The Union budget for 2024-25 has a grand target to provide employment to 4.1 crore young people in 5 years, which works out to 8.2 million a year. It is undoubtedly a major move for a country whose working group of those aged 20-59 will reach its peak in 2041. But the budget’s employment prescriptions lack a clear diagnostic basis.
The Economic Survey 2024 does not reflect the nature and magnitude of the problem of unemployment (Chapter 8). For example, it speaks of an “improved” situation “with the unemployment declining to 3.2 percent in 2022-23”, “rising youth and female participation in the workforce”, and a “bounce-back of the organised manufacturing sector”.
On the other hand, the Centre for Monitoring Indian Economy reports an unemployment rate of 8 percent in 2023-24 for those aged above 15, up from 7.5-7.7 percent in the preceding two years. Not only that, the employment rate—proportion of those employed in the working-age population—edged down from 38 percent in May 2024 to 37.6 percent in June 2024. ILO’s Employment Report 2024 also corroborates the poor employment conditions. The Survey’s optimism seems misplaced, especially given the emerging reality.
India’s unemployment situation is more structural than seasonal and short-term. Nearly 90 percent of the workforce is informally employed, mostly self-employed, casual labour or gig workers. That most of them live on subsistence earnings cannot be ignored without considering minimum wage legislation, social security issues and other livelihood questions. The ILO report points out that the slow transition to non-farm employment has been reversed after the pandemic. It is difficult for an economy where manufacturing employment has been stagnant around 12-14 percent to absorb surplus labour from the agricultural sector. China, which shared almost the same economic and demographic conditions before the 1950s, achieved a significant structural transformation through manufacturing.
Let’s look at women’s employment and empowerment because the two are separately addressed in the budget—allocating Rs 3 trillion, but without a clear strategy. Although ‘women’s participation’ appears in the budget speech immediately after the paras announcing three schemes of the prime minister, it is not part of it. The budget forgets that the number of women not in employment, education or training is five times larger than their male counterparts, and in 2022 constituted around 95 percent of the total youth population in this category.
Not only that, the latest Periodic Labour Force Survey’s estimate of workforce participation for men and women shows a glaring difference—68.4 percent for men as against 16 percent for women in 2017-18, but 71.5 percent for men and 24 percent for women in 2022-23, as K P Kannan showed in a 2024 paper. There is not much to report. Again, according to the National Family Health Survey 2005-06, married women employed in the previous 12 months was 42.8 percent against 98.8 percent for men, but in NFHS 2019-21, it fell to 31.9 percent for women and 97.5 percent for men.
Instructively, based on the World Bank Enterprise Surveys 2014 and 2022, Rozi Kumari and Rupayan Pal concluded in a 2024 paper that women’s ownership and participation in the top management of registered private firms drastically decreased from “a low to a meagre level” despite high economic growth and the launch of several programmes to promote women’s entrepreneurship. The budget is not sensitive to these issues.
Another critical area is educated unemployment. The AISHE portal shows the number of graduates and certificate holders in 2021-22 as 10.27 million (51.24 percent females), of whom around 8.5 million are under-graduates and post-graduates. Are they an employable resource?
So, this budget has no employment policy that squarely addresses the gender issue, educational policy and a long-term strategy for structural transformation.
Turning to the prescriptions, the budget offers five schemes to expand employment and skilling. It is by requiring the employer to register with the Employees’ Provident Fund Organisation that employees are drawn into the formal sector. The schemes seek to incentivise the private sector by reducing the labour cost through wage subsidies.
The first three schemes are employment-linked incentives. Briefly, Scheme A is a direct wage subsidy of Rs 15,000 per month to cover 2.1 crore first-time employees; B, a wage subsidy to both the employer and employee to benefit first-time employees broadly to promote manufacturing; and C, support to employers with EPFO contribution for 2 years up to Rs 3,000 a month. The other two initiatives are for youth skill development, one to upgrade 1,000 Industrial Training Institutes with the support of industry and states, and the other a grand internship project for youth in 500 top companies at an average of 4,000 interns per company per year, to be paid a monthly allowance of Rs 5,000 for 12 months. The companies have to bear a part of the training cost and monthly allowances from their CSR funds. The remedies are more easily announced than implemented.
The private sector is the key driving force for employment in India. It can be stimulated only through aggregate demand via consumption, investment and exports. In a growing unequal economy—the nine-point priorities of the budget ignore it—the disposable income of the poor, whose marginal propensity to consume is high, can be increased only through employment or other exchange entitlements.
What is the budget’s response? The reduction in MGNREA allocation benefitting the poor from Rs 90,806 crore in 2022-23 to Rs 86,000 crore in 2024-25 is untenable. Not much consumer demand can be promoted by increasing the income of the middle class by Rs 17,500 through changes in tax slabs, or Rs 10,000 by raising the standard deduction.
It is difficult to envisage that the entrepreneurial ecosystem would be improved by abolishing the ‘angel tax’ along with the Black Money Abolition Act 2015, giving immunity from benami transactions by abolishing the Benami Transactions Act, 1988 and the likes. So whom does the budget help? Annexure 7 shows a total foregone revenue of Rs 1.09 trillion. It is now well documented that tax cuts cannot promote growth and employment as Thomas Piketty in 2020, and Abhijit Banerjee and Esther Duflo showed in 2019.
So it’s well worth arguing that the budget prescriptions need a radical relook to serve the Indian economy in a useful way.
(Views are personal)
M A Oommen
Honorary Fellow, Centre for Development Studies; Distinguished Fellow, Gulati Institute of Finance & Taxation, Thiruvananthapuram