By Shalini Pillay,
Office Managing Partner, Bengaluru, KPMG in India
Budget 2020 is around the corner and the Government has a Herculean task cut out for itself of performing a tough balancing act that ensures economic development in the backdrop of a dipping economy, increasing fiscal deficit, rising inflation and rising unemployment rates.
Studies reveal that India entered demographic dividend in 2018, and that this bulge in working-age population is going to last till 2055! As per the United Nations Population Fund, countries can only harness the economic potential of the youth bulge if they are able to provide good health, quality education and decent employment to its entire population. This in sorts is an irony in the Indian context, where the demographic dividend runs the risk of turning into a demographic liability.
The unemployment rate in India as at December 2019 stood at 7.7 per cent with highest levels of unemployment being among urban youth (Source: CMIE). Reforms are urgently required to change outdated curriculum and eliminate redundant skill sets. The Government should also implement various programmes and schemes to impart vocational training and ensure that the education system provides the relevant skillsets for making the graduate pool more employable. Introduction of more new-age skill development schemes for the youth and enhanced allocations to Pradhan Mantri Kaushal Vikas Yojana may be a step in this direction. While there is a growing awareness of the chronic need and there are initiatives taken towards addressing this, we need more holistic transformation reforms, at an accelerated pace.
Industry 4.0 is a reality now with India not being left too far behind in its journey of being a global manufacturing hub. The recent changes in the Foreign Direct Investment Policy is a step well taken in this direction. More schemes on the lines of Samarth Udyog in the upcoming Budget will help Indian youth also be a part of this industrial revolution.
A decade of muted government investments in the infrastructure sector have also contributed to the economic slowdown. Hence, improvement of spend in this sector will be a prime factor to help resolve the growing unemployment in the country. The MSME sector contributes around 30 per cent in GDP and employs more than 11.1 crore individuals (Source: Report of the expert committee on MSME, June 2019). Setting-up of a government sponsored fund to help this sector on the lines of the recommendations made by the RBI committee in June 2019 will result in provision of diverse employable opportunities to the educated Indian youth.
Start-ups and new commerce businesses is another category that contributes to job creation and requires adequate attention and support from the government to ensure its existence and smooth functioning. India is seeing a rapid evolution of the gig economy, which has been witnessing high growth, especially in job creation for blue collar workers. However, since the entire sector is unregulated by labour laws and lacks stability, it is prone to high attrition. It would aid the government’s efforts to reduce unemployment if suitable measures are brought in through the budget to provide the gig workers labour rights, minimum pay, equitable working hours, etc. The Draft Social Security Code, 2019, introduced in the Lok Sabha in December 2019 is definitely a right step in this direction.
Even though the government has recently announced corporate tax rate cuts, the problem of the economy may not yet be resolved as the same may not boost the demand at the micro level. Hence, lowering the personal taxes to increase disposable surplus income may boost the demand side of the economy, which in turn will generate new employment.
All-in-all, time is now ripe for the government to take additional steps in the direction of growth, investment, educational reforms and development, that would result in a more sustained economy in the longer run.