'More than creating new jobs, it will...': Economist Neelkanth Mishra on employment schemes in Budget 2024

The Centre's new employment schemes in the budget will accelerate the formalisation of jobs, more than creating new jobs, said Neelkanth Mishra, Chief Economist at Axis Bank & Head of Global Research at Axis Capital. He said it will take some time for the schemes to show results, but a much bigger impact on jobs will be as the private sector investment starts to pick up with improved macroeconomic stability, falling cost of capital, and easing regulations.

In the Budget 2024, Finance Minister Nirmala Sitharaman announced an employment-linked incentive to create more jobs and help first-time employees. These will be based on enrolment in the EPFO. For the first timers, the scheme will provide a one-month wage to all persons newly entering the workforce in all formal sectors. She also announced incentives for employees and employers to create jobs in the manufacturing sector.  

"The first year allocation for these schemes is about Rs 10,000 crores, which is a lot of money. However, in the context of the 325 trillion rupee economy, it is 0.3% of GDP. So it is not very substantial in terms of the size of the fiscal intervention but it is an important signal," Mishra said in an exclusive interview with Business Today TV Managing Editor Siddharth Zarabi.  

"The approach that we've seen from this government is that once they identify a problem they are relentless at the feedback loop. 'Does this work, if it doesn't work, how can we tweak it? How can we make it larger? If it starts to work, can we amplify it? So that calibration we will start to see but the key message for me was that they are looking at formal job creation a lot more actively than they were till last year," the economist said when asked about the difference between the measures taken now and the ones introduced earlier to create jobs.

"Will this necessarily create tens of millions of jobs? I think that is the objective but I think it'll take a take a while for it to really start to show up. A much bigger impact on jobs will be as the private sector investment starts to pick up with improved macroeconomic stability, falling cost of capital, and easing regulations."

While Mishra did not expand on easing of regulations, he said the economic survey explicitly says that power is very addictive but letting go of it is for the better of the governing and the government - "it's a very powerful statement". "So those are changes that I think can be much more substantial in terms of job creation," he said.

Agriculture, Rural Economy

When asked what this budget does to support the agriculture sector and consequently the rural economy, Mishra said the allocation to the agri sector has gone up from about Rs 1.44 to 1.52 lakh crores and that the priority is on improving infrastructure, market access, and yields - because productivity and agricultural incomes are linked to how much you can grow on the same plot of land. He, however, said that agriculture is a state subject and the Center can only advise and give model documents, and the states have to implement them. 

The economist, who is also a part-time member of the Indian Prime Minister's Economic Advisory Council, hoped that Agriculture Minister Shivraj Singh Chouhan, who boosted the agriculture income and crop productivity in Madhya Pradesh when he was chief minister, could drive through these changes at the state level. 

On the rural economy, Mishra said the rural-urban divide these days is not very analytically useful. "Because with every village now getting connected to roads and electricity, the demand and the mobility of labour - where they consume is becoming very fungible. But the agre non-agri divide is still quite stark and that deserves some attention." 

Consumption 

Besides job creation, the slowdown in consumption is another major concern for the Centre. When asked whether this year's budget does anything to support consumption, Mishra said there was no explicit attempt to drive consumption. He explained some FMCG stocks started doing better because there was no hike in excise duties in some sectors like cigarettes, and the drop in the import duties on gold and silver helped the jewelry manufacturers. 

"So there were specific things that changed in the budget which of course helped those specific stocks but otherwise the boost to consumption was more indirect," he said, adding that the assumption is that if the government creates more jobs or if the government's policies help create more jobs, that will boost income which will flow through and increase consumption.   

The economist said that there are some income tax cuts and the lower income segments are going to be bigger beneficiaries. "So the assumption is that some of this will flow through. But in the context of a 325 trillion rupe economy, a .1% change is not something that an meaningfully impact consumption in some of these sectors."