India’s jobs challenge will not be resolved in a year. Yet, by unclogging the compliance pipeline, the budget can make a significant difference, changing the way India works and meeting its aspirations.
The new government wants a $5 trillion economy by 2024. For this, the Union Budgets need a strategy to achieve around 8 percent annual growth. A critical component will be creating 80-90 lakh new jobs annually, to accommodate not just additions to our workforce, but also their aspirations.
The Indian youth today isn’t looking to do just any job for just any wage – this is India’s job challenge. The answer lies in raising our productivity, our capability and capacity to generate jobs with wages that meet these modern aspirations. The high MGNREGS allocation every budget (Rs 60,000 crore in the interim budget, 2.16 percent of total expenditure) is an admission of India’s failure to make five crucial labour transitions: farm to non-farm, rural to urban, subsistence self-employment to wage employment, informal to formal and school to work. Without these transitions, India has been locked in a low-level equilibrium characterised by low productivity. The inability to reduce our dependence on MGNREGS for rural support shows our inability to jumpstart the economy to a higher level.
The five transitions needed call for comprehensive reforms, an ongoing process for Central and State governments. Yet, the Union Budget can set a clear target and roadmap towards improving productivity by measures that a) create a conducive atmosphere for formalisation, both enterprises and jobs, and b) enhance workforce quality.
Thanks to our heavy regulatory cholesterol with complex rules and cumbersome paperwork, India is a country of informal, small units. India’s 63 million enterprises are mostly unregistered and 95 percent hire less than six workers. Worse, just 1.2 million of these contribute towards provident fund and ESI for their employees. This has to change. We need to take a hammer to what is in effect a formalisation tax that incentivises companies and jobs to stay under the radar. Five suggestions are presented here to raise productivity, reverse the informality that keeps wages low and curbs job-creating potential.
One, small units are disproportionately burdened by heavy compliance, having to use scarce resources to deal with 60,000 possible compliances and at least 3000 filings annually. The GST template has shown the way to a new definition of compliance digitisation – instead of uploading documents to a government website with passwords, the process uses an API architecture that allows straight-through-processing of filings from external systems. This architecture should be extended to other departments especially labour. There should be specific budget allocations for implementing a paperless, cashless and presence-less interface between government and enterprises/employees, that will significantly reduce the compliance burden.
Two, e-assessments, as in Income Tax, should be initiated in all departments, releasing the stress of dealing with inspections and inspectors. This will significantly raise MSME productivity, giving them the ability and incentive to grow, creating jobs with higher wages.
Three, as part of reducing the compliance burden, the process initiated by the AGILE form introduced by MCA recently should be extended across departments. The single form integrated six departments at the backend, plugging a new company and its employees directly into the formal system by registering simultaneously with GST, ESIC and EPFO. This has to be taken further - India needs a Universal Enterprise Number to reduce the pain in starting and operating a business. Currently an enterprise has to register for more than two dozen numbers, with different government departments. One single number will ease the burden of paperwork for companies and make tracking compliance easier for the government.
Four, statutory deductions can currently eat up to 40 percent of gross wages for employees with monthly wages up to Rs 25,000. This creates a disincentive for both employers and employees to formalise jobs at the lower end of wages, where the net take-home salary is critical. Contributions by low wage employees could either be made optional, or subsidised. The PMRPY (Pradhan Mantri Rojgar Protsahan Yojana) scheme for partial reimbursement to employers for incremental low wage employees has worked well so far and should be extended for three years.
Five, the fastest way to fix the problem of skilling our workforce is through apprenticeships. However, the government’s capacity to subsidise requisite numbers is woefully inadequate. We need 15 million apprentices for an economy our size; Shreyas, India’s biggest skilling programme introduced this year, has capacity for 500,000 annually. Rather than subsidies, we need an ecosystem that encourages apprenticeships e.g. an exclusive job portal that matches apprentices to industry, companies to use CSR for skilling and training, more degree-linked apprenticeships by approving skill universities etc.
All said and done, the Budget is the government’s annual accounting statement and India’s jobs challenge will not be resolved in a year. Yet, by unclogging the compliance pipeline, the budgetary exercise can make a significant difference, changing the way India works and meeting its aspirations.Sumita Kale is an economist with Avantis Regtech Pvt Ltd, a TeamLease company. Views expressed are personal.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.