Budget: Job creation incentives riddled with flaws, can end up being ineffective

While the intent behind these measures is commendable, a critical examination reveals several potential shortcomings and challenges that could undermine their effectiveness.

But first, the announcements:

One-month wage to new entrants in all formal sectors in three instalments up to ₹15,000. This is expected to benefit 210 lakh youth.

The government will reimburse EPFO contributions of employers up to ₹3,000 per month for 2 years for all new hires. This initiative is expected to generate 50 lakh jobs.

Linked to first-time employees – Incentive to both employee and employer for EPFO contributions in the specified scales for the first 4 years – expected to benefit 30 lakh youth.

Facilitate higher participation of women in the workforce through setting up working women's hostels in collaboration with industry and establishing creches. 

Scheme A: First Timers – Linked to first-time employees – Incentive to both employee and employer for EPFO contributions in the specified scales for the first 4 years – expected to benefit 30 lakh youth.

Scheme B: Job creation in manufacturing – linked to first-time employees, incentive to both employee and employer for EPFO contributions in the specified scales for the first 4 years – expected to benefit 30 lakh youth.

Scheme C: Support to employers – the government will reimburse EPFO contributions of employers upto ₹3,000 per month for 2 years for all new hires. This incentive is expected to generate 50 lakh jobs.

Education support

- Loans up to ₹7.5 lakh with a guarantee from a government-promoted Fund.

- Expected to help 25,000 students every year. Financial support for loans up to ₹10 lakh for higher education in domestic institutions.

- Direct E-vouchers to 1 lakh students every year. Annual interest subvention of 3 per cent.

Skilling efforts

• To skill 20 lakh youth over a 5-year period, 1,000 industrial training institutes will be upgraded in hub-and-spoke arrangements with outcome orientation.

• Course content and design will be aligned with the skill needs of the industry.

• Scheme for providing internship opportunities in 500 top companies to 1 crore youth in 5 years.

• Allowance of ₹5,000 per month along with a one-time assistance of ₹6,000 through the CSR funds.

As part of boosting skilling efforts, 1,000 ITIs will be upgraded on the hub-and-spoke model. Besides, the government will provide financial support for loans up to ₹10 lakh for higher education in domestic institutions.

Short-term Focus

The incentives primarily target immediate job creation rather than long-term employment sustainability. For instance, the one-month wage subsidy is a temporary measure that may not lead to lasting job security or career development for new entrants. Without a comprehensive strategy that includes career advancement opportunities and job retention measures, these initiatives risk becoming mere stop-gap solutions.

Challenges in implementation

The government launched the scheme expecting the private sector to do the heavy lifting. Under the scheme, every company will have to hire 20,000 interns, which is difficult to implement. But the fundamental issue is what happens if the demand does not pick up, and if that happens, private companies may be hesitant to hire freshers.

Also, private consumption as a percentage of GDP has been falling. For instance, India's private consumption accounted for 57.9 per cent of its nominal GDP in March 2024, compared with a ratio of 63.5 per cent in the previous quarter.

If efforts are not made to increase private consumption, the number of jobs in the private sector will decline. Relying on the EPFO for enrollment and compliance could pose challenges, especially for small and medium enterprises (SMEs) that may lack the administrative capacity to navigate these requirements.

Additionally, the disbursement of funds through Direct Benefit Transfer (DBT) may encounter bureaucratic delays, limiting the timely support that businesses and employees require. The backdrop of declining youth participation in formal employment raises questions about the effectiveness of these measures.

Data indicates a significant drop in the share of young individuals in net payroll additions, suggesting that merely providing incentives may not be sufficient to reverse this trend. A more nuanced approach that addresses the underlying factors contributing to this decline – such as skill mismatches and economic instability – would be essential.

A more comprehensive strategy that addresses the workforce's diverse needs, promotes long-term employment sustainability and ensures inclusivity, will be vital in transforming these incentives into meaningful outcomes for the Indian economy.