Moneycontrol Pro Panorama | The real job

The government has the enviable job to reduce income inequality

Dear Reader,

In a little more than a fortnight, the central government will present its plan to earn and spend in the new fiscal year, along with an assessment of how it fared in the current fiscal year. The Union Budget determines which sectors get the big bucks, whether citizens get to keep more money in their wallets, how much will they need to give the state to supply them with what they need and who or what gets the short end of the money stick.

At the crux of this yearly financial circus is the important consideration of keeping the youth of the country gainfully employed that enables them to earn income and live their lives. Simply put, it is jobs. The single most important element that sways the pendulum of success politically and economically is how many jobs the administration of the day has created.

India’s success on employment has been notably defensive. We have been able to reduce unemployment -- as the official figures say -- and even been somewhat successful in reducing the impact of external shocks such as the pandemic on the population’s earning capacity, but we haven’t been yet able to create a sustained high employment rate that takes us on the fast track to be a developed nation. Worryingly, we seem to be losing the plot of creating a relevantly skilled workforce. The National Skills mission still struggles to bridge the gap between demand for skilled workers and supply.

Now, the government has enraged a part of the citizenry by changing the contours of its flagship employment guarantee scheme. The original two-decade old Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) was incidentally a big reason behind reducing the hardship of getting a job during the pandemic year. Under this scheme, rural folks were guaranteed 100 days of employment in a year at a fixed wage. The government claims that under the revamped scheme, 125 days of employment would be available, which shouldn’t irk anyone.

But the real deal breaker is that a large burden of the funding will now be on states, and as our Budget Snapshot details here, state finances are not exactly healthy. Economists fear that the constraints of funding at state level would risk diluting the benefits of the scheme to a vast swathe of the population that depends on it. Notable economists such as Joseph Stiglitz and Thomas Piketty have criticised the changes.

Given the risks pointed out by economists, the new scheme may push many out of the guaranteed employment fold which may dent the rural consumption recovery that has spearheaded the improvement in consumption demand growth this year. Indeed, rural India has been a saviour when it comes to consuming more by having greater disposable income.

What’s more, rural India’s employment rate remained stable in December in contrast to a softening in urban employment. Manas Chakravarty digs into the Periodic Labour Force Survey here to find that rural employment has improved in the past three months and along with an increase in labour force participation rate, that augurs well for consumption.

But urban employment points to a near-term softening of household incomes and consumption. Shouldn’t the government refrain from complicating the consumption curve and instead boost employment?

While the revamped MGNREGA will mean that 40 percent of the cost is borne by states (and hence risk crimping the availability of employment), the impact of the changes needs to be monitored in rural India in the coming year. Perhaps, the Budget should address the risks and offer a remedy for the same.

Elsewhere, the battle for better employment benefits for gig workers is on. Quick commerce companies have come under fire and have rolled back promises such as 10-minute delivery that puts their workers at risk. The Budget last year focused on formal recognition of gig workers and better healthcare. The government needs to take this forward in the upcoming Budget and perhaps increase the odds of gig workers getting employment benefits that formal work gets.

Above all, the government has the enviable job to reduce income inequality and make policies that reduce the lopsided contribution of sectors to economic growth and employment. We pointed here a month ago out that half of the economic growth is from sectors that barely employ one-eighth of the workforce. The remedy could be in the Budget whereby the government can provide encouragement through incentives to boost the contribution of labour-intensive sectors in growth.

The government holds the power and the purse strings to boost employment, and this is perhaps the real job of the Budget.

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Aparna Iyer Moneycontrol Pro