Economic Survey 2023-24: Govt shifts job creation burden on private sector, states

“It is worth reiterating that job creation happens mainly in the private sector. Second, many (not all) of the issues that influence economic growth, job creation and productivity and the actions to be taken therein are in the domain of state governments,” the Economic Survey for 2023-24 said.

The shift in responsibility raises critical questions about the effectiveness of current policies and the need for stronger incentives and regulatory frameworks to ensure alignment with national goals.

Pitch for stronger tripartite compact

The survey placed in Parliament on Monday (July 22) said India needs a 'tripartite compact' more than ever before to deliver on the higher and rising aspirations of Indians and complete the journey to Viksit Bharat by 2047. The survey said that the action lies with the private sector in more than one respect. While ideal in theory, this tripartite approach raises questions about its implementation's practical challenges and accountability.

The survey said that the corporate sector has never had it so good in terms of financial performance. Results of a sample of over 33,000 companies show that, in the three years between FY20 and FY23, the Indian corporate sector's profit before taxes nearly quadrupled. “Further, newspaper headlines tell us that the corporate profits-to-GDP ratio rose to a 15-year high in FY24.”

‘Need for robust policy measures’

Hiring and compensation growth hardly kept up with it. But it is in the interest of companies to step up hiring and worker compensation, the survey pointed out. “The Union government cut taxes in September 2019 to facilitate capital formation. Has the corporate sector responded? Between FY19 and FY23, the cumulative growth in private sector non-financial Gross Fixed Capital Formation (GFCF) is 52 per cent in current prices,” it said. (GFCF refers to the investment made by entities in non-financial assets such as machinery, buildings, infrastructure, equipment, and other physical assets used to produce goods and services.)

“During the same period, the cumulative growth in general government (which includes states) was 64 per cent. The gap does not appear to be too wide. However, a different picture emerges when we break it down: Private sector GFCF in machinery, equipment, and intellectual property products has grown cumulatively by only 35 per cent in the four years to FY23. However, the slow pace of investment in these areas suggests a need for more robust policy measures and incentives to align corporate interests with national employment goals,” it said.

Meanwhile, its GFCF in ‘dwellings, other buildings and structures’ has increased by 105 per cent. This is not a healthy mix. Second, the slow pace of investment in M&E and IP Products will delay India’s quest to raise the manufacturing share of GDP, delay the improvement in India’s manufacturing competitiveness, and create only a smaller number of higher-quality formal jobs than otherwise.

Silver lining

Nonetheless, there is a silver lining in the data. In the two years since FY21, GFCF by the private sector has grown faster. General government GFCF rose a cumulative 42 per cent between FY21 and FY23. Non-Financial Private Sector’s overall GFCF increased by 51 per cent; investment in machinery and equipment and intellectual property products increased by 38 per cent.

So, the growth in these two critical sub-components of private sector GFCF is similar to that of the overall GFCF by the general government. This statistic bears watching. They should continue to invest. To do so, they need to demand visibility.

Slow demise of services sector

That comes from employment and income growth. In a recent article, The Economist cites independent research that predicted a slow demise of India’s services exports over the next decade. While the boom in telecommunications and the rise of the internet facilitated business process outsourcing, the next wave of technological evolution might bring the curtains down on it.

In this milieu, the corporate sector has a responsibility, as much to itself as it is to society, to think harder about ways Artificial Intelligence (AI) will augment labour rather than displace workers. Hiring in the IT sector has slowed significantly in the last two years. We do not have a full picture of overall corporate hiring in the country on a regular basis. In any case, deploying capital-intensive and energy-intensive AI is probably one of the last things a growing, lower-middle-income economy needs. The predicted slow demise of India's services exports over the next decade adds an additional layer of complexity.

Toxic habits that threaten economy

For India’s working-age population to be gainfully employed, they need skills and good health. Social media, screen time, sedentary habits, and unhealthy food are a lethal mix that can undermine public health and productivity and diminish India’s economic potential.

The private sector’s contribution to this toxic mix of habits is substantial, and that is myopic. Indians' emerging food consumption habits are unhealthy and environmentally unsustainable. India’s traditional lifestyle, food, and recipes have shown how to live healthily and in harmony with nature and the environment for centuries.

Central and state governments must rise to the challenge by fostering conversation, cooperation, and coordination across various levels. The complexity of governing a diverse and populous nation like India requires nuanced approaches beyond binary choices such as urban vs rural or manufacturing vs services. A holistic and inclusive development strategy is essential for sustainable growth.

Lack of data on jobs

A significant critique is the lack of timely and comprehensive data on employment. While the Periodic Labour Force Survey provides some insights, the absence of regular data on job creation across different sectors hampers an objective analysis of the labour market. The discrepancies in employment figures, especially in unincorporated enterprises, underscore the need for better data collection and analysis mechanisms.