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Economic Survey 2018: A look at jobs, formal employment scenario

The latest Economic Survey gives hope to a government that has long been criticised for jobless growth, especially after making it a key electoral promise back in 2014.

twitter-logo BusinessToday.in   New Delhi     Last Updated: January 29, 2018  | 16:35 IST
Economic Survey 2018: A look at jobs, formal employment scenario
Chief Economic Adviser Arvind Subramanian

The latest Economic Survey gives hope to a government that has long been criticised for jobless growth, especially after making it a key electoral promise back in 2014. "India's formal sector non-farm payroll is substantially greater than currently believed," says the document currently being tabled in Parliament, adding that "the digitization of government data and the introduction of the GST have provided an opportunity to make some preliminary estimates of formal employment."

Defining formal employment in two ways-either in terms of employees receiving some kind of social security benefits or from a tax net perspective-the survey says that there are 22 crore employees in the country currently. For the social security angle, the Employees' Provident Fund Organization (EPFO) and Employees' State Insurance Corporation (ESIC) data has been used.

The table shows that from a social security perspective formal employment amounts to 6 crores, "to which we must add an estimated 1.5 crore of government workers (excluding the armed forces), for a total of 7.5 crores," explains the report, adding that, "Since the [total] non-agricultural workforce is estimated at 24 crores according to the 68th Round (2011) of the NSSO Employment-Unemployment Survey, formal employment under this definition is equivalent to 31% of the non-agricultural workforce".

Things look far rosier when looked at from a tax perspective. "Since new data on the GST is available, one can define tax formality as firms having registered under the GST," says Chapter 2 of the survey. The formal nonfarm payroll from a tax definition is thus estimated at 12.7 crores, including government employment. This implies that nearly 53% of the non-agricultural workforce is in the formal sector. Of course, not all the firms that pay GST are formal, in the common-use sense of the term-many small, below-the-threshold firms have registered for the GST so they can secure tax credits on their purchases. So given that the above figure excludes many formal workers in sectors outside the GST such as health and education, the survey hints that actual numbers might be higher.

Or it might not. Let's not forget that a recent research paper by Soumya Kanti Ghosh, chief economic adviser at State Bank of India along with an IIM professor that similarly tried to link job creation with new EPFO accounts opened drew a lot of flak. Notable economists had pointed out in the media that a new EPFO registration did not necessarily mean a new job; it could simply have been a fallout of demonetisation, where hitherto informal workers were newly registered as formal employees.

The survey glaringly points out that the size of the formal sector (defined here as being either in the social security or GST net) is a mere 13% of total firms in the private non-agriculture sector. However, it accounts for 93% of their total turnover. "About 0.6% of firms, accounting for 38% of total turnover, 87% of exports, and 63% of GST liability are what might be called in the "hard core" formal sector in the sense of being both in the tax and social security net," it says. At the other end of the spectrum, a whopping 87% of firms, representing 21% of total turnover, are purely informal, outside both the tax and social security nets.

The good news is that the survey lists employment generation, specifically "finding good jobs for the young and burgeoning workforce, especially for women", as a key area of policy over the medium term in addition to "creating an educated and healthy labour force". It is also careful to note that the lack of consistent, comprehensive, and current data impedes a serious assessment. "Even so, it is clear that providing India's young and burgeoning labor force with good, high productivity jobs will remain a pressing medium term challenge. An effective response will encompass multiple levers and strategies, above all creating a climate for rapid economic growth on the strength of the only two truly sustainable engines-private investment and exports," says the survey.

Recognising that accurate assessments of the employment challenge are hampered by a lack of timely data, the government has also authorized NITI Aayog to provide new guidelines for filling this lacuna, and the next comprehensive survey of employment is under way.

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