“It’s a big push for employment-intensive growth”

(NOTE: This article was originally carried in the India Today edition dated August 5, 2024)

In a candid conversation with India Today Group Editorial Director Raj Chengappa, Union finance secretary T.V. Somanathan—one of the central figures responsible for Budget 2024’s massive new packages for employment generation and skilling—talks about how the schemes were conceived and the challenges in their execution. Excerpts:

Q. How would you sum up the budget’s major thrust on employment and skilling?

Fiscal incentives for employment, historically, have worked in many countries and they must be given a chance. It’s the big innovative push to ensure that India’s growth becomes more employment-intensive. It’s also huge because it hopes to help 40 million of our youth. And we’re not talking small change here, we’re putting Rs 2 trillion (2 lakh crore) behind it. It’s innovative because these schemes have no exact parallels, especially the involvement of the private sector and the linking of all these subsidies to employment rather than to investment or production.

Q. What is the philosophy beh­ind it, how did it emerge?

Given our demographics, especially the bulge in young population, employment will be critical in the next few years. We’ll have a huge number of them entering the job market. Now there are two things a government can do about this. Promote growth because a growing economy means more jobs. We have done this through a prudent fiscal policy, enhanced capital investment and various programmes to promote investment. But it’s a fact that in modern times growth can happen with less employment due to increasing mechanisation, automation and other technological developments. So the second is to push for employment-linked incentives to create jobs. But economic entities will not employ anyone just because the government is giving a subsidy. But at the margin, their decisions are influenced by fiscal incentives. So if somebody is planning to employ people, the provision of a subsidy over a period of time may encourage them to accelerate that hiring. There are always incremental choices to be made about greater automation and mechanisation versus greater use of labour. That being the case, we have come up with a package of fiscal incentives which will influence company choices in the direction of greater employment.

Q. What about new recruits being enrolled in the EPFO, is it a move to formalise jobs?

No. We needed a mechanism to know that the job creation is genuine. The reason for the EPFO linkage is merely to prevent fraud. The money will go directly to the employee in this first part, which is scheme A. Then there is a scheme B, which is for the manufacturing sector. If the industry employs at least 50 newcomers, then we give them a handsome subsidy which will run for four years. Here, the logic is that a company is taking the trouble to pick up these many unemployed/inexperienced people. They may need to give them training to bring them up to standard. And that is something the government is happy to subsidise.

Q. What is behind the internship scheme at top corporates?

The internship scheme is based on the apprenticeship model schemes that we run through the Apprenticeship Act but is totally voluntary. The intention here is to be a bridge for a disadvantaged class of people who are qualified but don’t have access or cannot even think of a career in our big private sector companies. We are looking at the Top 500 companies, those mandated under the Companies Act to spend 2 per cent of their profits on CSR (corporate social responsibility) programmes. We’ll send them a set of people who are among the less employable, that the industry would not select on its own. And that is intentional. These interns are people who need exposure. We will pay 90 per cent of their stipend for 12 months. The company, of course, has to bear the cost of skilling this person in some activity which it is involved in. We are targeting about 3 million internships in the first phase and about 7 million in the second phase.

Q. Has the new CSR scheme been tried anywhere before?

This is an Indian experiment. But it draws from apprenticeship, which is there in India and in many developed countries. But CSR, through statute, is almost uniquely Indian. The CSR scheme is also to give people on-the-job exposure with good employers. One other benefit is that we will be dealing with India’s top companies where the chances of fraud or, you know, pretence in training, will be less for they have reputations to protect. If they agree to do something, they will probably do it well.

Q. Where did this policy direction come from?

The PM has been talking about this for quite some time. One of our tasks was to do something meaningful about skilling so that we could promote employment by involving the private sector both willingly and voluntarily—there was to be no compulsion.

Q. Is this the great leap forward then for job creation?

As an economist, I’d say this is the best way forward for India in what the government can do to help the private sector. We don’t want to create non-jobs that exist only because of the state. We are seeking real jobs, where the private sector will choose and employ a person because they want to. And what are we doing? We are helping.

Subscribe to India Today Magazine