In an article in January, Soumya Kanti Ghosh and Pulak Ghosh (Ghosh and Ghosh) claimed that seven million new jobs have been created in the formal sector. Their claim is based on the increase in registration under the Employees Provident Fund (EPFO), National Pension Scheme and Employees State Insurance Corporation. The government and the ruling party are now widely quoting this figure. In a column in this paper (‘Robust job growth, not fake news,’ IE, April 28), Surjit Bhalla has, by and large, endorsed this study. The Niti Aayog vice chairperson has discounted these figures slightly but added that 36 million jobs have perhaps been created by the Mudra Scheme and via self-employment in enterprises such as those pertaining to taxi aggregation and e-commerce.
This runs counter to the impression that the shocks of demonetisation and implementation of GST resulted in the loss of many jobs. There were reports of retrenchment of workers and workers migrating from urban to rural areas to seek employment under MGNREGS, and youngsters not getting jobs commensurate to their skills.
With no social security, few in India can afford to remain unemployed. Many who do not get formal employment often have no option but to carry headload or push carts. Hence, the issue at stake is under-employment. This author has been arguing for long that the sector in which a person is employed, formal or informal, matters much in reckoning employment figures. If there is an increase of seven million jobs, has there been a corresponding decline in informal sector jobs? If taxi aggregators are offering jobs, are these at the expense of traditional taxi drivers and private chauffeurs?
Seven million new jobs on a base of about 50 million in the formal sector would represent a growth of 14 per cent. Is this likely when the economy’s growth rate plummeted after demonetisation and implementation of GST?
Why have the EPF registrations shown a sharp increase? There are two possibilities. One, this is a one off increase due to special reasons. Second, it is a trend. But then how come the total employment in the formal sector is only 50 million? With a 14 per cent growth rate, employment would double in 5.2 years.
Public sector employment has been stagnant at about 20 million. So, the increase of seven million would have taken place largely in the private formal sector. This would give a growth rate of about 23 per cent with employment doubling in 3.5 years, and there would be no dearth of decent jobs for the young.
Two factors could explain the rise in EPFO registration. First, earlier only employers who had more than 20 employees on their rolls were required to register under the EPFO. In 2016, this was changed to employers employing more than 10 employees. Since in India, most firms employ less than 20 employees, the numbers of those eligible for enrolment would have shot up. So, this is just a definitional shift from informal to formal employment and does not represent an increase in total employment.
The second factor is stated in the Union Budget 2018-19. The government has been encouraging enrolment in the Employee Provident Find since the last three years. It has offered concessions like, “Contribution of 8.33 per cent of Employee Provident Fund (EPF) for new employees by the Government for three years”. It has also promised, “Contribution of 12 per cent of EPF for new employees for three years by the Government in sectors employing large number of people like textile, leather and footwear”. Other concessions include, “additional deduction to the employers of 30 per cent of the wages paid for new employees under the Income Tax Act”. These concessions have now been extended for another three years. Thus, it would be highly profitable to the firms to employ new employees and register them under EPF.
The organised sector is not hiring people directly. It has, increasingly, preferred to get labour on contract. It is likely that such contract labour from the unorganised sector is getting registered under the EPF due to the concessions offered by the government. Since the concessions are for new employees, it is possible that the older employees are being replaced by newer ones and being enrolled. If the older employees remain on the EPF rolls, then the number would just increase without new employment. Many analysts point to the lacunae in the EPF data. Ghosh and Ghosh do claim to have adjusted for them. But how successfully can this be done?
It is claimed that those being counted are under 25; they are first timers at work. Most of the poor drop out of school before they reach Class 12 and start working. Only about 26 per cent of the relevant age group (18-25) are enrolled in higher education. Rest join the workforce, starting at the age of 15 — even earlier. Fifteen years back, about 22 million were added to the population and would now be potential job seekers. But, if those who go for higher education and 75 per cent of the women are removed from this number, the job seekers today would be about 12 million unskilled and another three million with higher degrees. Most of these 15 million are employed in the unorganised sector, though some work indirectly for the organised sector. They may now be getting counted under the new scheme.
The huge expansion of employment under Mudra Scheme claimed by the Niti Aayog vice-chairperson is unlikely given that the average size of the loan under this scheme is Rs 45,000. An average micro unit employs 1.7 persons with a capital of less than Rs 25 lakh. The loan may strengthen the capital base of the unit but would hardly generate any new jobs.
The issue is not whether new employment is rapidly rising but where the vast majority of the residually-employed are being counted — in the formal or the informal sector. That requires a careful study.
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