There has been significant discussion over the last year regarding unemployment, skills, and specifically youth unemployment. The ILO report in February this year provided a clear representation of the jobs, wages, and skills situation in the country. This issue gained further attention during the General Elections in May and has remained a central topic in discussions about how the government should address these underlying challenges. The Union Budget presented an opportunity for the government to introduce clear policy interventions around jobs, and it has done so in a decisive manner.
It’s important to understand that the employment issue is, to use a popular idiom, a “two-body problem.” On one end is the demand side, where organisations (both government and private) create jobs and employment opportunities. On the other end is the supply side, where individuals bring the requisite skills and capabilities to perform these jobs. The problem can only be addressed effectively when solutions are provided for both ends of this spectrum.
Although no clear data points to the exact number of jobs created and sustained over the last ten years, the general belief is that non-agriculture sector job creation has not kept pace with the demand for jobs. Simultaneously, India is often seen as a “labour surplus – talent scarce” market, where capability development has not kept up with employers’ expectations.
Collaboration between government and industry is key to success
The Budget has introduced several clear initiatives aimed at skill development, focusing on both improving the skilling infrastructure and providing individuals with enhanced access to skilling opportunities. The programme to upgrade a thousand ITIs over the next five years, the capacity augmentation of five national institutes for training of trainers, and a mandate for skilling interventions designed in collaboration with industry are all steps in the right direction. These initiatives should go a long way in ensuring that the infrastructure for skill development meets the needs of employers. The Economic Survey 2024 identified changing technology as a potential challenge for employment generation, and these skilling initiatives should effectively prepare individuals for these new technologies and ways of working. At an individual level, the Budget has allowed for increased access to funding for skill development through a partial interest waiver of up to 3% for educational loans from specific domestic institutions.
On the demand side, the government has introduced measures to encourage employers to hire more people through multiple layers of incentives. These include incentives to encourage the hiring of interns by leading companies in India, ensuring a certain quality of employment for 12 months. The government’s funding of the employer PF contribution also promotes the formalisation of employment while providing financial security for individuals. Additionally, the wage subsidy of up to Rs 15,000 for first-time employees creates an incentive for organisations to hire fresh talent. These schemes have been introduced with specific safeguards to ensure that these employment models are sustainable and not misused by either employees or employers.
However, workforce demand can only partially be driven by greater hiring incentives—the more crucial factor is creating a genuine need for employers to hire more people. This need is driven by greater access to capital and, consequently, greater economic activity. The provisions in the Budget that encourage greater access to capital for MSMEs, along with the focus on investments in infrastructure, tourism, and certain heavy industries such as mining, are all critical in ensuring that companies are genuinely positioned to drive increased employment, even without hiring incentives.
The Budget’s provisions are aimed at solving the “two-body problem.” It is equally important for another two bodies—the government and industry—to work together to ensure the effective and smooth implementation of these recommendations. As a country, we must actively put these policies into action to foster a stronger and more sustainable economy.
The opinions expressed in the column are those of the authors and do not necessarily reflect the views of the publication.