India’s Employment Crisis

Source-This post on India’s Employment Crisis has been created based on the article “To measure economic growth, India must look at jobs, not products “published in “The Indian Express” on 23 July 2024.

UPSC Syllabus-GS Paper-3- Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context-This article criticizes official job creation claims made by the government and duly supported by the RBI. It also proposes a new approach to tackle the country’s persistent employment crisis.

What are the issues with Official Job Creation claims made by the government?

1) Government Claims-The government cited RBI report that claimed 80 million new jobs were created in 3-4 years. This claim contradicts visible evidence of unemployment across the country.

For ex- 5 million youth are applying for 60,000 job vacancies in Uttar Pradesh. 34 million people seeking minimum wage work under rural employment guarantee scheme etc.

2) Credibility of RBI Report: In the past 5 years, more manufacturing and services jobs were created than in the previous 13 years combined. The report states that 50 million high-quality jobs were generated from FY 2019 to 2023, despite a 5% GDP growth, contrasting with 20 million jobs created during an 11% growth period.
These findings challenge established economic theories on growth and job creation and raise concerns about the credibility of institutions like the RBI if they support dubious claims.

What is the performance of government’s previous past job creation efforts?

1) “Make in India” Initiative : Aimed to boost manufacturing and create jobs.

Outcome: Manufacturing fell from 17% of GDP in 2014 to 14% in 2023.

2) Corporate Tax Cuts : Intended to stimulate private sector investment and job creation.

Outcome: Private investment as a share of GDP remained flat. This has led to the Loss of corporate tax revenue and increased taxation on the middle class and poor.

3) Production Linked Incentive (PLI) Scheme : Designed to increase production and indirectly create jobs.

Issue: -There is no reliable measure of jobs created under PLI. Modern manufacturing often increases production substantially without increasing employment. For ex- Foxconn doubling production from 2010 to 2020 without hiring more workers.

Read More- Production-Linked Incentive or PLI Schemes and its challenges

What is an Employment Linked Incentive scheme?

1) Objective– It incentivizes corporations based on the number of new jobs created rather than the quantity of production.

2) Implementation Strategy: Utilize Aadhaar-based payroll and bank-account systems to prevent fraud and standardize incentive amounts per employee, irrespective of their wages or skills.

3) Advantages of ELI:

A) This sector-agnostic approach avoids problems associated with favoring specific industries or cronyism.

B) It allows firms to decide on productivity investments, such as machinery versus hiring workers, without government interference.

C) It can adapt to the quickly changing work landscape influenced by the rise of AI and the gig economy.

E) Countries like the US, UK, Germany, Australia, and others have implemented various forms of employment incentive programs for corporations. This shows that it is not an untested idea.

4) Potential Challenges:

A) Employers might misuse employment incentives by rehiring current employees to qualify for incentives. This could undermine the programs’ goal of creating new jobs.

B) There is concern about ELI’s impact on India’s overall productivity, shifting focus from encouraging labor to production.

Way ahead-The government should move away from indirect trickle-down economics and instead implement direct policies to create jobs.

Question for practice

How effective were the government’s previous attempts to create jobs? What exactly is an Employment Linked Incentive scheme?