 "'Can only provide fiscal incentives': Fin secy on govt's role in employment")
Fiscal incentives are within the central government’s purview to help boost employment in the country, Finance Secretary T V Somanathan said in a conversation with A K Bhattacharya, editorial director at Business Standard, at the ‘Budget with BS: The Fine Print’ event on Wednesday. In the post-Budget discussion, Somanathan outlined the role of the central government, as well as the realistic measures it takes to tackle issues of unemployment in the country.
“There is a universal agreement that we need to do something about employment. This is not an easy thing to do. Apart from preserving macroeconomic stability, maintaining a good investment climate, what more can the government do?” Somanathan said.
While cooperation in areas like labour, education, and skill development critical for employment generation especially among the youth, Somanathan said that these factors primarily fell into the purview of the state government.
“Conversations with the industry indicate that if you can’t fix all labour issues, let’s take it as a handicap and try to neutralise it through fiscal incentives.” Somanathan explained. “But fiscal incentives fall into our domain... and this is what corporates expect and ask from us,” the finance secretary said.
When asked what the biggest issues were surrounding employment, his answer was sharp: Skilling.
“We have a problem in terms of the level of skills of people who are coming out of the education institutions... The central government cannot skill people like the private sector can,” Somanathan said. He added, “The cloud is that we have a skill gap. The silver lining is that we also seem to have a problem where industry says that we can't find skilled people to give jobs to.”
Tax vs subsidy incentive for job creation
During the conversation, Somanathan was asked why the government chose to provide subsidy incentive to corporates over tax, to which the finance secretary mentioned that every policy comes with some setbacks. “Subsidies trigger reactions... Tax incentives create compliance problems,” he said.
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Defending subsidies, Somanathan said, “The problem with tax incentives is that when you have relatively low corporate taxes, and companies often incur losses in the first 10 years of a new venture, the benefits are delayed. For instance, if you set up a manufacturing entity, there is often a huge depreciation overhang. As a result, the discounted present value of the tax benefits provided is often much delayed.”
Simplifying the tax code emphasised
Aside from this, Somnathan expressed the overall mood of the Budget was to move towards simplifying tax systems, as mentioned in Finance Minister Nirmala Sitharaman’s Budget 2024 speech.
He said, “We are distinctly moving towards simplifying the tax code, and tax incentives can create compliance problems. In this case, you face compliance issues before receiving the fiscal incentive, whereas, in other cases, you might face them after receiving it — when someone sends you a notice stating that you were supposed to employ a certain type of person, but your audit report shows otherwise, and you are asked to refund the incentive. This has happened. So, I don’t think there is a significant difference in this regard. Is this going to be very bureaucratic? No, it’s not. It is intended to be very simple.”