Will India’s new US$24b plan to boost employment pay off?

NEW DELHI: Steel utensils factory owner Mateen Mishra had high hopes that India’s recent annual budget would allow him to expand his business.

His expectations of a reduction in tax rates, compliance requirements and cheaper loans, however, were not fully met when the government unveiled its budget for the current fiscal year on Jul 23.

The government instead announced new hiring-linked incentives. These include reimbursing bosses for a portion of benefits paid to current employees – such as pensions – and handing out reimbursements if a firm hires new people.

Mishra expects the incentives to reduce his labour costs by 20 to 30 per cent in the short term, but he remains unsure how he will be able to sustain an expanded workforce in the long run.

His factory, GH Chishti Industries, employs nearly 50 workers who pull 10-hour shifts daily.

In such small low-margin businesses, the costs of upskilling and retaining workers – which many employers have to bear – can make or break them.

“The salaries that we’re able to give our employees are not enough for their survival, so we try to keep increasing their pay every year. But how long … can we continue like this?” Mishra questioned.

“The pay rise is hurting our profitability. If we pay more in salaries, we can’t survive for long.”

UNEMPLOYMENT RATE ROSE

These incentives are part of India’s big push to boost employment.

According to latest data from independent think tank Centre for Monitoring Indian Economy, the country’s unemployment rate stood at 9.2 per cent – a sharp increase from 7 per cent in May.

The government’s plan to spend US$24 billion over the next five years is expected to benefit nearly 40 million jobseekers and is aimed at opening up more opportunities for young people, said analysts.

To benefit from the incentives, companies like Mishra’s have to enrol workers in the Employees' Provident Fund Organisation, one of the two main social security bodies under state control.

The idea is to push companies to convert informally-employed labour into fixed employees. This would ensure some protection through mandatory pay benefits and social security.

India’s Finance Minister Nirmala Sitharaman also announced one-time direct benefit transfers of a month's salary – up to US$180 – to first-time employees. 

The scheme could shift some burden away from businesses and add to the young person's disposable income.

However, questions remain over whether these new schemes, which the government said will eventually benefit about 29 million potential employees, will generate new jobs.

Experts said it is a long-term plan that will take months, if not years to produce results.

INTERNSHIP PLAN

For those looking for work now, the right opportunities have proven difficult to come by.

“There are seemingly plenty of jobs available but we’re unable to get one that we like. And for a lot of us, there aren’t enough jobs,” said jobseeker Suman Kumari.

Another jobseeker, Shaurya Kumar, told CNA that employers want workers who are highly skilled, have prior experience, or have a good educational background. “But most of us do not fit that profile,” she added.

The government’s internship plan is aimed at solving that problem.

It wants to rope in India’s 500 biggest companies to provide internships to 10 million youths. A portion of the interns' salaries will be paid back to participating firms, while the remainder may be eligible for tax benefits.

Experts said this is a crucial step towards creating a highly-skilled talent pool.

Still, it also remains unclear how many of these internships will eventually be converted into full-time jobs.

Shantanu Rooj, CEO of learning solutions company TeamLease EdTech said that the move will go towards boosting new workers’ employment and employability.

“This incentive for hiring interns so that people can create their own talent supply chain reduces the cost of hiring for employers, which I think is a great initiative,” he said.