Employment-linked incentive: India Inc. awaits the fine print

Employment and skilling: these words came up 23 times and 10 times, respectively, in the Budget speech of Union Finance Minister Nirmala Sitharaman on July 23. No wonder then that these are perhaps the most talked about proposals in this year’s Budget, even overshadowing Part B of the Budget that deals with tax and tends to be the most-awaited part of the annual exercise.

With a population of 1.44 billion and a median age of 29 years, India’s unemployment problem has been a crucial challenge confronting policymakers. What’s more, nearly 80% of India’s workforce is in the informal sector, making social security another concern. In fact, unemployment was a very prominent issue during the General Elections.

Factoring in these concerns, the Budget has proposed an outlay of Rs 2 lakh crore over the next five years targeting 41 million youth as part of the Prime Minister’s package on employment and skilling. The objective is to promote skilling and upskilling of youth to meet the requirements of employers and create an ecosystem where employers are nudged to invest more and hire more, especially first-timers, and move towards formalisation.

The announcements include three employment-linked incentive (ELI) schemes—Scheme A that will target first-time employees in the formal sector registered with EPFO and will offer one month’s wage up to Rs 15,000 in three instalments; Scheme B that will incentivise employment in the manufacturing sector, especially for first-timers, through a contribution to the EPFO; and Scheme C that is employer-focussed and will cover additional jobs in all sectors. Plus, there are proposals for upgrading 1,000 industrial training institutes (ITIs) where 2 million youth will be skilled over five years, and internships for 10 million youth at the Top 500 companies over five years.

“These three (ELI) schemes are helping the employer offset additional employee costs that the industry has always been asking for. Second, these will help to formalise the workforce, which brings into place social security related to provident funds and other insurance-related aspects. And third, it helps improve employability of labour because Schemes A and B are for first-timers, they have a learning curve,” explains Sumita Dawra, Secretary in the Ministry of Labour and Employment. She tells BT that these are likely to be rolled out by year-end.

Union Labour and Employment Minister Mansukh Mandaviya is also monitoring the progress of the schemes and has called for their expeditious roll-out.

The Skill Gap

A paradox of India’s labour market is high unemployment, often coupled with a large number of vacancies due to what industry calls the skill gap. Citing estimates, the Economic Survey 2023-24 had said that 51.25% of the youth are deemed employable. This means that one in two graduates is not yet readily employable straight out of college. The government’s National Career Service portal also shows this divergence, with often a wide gap between the number of active vacancies and the candidates shortlisted.

Industry experts note that this is because candidates do not have the requisite skills—soft skills as well as the technical skills needed in the fast-changing landscape.

“Technology is ever evolving. While there are opportunities available in each and every sector, the available talent pool is limited, and there is definitely a skill gap. Investment in upgrading ITIs and defining the curriculum with industry will help bridge this,” says Varun Sachdeva, SVP & APAC Head of talent solutions firm NLB Services. He points out that even many non-tech sectors are now using Generative Artificial Intelligence (AI), which will also require skilling.

An Eye on India Inc.

All the schemes are based on feedback from industry and hinge on industry participation. Companies seem interested in hiring workers through these schemes for now.

“The ELIs were a necessity… This was a key ask of the industry for a long time. What the PLI has done for the manufacturing sector, I am 100% sure the ELI can do for employment and skilling,” says Suchita Dutta, Executive Director of the Indian Staffing Federation.

Many companies are already planning to hire workers through these schemes. Vivek Lohia, Managing Director of railway freight wagon manufacturer Jupiter Wagons, points out that the Budget announcements allow the company to integrate new employees seamlessly and build their skills from scratch, which can be more effective than adapting experienced workers to the company’s practices. “A skill taught is a skill learnt. With our engineering-heavy workforce, this initiative provides us the opportunity to train and develop freshers to align with our company’s specific needs,” he says.

Kavita Shirvaikar, Managing Director of infrastructure firm Patel Engineering, says that anticipating a surge in infrastructure projects in the next few years, the company is set to undertake mass hiring across all levels, from project managers to the junior-most positions, including critical positions like planning, billing, contracts, geologists, and surveyors. “We are also looking to the future by investing in fresh talent through campus hiring initiatives,” she says.

As the Dust Settles

But there are concerns born out of similar experiments in the past about the economic environment and the actual details and on-ground implementation of the schemes. One big question is the hiring capacity of India Inc. amidst muted consumption demand and subdued private investments.

Amit Basole, Professor of Economics and Head of the Centre for Sustainable Employment at the Azim Premji University, points out that the past few years have been unusual due to pandemic-related shocks, and there are structural problems on the demand side such as muted private investments. “The ELI schemes nudge employers to hire more, but the actual hiring would depend on the actual demand and the severity of these structural problems,” he says.

Sanjay Kumar, CEO & MD of food service firm Rassense, agrees that skilling people for the sake of it is not going to create more opportunities, because in this case, supply will not create demand. “Employment of youth has been an issue for many companies for two reasons. One is the absence of skills, and the other is muted growth, particularly because domestic consumption has been growing at a slower pace than anticipated,” he says.

Earlier schemes have had mixed results. Basole notes that it is difficult to gauge the impact of the previous schemes because there’s not much analysis that’s available in terms of their identifiable impact.

The Economic Survey also points out that the outcomes from the apprenticeship schemes signal that there is scope for improvement. The National Apprenticeship Scheme 2.0, launched last year, set an ambitious target of enrolling 4.6 million apprentices in the four years from 2022-23 to 2025-26, whereas enrolments from 2016-17 to 2021-22 were 1.59 million. Questions also remain about how many enterprises will move to the EPFO given the lengthy compliances required.

Notwithstanding these, the Survey has stressed that jobs are created in the private sector. “India’s corporate sector has never had it so good as now, with profitability at a 15-year high in FY24. Profits had quadrupled between FY20 and FY23,” it said, adding that businesses are sometimes reluctant to make investments, citing lack of demand visibility.

The Fine Print

Companies are watching out for the fine print of these schemes and await further clarity from the government. “How the implementation happens, how the adaptation happens, how the schemes are drafted, obviously, there is a lot to be seen on how it actually comes into practice,” notes Dutta of the Indian Staffing Federation.

For instance, there are doubts about the direct benefit transfers proposed under Schemes A and B. According to the Budget annexure, in case the employment of the first-timer ends within 12 months, the employer will have to refund the subsidy.

Apart from the ELI, there are also questions around the internship scheme. “More details are awaited on the proposed internship scheme to understand how it will work. From what we know, it seems that the number of firms to be involved (500) is not very big, while the target of interns is quite large. It is also not clear how keen firms would be on using their CSR funds to provide a monthly allowance to students,” notes Basole. He believes that it is a good idea and could help people transition from school to work, especially first-time job-seekers or those from the deprived sections who may not have an understanding of the job market.

The Economic Survey has highlighted that India needs to generate an average of 7.85 million jobs annually until 2030 in the non-farm sector to cater to the rising workforce. A start has been made with these schemes. Now, jobs need to be created, and quickly.

@surabhi_prasad