Can the Union Budget 2024-25 boost wage growth and job creation to spark consumption demand?

The issue was a hot topic during the General Elections this year and the expectations are that the upcoming Union Budget will announce at least a few measures to create more employment opportunities.

According to World Bank data, India has a workforce of 593.7 million, with an estimated 90% being in the informal sector. The annual Periodic Labour Force Survey (PLFS) reveals that the headline unemployment rate for workers aged 15 years and above declined to 3.2% in 2022-23 from 6.1% in 2017-18. But a closer look shows that formal employment has remained low.

Recent reports have warned that India may be facing a challenge in creating adequate jobs for all. For instance, the World Bank has highlighted that South Asia, including India and its neighbouring countries, may lose its demographic dividend if it is unable to create jobs. “Sustaining growth will require increasing employment ratios, especially in the non-agricultural sectors and among women, through measures to remove obstacles to growth for businesses, increase openness to international trade, ease labour market and product market restrictions, build human capital, and strengthen equality of women’s rights,” says its recent South Asia Development Update 2024.

The India Employment Report 2024 by the Institute for Human Development and the International Labour Organization has similarly highlighted that with a large proportion of working-age population, India is expected to be in the potential demographic dividend zone for at least another decade. While 7-8 million youth join India’s workforce every year, it notes that youth unemployment has been a significant issue, especially for those educated up to the secondary level or above. It estimates that the share of youth among the total unemployed population was 82.9% in 2022.

“The central problem of unemployment in India is that of youth unemployment, especially amongst those who are educated; and the low female labour force participation rate,” says Alakh N. Sharma, Professor and Director at IHD. He says that often the quality of jobs is poor, and, in many cases, minimum wages are not paid. “The quality of jobs will improve as we move towards formalisation of enterprises,” he says.

More recently, the ILO’s May 2024 Update on World Employment and Social Outlook says that while GDP growth is important, it is not a panacea for sustainable development. It notes that global trends show that progress in reducing poverty and informality has slowed since 2015 and the relationship between these indicators and the GDP has weakened. “Moreover, formal job creation has not kept pace with a growing working-age population,” it says, pointing out that this is not just an India-centric problem.

Over the past few years, the government has taken a number of initiatives to create jobs. These include measures aimed at skilling and re-skilling workers, modernising labour laws, boosting domestic manufacturing and private investments and providing loans for self-employment and entrepreneurship. While most measures have had mixed results, and some of the initiatives faced a setback during the pandemic, it is expected that the Budget will announce fresh initiatives to gainfully employ India’s workforce as it tries to maintain the growth momentum. Creating jobs is also seen as a way to boost consumption demand and buoy falling incomes of households. The rise of AI and automation is also posing fresh questions over the future of the workforce.

Manish Sabharwal, Chairman of staffing company TeamLease Services, believes that implementing the four Labour Codes—Code on Social Security 2020; Occupational Safety, Health and Working Conditions Code 2020; Industrial Relations Code 2020; and Code on Wages 2019—if not separately but as a single code, reducing regulatory cholesterol or roadblocks and compliance burden on businesses as well as giving workers the option to choose between the EPFO and the NPS for social security will help boost job creation in the formal sector. “This election has shown that welfarism has run its course. India does not have to choose between manufacturing and services for job creation but can use both,” he says.

Push for PLI

There are expectations that the Budget will announce changes in the PLI scheme that aims to boost private investment in domestic manufacturing and include MSMEs in its ambit. This is expected to have a huge impact on job creation as MSMEs are one of the largest employers. Fresh PLI schemes in labour-intensive sectors such as toys could also be announced. The PLI scheme in 14 sectors with a total incentive outlay of `1.97 lakh crore had registered investments of `1.03 lakh till November 2023. But, apart from electronics, which has garnered a strong response, several sectors such as batteries for electric vehicles and automobiles are yet to gain traction.

