An unstated shift- an acknowledgement of the breakdown between GDP growth and jobs

An unstated shift- an acknowledgement of the breakdown between GDP growth and jobs

Context

In a post-Budget interview, Finance Secretary T.V. Somanathan revealed a significant shift in the Modi government’s economic policy with the announcement of a new employment-linked incentive (ELI) scheme.

• This initiative aims to nudge industries towards employing more labor rather than relying heavily on automation.
• The scheme proposes financial incentives for companies to hire new employees.
• This policy marks a departure from previous approaches, reflecting a broader recognition of the limitations of the traditional GDP-focused growth model and a need for more direct job creation strategies.

Relevance:
GS-02 (Government policies and interventions)

Dimensions of the Article:

• What is the Issue?
• Need to Address This Issue
• Why Use Less Automation and More Labour?
• Concerns with the ELI Scheme
• What Should the Government Do?

What is the Issue?

• The primary issue at hand is the persistent unemployment and underemployment problem in India, despite various economic policies aimed at stimulating growth.
• The traditional approach, rooted in the Washington Consensus, has emphasized production efficiency and GDP growth under the assumption that these would naturally lead to job creation and improved living standards.
• However, this trickle-down model has not delivered the expected employment outcomes. Initiatives like ‘Make in India’, corporate tax cuts, and the Production Linked Incentive (PLI) scheme have not resulted in substantial job creation.
• Instead, companies have often preferred investing in automation and equipment over hiring more workers.

Need to Address This Issue

• Addressing the issue of unemployment is crucial for several reasons.
• Firstly, a significant proportion of the Indian population remains unemployed or underemployed, leading to economic disparity and social unrest.
• Secondly, high unemployment rates can erode public trust in government policies and exacerbate political instability.
• Lastly, ensuring adequate job creation is vital for sustaining economic growth and improving the overall quality of life for the average citizen.
• The ELI scheme represents a shift in recognizing that GDP growth alone is insufficient if it does not translate into job creation.

Why Use Less Automation and More Labour?

• The rationale behind encouraging industries to use less automation and more labor is rooted in addressing the capital-labor imbalance.
• Automation, while increasing productivity, often leads to job losses and exacerbates income inequality.
• By incentivizing labor over automation, the government aims to create more employment opportunities, thereby improving economic inclusion and stability.
• This approach aligns with the broader objective of enhancing the living standards of the median citizen by ensuring that economic growth translates into tangible benefits for the wider population.

Concerns with the ELI Scheme

• Despite its noble intentions, the ELI scheme has faced criticism from various quarters.
• Some experts argue that financial incentives alone may not be sufficient to compel companies to hire more employees. They point out that companies might not prioritize hiring simply because of the financial benefits if it does not align with their overall business strategy.
• Additionally, there are concerns about the potential impact on productivity and global competitiveness.
• Neo-liberal economists fear that prioritizing labor over technology could render Indian companies less efficient and less competitive on the global stage.

What Should the Government Do?

To ensure the success of the ELI scheme and address the broader employment challenge, the government should consider the following measures:

1. Strengthening the ELI Framework: Clearly define the parameters and conditions under which companies can avail of the ELI benefits. This includes setting transparent criteria for job creation and ensuring that the scheme targets sectors with high employment potential.
2. Monitoring and Evaluation: Establish robust mechanisms for monitoring and evaluating the effectiveness of the ELI scheme. Regular assessments can help identify issues early on and make necessary adjustments to the policy.
3. Supportive Infrastructure: Develop supportive infrastructure to facilitate labor-intensive industries. This includes investing in skill development programs to ensure that the workforce is adequately trained and capable of meeting industry demands.
4. Balanced Approach: While promoting labor, the government should also ensure that technological advancements are not entirely sidelined. A balanced approach that integrates labor and technology can enhance productivity while creating jobs.
5. Public Awareness and Engagement: Engage with industry stakeholders and the public to build support for the ELI scheme. Public awareness campaigns can highlight the benefits of the policy and encourage broader participation.

Conclusion

• The ELI scheme marks a bold and necessary shift in India’s economic policy, recognizing the limitations of the trickle-down model and the need for direct job creation strategies. By incentivizing companies to hire more employees, the government aims to address the persistent unemployment issue and promote economic inclusion.
• While the scheme faces challenges and criticisms, its success will depend on effective implementation, continuous monitoring, and a balanced approach that integrates labor and technology.
• Moving forward, a comprehensive and cohesive strategy that prioritizes job creation and supports economic growth is essential for ensuring the well-being and prosperity of all citizens.