It is the time of the year when expectations about the Budget take centre-stage. While there are hopes and apprehensions on the extent to which the Budget provisions would revive investment and demand, questions abound on how the Budget can be inclusive in its approach and delineate a roadmap for creation of job opportunities. Besides, the Budget would have provisions to push up living standards of the common citizen. All this and more is likely to be unveiled in the forthcoming Budget.
The Union Budget 2017-18 is being announced at a time when the economy is seeing a growth rate exceeding 7% during this fiscal. At the same time, inflation is down and the current account deficit is under control. Our monsoons have been good. As a result, food-grain production is estimated to rise to an all-time high of 135 millon tonnes in the kharif season. Sowing is also robust in the rabi season which in turn is expected to stimulate the rural economy and improve purchasing power. And, the political consensus to usher in the GST augers well for future growth and inclusion. While demonetisation is expected to inhibit the GDP growth rate, this is likely to be a blip in the growth trajectory for a quarter or two as the underlying fundamentals are largely positive.
Jobless growth
Despite the above, our economy has been facing challenges on the employment front with job opportunities not commensurate with the rate of growth. Every year, 10 -12 million young people join the labour force and 5 million people leave agriculture to join the non-agriculture sectors. Thus, there exists a total demand of 15- 17 million new jobs per annum. Hence, creating job opportunities for the youth every year is one of the biggest challenges for the Budget. We look forward to a tool-kit of policies which would help improve employment intensity in the economy.
Employment growth could be given a boost through investments in manufacturing and infrastructure. In the infrastructure space, capital expenditure in key projects like roads, railways, power as well as agri-infrastructure like irrigation, cold storage, warehousing and public housing projects in clusters would kick-start a virtuous cycle of employment-intensive growth. Budget data reveals that capital expenditure is budgeted to increase by 5% in FY17 after an increase of more than 25% in FY16. It is imperative that this slowdown in public investments be reversed in FY2018.
Renewed attention to manufacturing and the ‘Make-in-India’ initiatives could be a major driver of growth and job-creation. The government has been in favour of setting up manufacturing zones as well as sector- and product-specific clusters. We look forward to the Budget to announce a few clusters especially in areas which generate employment.
Focus on MSMEs
Within manufacturing, the major employers are the MSMEs and hence it is necessary to nurture them by providing incentives for growth. The Government’s initiative on Start-Up India and Stand Up India are some ways to enhance the competitiveness of new firms in the MSME domain, which in turn would create entrepreneurship and jobs. The Budget should encourage creation of start-ups by removing the burden of State regulation and thereby reducing compliance costs and the tax burden of successful start-ups. A start-up could be defined as any firm less than 5 years old with no further qualification.
For providing quality jobs in existing firms, the Government should extend the policy framework provided for textile and apparels to all sectors. This provides for fixed-term employment contracts to workers and state support for employers’ provident fund contributions in the first year. Specific reform policies should also be contemplated in the Budget for top the ten job-creating sectors such as tourism, IT, healthcare, textiles, and food processing, among others.
Innovation fund
Technology is a major enabler for growth of business and innovation is becoming critical to enhance manufacturing productivity and employment. For promoting MSME innovation, a National Innovation Fund could be created with a sizeable corpus of at least ₹10,000 crore to provide seed-funding to industry for innovation and R&D projects. There is also a need for a National Technology strategy for the next 10 years with clear outcomes in critical sectors such as Defence, Aerospace, Electronics, and Capital Goods. Such a strategic approach exists in Taiwan and South Korea.
Tax deduction is available for employment generation under section 80JJAA of the Income Tax Act in respect of costs incurred on any employee whose total emolument is less than or equal to ₹25,000 per month. This cap on salary is very low especially in the case of the software industry and should be suitably enhanced, at least to ₹50,000.
Focusing on skilling and education is imperative for employability and long-term sustainability of growth. Tax deductions for investments in skill development, including provision of opportunities for training in specific skills, would encourage firms to hire workers rather than go for capital-intensive technologies. Skill training can be provided under a PPP framework and the government could consider a weighted deduction of 150% on skill development initiatives of the private sector.
To provide a boost to skill development under the ‘Skill India’ initiative, a portion of MGNREGA expenditure could be linked to skill development initiatives for those workers who are interested in undergoing a training course.
With such incentives, Budget 2017-18 would promote a paradigm change towards employment-oriented growth and help realise the dream of a developed India.
Chandrajit Banerjee is Director-General, Confederation of Indian Industry
