage employment programmes since April 2020, to provide informal workers with a safety net during the pandemic. These are Odisha, Himachal Pradesh and Jharkhand. Kerala already had a small functioning programme since 2011.”

The UEG proposed in SWI 2021 is a national level, demand-driven, public works programme which provides a statutory right to employment at specified wage rates for a given number of days, with a grievance redressal and social accountability structure similar to MGNREGA. It is targeted towards small and medium-sized towns and aims to provide a legal right to employment while improving the quality of urban infrastructure and services, restoring urban commons and ecology, skilling youth, and increasing the financial and human capacity of Urban Local Bodies. In addition to 100 days of employment on traditional public works projects, SWI proposes a large variety of works that require a range of education and skills.

What do you think the government can do to alleviate the unemployment distress? Share your views and queries at udit.misra@expressindia.com

Lastly, The Indian Express has started a new video series, called The Express Economist, aimed at answering your questions on India’s economy and policy issues. Catch the first part of the first episode here. The second and concluding part of the first episode will be out later on Monday.

Stay safe

Udit

First published on: 31-01-2022 at 09:30:02 am
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