Employment generation is 'real bottom line' for private sector: Eco Survey

Economic Survey 2023-24, employment generation, private sector, job creation, corporate profitability, capital deployment, labour deployment, AI, corporate taxes, GFCF, India Inc, Shiva Rajora, New Delhi

Calling upon the private sector to pick up the mantle of job creation, the Economic Survey 2023-24 reiterates that job creation happens mainly in the private sector and India’s corporate sector has never had it so good as now, with profitability at a 15-year high in FY24.

“Profits had quadrupled between FY20 and FY23. Businesses are sometimes reluctant to make investments citing lack of demand visibility. This could be due to external factors and internal factors such as weak employment growth and income growth. To that extent, the lack of demand visibility is an endogenous factor. Privileging capital over labour is inimical to long-term corporate growth prospects,” the yearly survey presented by the finance minister Nirmala Sitharaman in Parliament on Monday noted.

 

The Economic Survey notes that businesses have an obligation to themselves to strike the right balance between deployment of capital and deployment of labour.

“As important, capital and labour shares of income have to be fair. In their fascination for AI and fear of erosion of competitiveness, businesses have to bear in mind their responsibility for employment generation and the consequent impact on social stability,” the survey said.

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The Economic Survey also notes that the union government cut corporate taxes in September 2019 to facilitate capital formation and between FY19 and FY23, the cumulative growth in private sector non-financial gross fixed capital formation (GFCF) is 52 per cent in current prices. At the same time, the cumulative growth in general government (which includes states) is 64 per cent.

“The gap does not appear to be too wide. However, when we break it down, a different picture emerges. Private sector GFCF in machinery and equipment (M&E) and intellectual property products has grown cumulatively by only 35 per cent in the four years to FY23. Meanwhile, its GFCF in ‘Dwellings, other buildings and structures’ has increased by 105 per cent. This is not a healthy mix. Second, the slow pace of investment in M&E and IP Products will delay India’s quest to raise the manufacturing share of GDP, delay the improvement in India’s manufacturing competitiveness, and create only a smaller number of higher-quality formal jobs than otherwise,” the survey noted.

The survey also notes that the corporate sector has a responsibility, as much to itself as it is to society, to think harder about ways artificial intelligence (AI) will augment labour rather than displace workers.

“Hiring in the information technology (IT) sector has slowed significantly in the last two years. In any case, deploying capital-intensive and energy-intensive AI is probably one of the last things a growing, lower-middle-income economy needs,” the survey noted.

Citing a discussion note by the International Monetary Fund (IMF) which called for well-designed excess corporate profit taxes and high personal income taxes on capital through better enforcement of automatic information exchange between countries and enhanced taxation of capital gains, the survey notes that it is in the enlightened self-interest of the Indian corporate sector, “swimming in excess profits, to take its responsibility to create jobs seriously.”