Another focus area is likely to be the rural economy and sources indicate that an increase in allocations for schemes such as rural road construction often has a multiplier effect in creating jobs. Ramendra Verma, Partner at Grant Thornton Bharat, points out that while the PLI scheme has seen reasonable success, it should be extended to include MSMEs, particularly micro businesses such as individuals, self-help groups (SHGs) and Joint Liability Groups (JLGs). “This would not only give a boost to manufacturing but also create jobs in rural areas. At present, most of the government-induced job creation in rural areas is through the MGNREGA scheme,” he says. If the government could come up with an innovative way to generate jobs by tweaking a PLI scheme for MSMEs, SHG and JLGs, it can help India in countering Chinese imports and improving trade deficit, he explains.

The issue of job creation and a tweak in the PLI scheme were a part of the pre-Budget discussions Finance Minister Nirmala Sitharaman had with industry, economists, and trade unions. Ashwani Mahajan, National Co-convenor of the Swadeshi Jagaran Manch, who attended the discussions, says that those present at the meeting were appreciative of the government’s efforts on fiscal prudence despite the lower-than-expected nominal GDP growth. But job creation was a major issue.

“In the past few years, the government had given a push to private investments through PLI. Now, in the second phase of the scheme to boost Atmanirbhar Bharat, self-reliance and import substitution, PLI should be in tune with the requirements of MSMEs. This will give a push to job creation and private investments,” he says, adding that there is also a need to increase R&D in agriculture as rural unemployment is a major issue even globally.

Industry association CII in its pre-Budget suggestions has called for a thrust on agriculture and rural development, including the creation of non-farm rural jobs by encouraging village-level entrepreneurs and developing integrated rural business hubs. It had also suggested an employment-linked incentive scheme for labour-intensive sectors with high growth potential, with inducements linked to employment generation.

Ways and Means

There have also been discussions about a possible review of the National Apprenticeship Promotion Scheme (NAPS) to help enrol more youth and industry absorbing them eventually. Enrolment of apprentices rose to 930,000 in FY24 from 738,000 in the year-ago period. “The scheme can be tweaked to make it more attractive for young school and college graduates to get on-the-job training,” says Mahajan.

Sumit Kumar, Chief Strategy Officer at TeamLease Degree Apprenticeship, which runs degree apprenticeship programmes, had earlier called for linking apprenticeship with higher education through degree apprenticeships under the New Education Policy. “Additionally, we need to establish an apprenticeship credit framework for lateral entry to higher education, tailor schemes for MSMEs to embrace apprenticeships, promote adult apprenticeships for lifelong learning, and scale up support mechanisms like TPAs (third-party aggregators), which have significantly contributed to the growth of NAPS,” he had said.

The other concern is to boost women’s participation in the labour force. According to IHD’s Sharma, this is a must as there are high rates of unemployment among educated women. “There are a number of factors for this ranging from security and safety concerns to household and care work,” he says. He suggests that the Budget should include measures to facilitate flexible work for women, apart from the gig economy, as well as enhance allocations for facilities like working women’s hostels and crèches so that more of them can join the workforce.

Pre-Budget suggestions from experts also include a possible robot tax for jobs that have been impacted by the rise of AI. Mahajan had mooted the proposal for such a tax. “Can we impose a tax on AI that is not giving too much efficiency but reducing jobs? This money can then be used for skilling workers and redeploying them,” he adds.

There are also hopes that the Budget will announce filling up of vacancies in government jobs, an issue that trade unions had raised in their pre-Budget discussions. The Bharatiya Mazdoor Sangh, which is affiliated to the Rashtriya Swayamsevak Sangh, has pegged vacancies in the central government at 2 million and has demanded that these be filled up quickly. While the exact contours of the Union Budget and its proposals are likely to be finalised in the coming days, experts caution that employment-related policies often take months, if not years, to make an impact at the ground level. But given that India is likely to have the largest share of working-age population by 2030, giving a boost to employment now would hold the country in good stead later. 

@surabhi_prasad