Right to livelihood: Job creation gets Budget boost with incentives

Recognising job creation for the youth as the foremost challenge for the economy, Finance Minister Nirmala Sitharaman on Tuesday announced a comprehensive Prime Minister’s package to facilitate the employment and skilling of 41 million youth with a central outlay of Rs 2 trillion over the next five-year period. The package will consist of five schemes and initiatives – three focused on jobs and two on skilling.

“Our government will implement the following three schemes for employment-linked incentive (ELI), as part of the Prime Minister’s package,” Sitharaman said in her Budget speech. “These will be based on enrolment in the employment provident fund organisation (EPFO); and focus on recognition of first-time employees; and support to employees and employers.” 

 

The ELI scheme for first-timers (i.e. persons entering the workforce in all formal sectors) will be implemented for two years and is expected to cover about 10 million people per annum with a total central outlay of Rs 23,000. The scheme will include one month’s wage as subsidy (up to Rs 15,000) to the employee in three instalments for new people with wage/salary less than Rs 1 lakh per month. To ensure retention, the employer will refund the subsidy if the employment of these first-timers ends within 12 months of recruitment. 

Similarly, an ELI scheme for promoting job creation in manufacturing will incentivise bulk hiring of first-timers. It will provide incentives at specified scale directly to both the employee and the employer with respect to their EPFO contribution in the first four years of employment. 

Only those employers that hire 50 non-EPFO-enrolled workers, or 25 per cent of its previous year’s EPFO employees, will be eligible. The scheme, with an outlay of Rs 52,000 crore, is expected to benefit 3 million youth. 

The third ELI scheme will cover additional employment in all sectors within a monthly salary of Rs 1 lakh. The government will reimburse employers up to Rs 3,000 per month for two years towards their EPFO contribution for each additional employee. The scheme is expected to encourage the additional employment of 5 million people at an outlay of Rs 32,000 crore. 

In his post-Budget remarks, Prime Minister Narendra Modi reiterated the government’s commitment to employment and self-employment. “Under the scheme, our government will pay the first salary to young people starting their first job,” he said. 

Lohit Bhatia, president, Indian Staffing Federation, said the schemes were tailor-made for people who contribute towards social security. These will remove the regulatory hurdle that prevents people from moving from informal to formal sectors and losing some of their wages towards EPFO. 

With this advantage, people will be encouraged to come under EPFO and enjoy the benefits of social security without compromising on the in-hand salary, he said. Employers, small and big, will be able to add more employees, he added. 

Surajit Mazumdar, a professor of economics at Jawaharlal Nehru University, had another point of view. He said the schemes presumed that the problem of employment was mainly a supply-side issue, and that providing credit and other support to enterprises would make a significant dent in employment. 

“However, the real problem is on the demand side, where deficiency of demand is restricting enterprises from expanding employment,” he said. “This is coupled with a long-term trend of capital goods cheapening and facilitating labour substitution even if real wages do not increase. Thus, such policies are unlikely to make a significant dent if accompanied with a fiscal policy that prioritises curbing of expenditure.”