Finance minister Nirmala Sitharaman on Tuesday rolled out three measures to address unemployment, an issue that many believe dashed Prime Minister Narendra Modi’s dream of “400-plus” seats in this summer’s general election.

With discussions growing louder on joblessness in the Indian economy — held up by the Centre as a “shining exception” amid the policy uncertainties hobbling the global economy — the third Modi government was expected to try and tackle the problem.

Listing “employment and skilling” as the government’s second-most important priority, the JNU alumna announced the following measures that, Modi later claimed, would “help generate many employment opportunities”.

Scheme 1: The government will pay, by direct benefit transfer, one month’s salary in three instalments — up to a total of ₹15,000 — to first-time employees registered with
the EPFO.

Impact: Expected to benefit 2.1 crore youths.

Scheme 2: The government will incentivise job creation by paying portions of the employee’s and employer’s EPFO contributions over the first four years of employment.

Impact: Expected to benefit 30 lakh youths.

Scheme 3: Reimbursement to employers of up to ₹3,000 per month for two years towards their EPFO contribution for each new employee.

Impact: Expected to incentivise an additional employment of 50 lakh people.

Among the other proposals Sitharaman tabled in her budget speech were a thrust on increasing women’s participation in the workforce and an internship scheme for 1 crore youth with the top 500 companies against a monthly allowance of ₹5,000.

These proposals in Sitharaman’s seventh budget — the most presented by a finance minister — amount to the first-ever admission by the Modi dispensation, since it came to power in 2014, that unemployment is a problem that needs policy intervention.

Maitreesh Ghatak, professor of economics at the London School of Economics, explained the problems in the Indian labour market.

“One of the key problems facing the economy is job creation and the wide mismatch that exists between the number of jobseekers and the creation of what would be considered decent job opportunities, something that enables people to shift to salaried jobs from the state of being unemployed or being self-employed in small-time activity, engaged as unpaid family help or in various kinds of casual work,” said Ghatak, who has studied the Indian labour market and highlighted its problems.

“Trends over the last decade suggest that not enough good-quality jobs are being created; and so, some of the labour market statistics that may appear good — such as a rising labour force participation rate — may reflect economic distress rather
than choice.”

Several Opposition parties, especially the Congress, had made joblessness an issue in the Lok Sabha polls, whose outcome suggests that the electorate agreed with them.

Sitharaman may have tried to convey, with her proposals, that the Modi government is sincere about addressing the issue, but several economists said they were unconvinced about their possible effectiveness.

Economist and activist Prasenjit Bose said he was unsure to what extent these schemes would help create more permanent employment in the economy.

“They could have come up with something like an urban employment guarantee scheme that would have led to the transfer of money to unemployed youths and created consumption demand, which would have acted as an incentive for the private sector to invest and also create jobs,” he said.

Bose said the contents of the Economic Survey, 2023-24 — tabled by the finance minister on Monday — contained broad hints that the thrust of the budget would be on employment creation by the private sector.

The employment-linked incentives in the budget, he said, were supply side measures and were not enough to address the problem of large-scale unemployment.

Ghatak concurred: “Both demand and supply side remedies are needed. Private investment needs to be boosted to generate labour demand, and the skill profile of the labour force needs upgrading.”

Economist M. Govinda Rao, who was a member of the 14th Finance Commission, went a step further and asked whether the budget had made enough allocations for the incentives it proposed.

“I don’t think there is any concrete plan there.... This is all rhetoric, because, in terms of allocations, there will be very little left to incentivise the private sector to create jobs,” Rao said.

“This budget is not much different from the interim budget presented before the elections…. The capital expenditure target is the same, the tax revenue is the same. The non-tax revenue is going up due to the dividend earnings of the RBI, and a large part of that will be spent to make Bihar and Andhra Pradesh happy. Where will they get the money for job creation?”

Rao wondered whether the special measures announced for the two states, governed by two NDA allies, ran counter to the federal fabric of the country. “If this is how the states get funds, what’s the point in keeping the Finance Commission?” he asked.

A closer look at the numbers accompanying the budget proposals raises questions also over Modi’s claim about the budget “giving power” and “strength” to the middle class.

Details contained in the receipt budget show that not only has the collection from individual income tax — mostly paid by the middle class — overtaken corporate taxes in recent years, but the gap between the two has been widening.

If the tax on income, paid by barely 2 per cent of the population, is more than the tax paid by corporations, it cannot be called a progressive taxation system, economists said.

The Economic Survey also revealed — while stressing the role of the private sector in job creation — how India Inc was benefiting from government largesse.

“The Union government cut taxes in September 2019 to facilitate capital formation. Has the corporate sector responded?” the Survey asked.

“In terms of financial performance, the corporate sector has never had it so good. Results of a sample of over 33,000 companies show that, in the three years between FY20 and FY23, the profit before taxes of the Indian corporate sector nearly quadrupled.”

With the job market situation clearly suggesting that the objective of boosting capital expenditure and creating private sector jobs by reducing taxes has not been met, the questions about the success of the employment-linked incentives become acuter.

Sitharaman will be expected to disclose the outcomes of these measures when she rises to present her next budget.