NDA government’s 20th century Budget

Neither the share of manufacturing nor the labour employed in manufacturing has gone up in three decades. Will employment-linked incentives deliver better results?

Finance Minister Nirmala Sitharaman’s growth package in Budget 2024-2025 is centred on the strategic pillar of Employment Linked Incentives (ELIs) for 41 million youth under the rubric of Prime Minister’s Package for Employment and Skilling (PMPES).

In addition, the government has offered a big package for sustaining and saving micro, small and medium enterprises (MSMEs). The government has also promised numerous studies and strategic papers for future direction.

Labour-intensive manufacturing, a 20th century winning strategy, is passé now. India has not succeeded in either increasing the share of manufacturing or the labour employed in manufacturing in the last three decades. Will the ELI deliver better results?

The MSMEs are facing competition now. Many are closing and becoming unprofitable by the day in manufacturing and services. Can the package offered bring some vibrancy to the MSMEs?

When will these studies get done and provide futuristic solutions?

ELI programme

There are three ELI schemes.

Scheme A promises to pay the first salary (limited to Rs 15,000) to first-time employees, which could benefit 21 million youth.

The annual survey of industries (ASI) 2021-2022 informs that 200,576 operating factories in India employ 17.2 million persons, with 1.6 million additional jobs created in five years; that is only 320,000 jobs per year. The Employees’ State Insurance Scheme (ESIC) data suggests that its subscriber base rose from 29.06 million in March 2018 to 29.27 million in March 2020, resulting in an addition of about 100,000 new employees a year.

In the face of such reality, there is no way 21 million new jobs (or even one-tenth of it) can be created in manufacturing and organised industrial enterprises.

Scheme B and Scheme C are essentially a continuation of the Aatmanirbhar Bharat Rojgar Yojana (ABRY) started in 2020 and closed in 2023, and its earlier version PM Rojgar Protsahan Yojana (PMRPY) started in 2016 and closed in 2019.

These two schemes (B and C) will also end up generating new folios only with the Employees Provident Fund Organisation (EPFO), as the PMRPY and the ABRY did.

Skilling and Internship

A fourth scheme for skilling is a rehash of an earlier scheme, which is the upgrade of 1,396 ITIs. The fifth scheme is for providing internships to 10 million youth — this is the real red herring.

Its scope of offering Rs 5,000 per month internship for a year to unemployed persons between the age of 21-24 not engaged in full-time education, not having an IIT, IIM, IISER, CA, CMA, etc. qualification, and not belonging to family assessed to income tax or of a government employee virtually disentitle the entire middle-class of India.

The possibility of the top 500 companies offering 10 million internships to this amorphous group of unemployed youth seems more like a work of fiction.

MSME schemes a non-starter

Sitharaman proposed a new credit guarantee scheme for facilitating term-loans to the MSMEs for the purchase of machinery and equipment without collateral or third-party guarantee.

It envisages ‘pooling of credit risks’ in a ‘self-financing guarantee fund’ financed from upfront and annual guarantee fees paid by the MSME applicants to avail loans up to Rs 100 crore. No actuarial assessment seems to have been done to determine how much premium will need to be paid to keep the fund solvent. Will the MSMEs create such an insurance pool? Prima facie the proposal appears to be stillborn.

Other proposals such as a new assessment model for MSME credit in public sector banks or opening new SIDBI branches are only for paying lip service.

The announcement of a new mechanism (not spelt out) for facilitating a continuation of bank credit to the MSMEs during their stress period
‘to avoid getting into the NPA stage’ only perpetuates widespread sickness in the MSMEs.

Employment taxonomy is undergoing big transformation

After the automation of production of goods on account of widespread mechanisation, it is now the turn of the automation of non-personal services — finance, accounting, commerce, information technology, etc. Datafication of everything and artificial intelligence (AI) will render most jobs in these sectors redundant.

In the 21st century, most jobs will emerge in sports, travel, entertainment, and personal services (STEPs), and delivered mostly in self-employment or gig mode or organised in micro and small enterprises.

The ELIs and the MSME schemes announced do not touch these 21st century enterprises and jobs.

Studies galore

The finance minister proposed many studies. The government will formulate an Economic Policy Framework to delineate the overarching approach to economic development and set the scope of the next generation of reforms.

The government will bring out a financial sector vision and strategy document to prepare the sector in terms of size, capacity, and skills for meeting the financing needs of the economy. The government promised to bring a ‘market-based financing framework’ to pass on the baton for private sector investment in infrastructure through viability gap funding and formulating thus enabling policies and regulations.

There are quite a few others.

What does all this indicate? Is it an admission that the government does not know the answers or is it postponing the tough decisions to the future?

The government’s track record of completing studies (remember the paper on cryptocurrencies) is not quite credible. Whether these papers will emerge or will propose something meaningful is also quite suspect.

The 2024-2025 Budget is largely a 20th century Budget, and will not take India towards the goal of Viksit Bharat 2047, or even help generate significant employment.

(The writer is former Finance & Economic Affairs Secretary, and author of The Ten Trillion Dream and We Also Make Policy)