Narendra Modi govt is overdoing its war on black money; it’s high time focus shifts to jobs creation

New Delhi: In waging an all-out war on black money, the Modi government may actually be wrestling with the “wrong enemy”. Shouldn’t the government instead use its energies in creating more and meaningful employment? Remember, the war on black money necessarily means destruction of the parallel economy, which in turn signifies dismantling of the informal sector. This informal sector, which is anyway a euphemism for tax evasion, accounts for about 80 percent of employment opportunities in the country according to the government’s own NSSO survey. While we happily digitise the economy and take stern measures to expand the tax base, joblessness is also expanding parallelly.

In a note to clients, Saurabh Mukherjea of Ambit Capital has said the government now needs to switch its focus to the ongoing employment crisis – which has been created by a mix of technological change (increased automation taking away jobs in the formal sector) and formalisation of the economy. “A single minded focus on flogging the black economy will be tantamount to targeting the ‘wrong enemy’. Instead, policy measures which encourage investments in machinery need to be replaced by measures which encourage recruitment”.

Mukherjea has supported his contention thus:

1) Tax evasion is the key to survival for SMEs in India since this country has high indirect tax rates and cost of capital is also higher for these small units compared to the organised sector.

2) Tax evasion gives these companies a 10-30 percent advantage in revenues compared to the organised sector. The big organised players not only have access to cheaper capital, they are also increasingly getting automated thereby reducing the need for labour. So the onus of providing jobs to a majority of nearly a million Indians entering the job market each month rests with the tax evading SMEs

3) Skilling is an integral part of job creation. Though this government has been talking of stiff targets under the Skill India mission, Mukherjea calls it a failure and says the government has already abandoned the goal of skilling 500 million people by 2022.

So should the government stop its war on black money and allow small establishments to continue evading taxes?

Rituparna Chakraborty Executive VP and Co-Founder of Teamlease, a leading recruiter for the organised sector, says “There is no debate on whether SMEs are essential or not. Question is whether someone is formal or informal. There is no correlation between being small and being informal. That is why we are seeking labour reforms to encourage entrepreneurship and create more formal jobs.”

Meanwhile, job creation has been and continues to be the single biggest headache of this government. As per data from the Labour Bureau, in the nine months till December 2016, only 2.31 lakh new jobs were created across eight labour intensive sectors. This averages to 0.26 lakh new jobs a month, not even a 1000 jobs a day, or just about 840 new jobs on an average each day of the nine months under review. And 1.32 lakh new jobs were added in the October-December period of 2016, far more than the 32,000 added in the immediate previous quarter and 77,000 in the April-June quarter of 2016.

As per the Bureau’s previous surveys, no new jobs were created but there was actually a decline of 20,000 jobs in the December quarter of 2015. The September quarter of the same year had added 1.34 lakh new jobs across the same eight sectors and was still the slowest quarter in the previous six years (barring 2012 where quarter wise data was not available). So total number of new jobs created across the eight sectors between January-December 2015 stood at just 1.35 lakh, making this the slowest pace of new jobs being created since 2009.

This piece in Mint talks of restlessness in India about lack of jobs and also says public perception about job creation is worse than what it was during the second term of the United Progressive Alliance (UPA) government. A similar study conducted in 2013 found 29 percent people saying that employment opportunities had increased in the last couple of years. Between 2013 and 2017, that proportion has declined six percentage points to 23 percent.

So is public anger justified? Arvind Panagariya, the vice-chairman of NITI Aayog, has been pointing to erroneous and inadequate jobs data to say that the ‘jobless growth’ charge against the Modi government is incorrect. He is leading the efforts to harmonise and expand efforts to generate reliable employment data starting this fiscal. Panagariya has also said that inadequate jobs was not the problem, quality of jobs instead should be the government’s focus.

Regardless of how the government couches the dismal jobs scenario, black money crackdowns haven’t helped. Sluggish growth in jobs was already a pain when the government went ahead with sudden demonetisation in November last year, wiping out substantial portions of currency in circulation from the market. This dealt a body blow to employment, specifically in the informal sector. According to CMIE, about 1.5 million jobs were lost during January-April 2017, the period usually examined to assess the loss of jobs due to demonetisation. The estimated total employment during the period was 405 million compared to 406.5 million during the preceding four months, September-December 2017.

CEO Mahesh Vyas said in a post on CMIE that in January-April 2016, “We estimated the employed force at 401 million then. This grew to 403 million during May-August 2016 and then to 406.5 million in September-December 2016. Then, it fell to 405 million. This is the total employment in the country – including organised and unorganised sectors and agricultural and non-agricultural sectors.”

Take the BPO/ITEA sector, which has seen significant job cuts in recent months. The Monster Employment Index India has said in a statement today that although total online recruitment was up 11 percent year-on-year in June, the BPO/ITES sector saw a 7 percent year-on-year decline, the first negative growth since April 2014. The decline in demand was reflected on all other parameters as well; down six percent (month-on-month), down nine percent (three-month) and down eight percent (six-month).

A concerted effort by the government as well as industry in focusing on creation of more jobs, better paying jobs and upskilling is perhaps the only way forward.