Why have Modi’s job schemes led to high unemployment?

Despite the sound and fury of the Narendra Modi-led BJP government’s employment generation schemes, data on manufacturing shows that the sector has not seen any growth in the past four years. Danish Siddiqui/Reuters
09 January, 2019

In the run-up to the 2014 general elections, Narendra Modi and the Bharatiya Janata Party campaigned aggressively on the plank of job and employment generation. Having promised to create over two crore new jobs every year, the prime minister has since reiterated this commitment with the launch of a slew of schemes and programmes over the past four years. In August 2018, Modi claimed that, in the previous financial year, “more than 70 lakh jobs were created in the formal sector alone.”

But a January 2019 report by the Centre for Monitoring Indian Economy, or CMIE, a business information company, reveals that as many as 1.1 crore people lost their jobs in 2018, while the unemployment rate shot up to 7.4 percent in December 2018, the highest in 15 months. According to the annual household surveys, conducted by the labour bureau, India’s rate of unemployment has seen a persistent upward trend since 2013-2014. This trend accelerated steeply in 2018, as per the report. Most of the Modi government’s policies on employment have focussed on self-employment, skill development, incentivising employers to facilitate employment generation and promotion of export-oriented manufacturing. These policies have been executed via several schemes: Make in India; the Pradhan Mantri Kaushal Vikas Yojna, or PMKVY, also known as Skill India; the Pradhan Mantri Employment Generation Programme, or PMEGP; the Pradhan Mantri Mudra Scheme, or PMMS; and the Pradhan Mantri Rozgar Protsahan Yojana, or PMRPY.

Modi claimed in August 2018 that high unemployment numbers are because “traditional matrix of measuring jobs is simply not good enough to measure new jobs in the new economy of New India.” But all these schemes are far behind their targets. Modi’s claims notwithstanding, his government’s labour reform policies have prompted ten central trade unions to call for a nationwide-strike on 8 and 9 January 2019 against what they termed were the Modi government’s “pro-corporate” and “anti-people” polices.

In July 2016, the Modi government introduced PMRPY to generate new employment by incentivising employers. Under the scheme, the central government provides the entirety of the employers’ contribution towards the Employers Provident Fund, or EPF, scheme—12 percent—for a period of three years for new employees who earn less than Rs 15,000 a month. But according to Tapan Sen, a secretary of the All India Trade Union Congress, “At least 40 percent of the eligible employees in the country are still outside this scheme.”

A case study based on a sectoral analysis of the power loom industry in Solapur district of Maharashtra showed that lax implementation of the scheme is one of the major reasons behind its inefficacy. In September 2015, employees from 15 power loom units owned by the Myakal group, a company of textile traders, approached the Employees Provident Fund Organisation, or EPFO—a tripartite body under the Ministry of Labour and Employment with representatives from employees and employers associations—with complaints of non-implementation of the EPF scheme. The Myakal group’s 15 units are run as a partnership owned by six family members, but each of these units is registered as an independent entity. This structure is ostensibly to bypass a rule in the Employees’ Provident Funds & Miscellaneous Provisions Act, 1952, which stipulates that all industrial units employing 20 or more employees are required to register their firms with the EPF scheme. Myakal refused to register with the EPF claiming that none of their units had more than seven workers.

In May 2017, over 14,400 workers employed in 13,850 power-loom factories in Solapur, including the Myakal group, approached the EPFO raising the same issue. Two months later, the regional EPFO commissioner, Hemant M Tirpude, directed the Myakal group to implement the EPF Act retrospectively from 2002 and asked enforcement officers to identify similar clusters from among the remaining units. This prompted a strike by the Power Loom Owners Association in October 2018, following which the Mumbai bench of the Central Government Industrial Tribunal-cum-Labour Courts issued a stay on Tirpude’s order. The state labour department has not taken any steps to resolve the issue despite the BJP government’s claims of promoting inclusion under the EPF scheme.

The Solapur case study suggests that Modi’s claim on job creation, based on the EPFO data, is misleading, as new enrolments do not necessarily mean new jobs. For instance, on the ground, the government may not be incentivising employers who created jobs, but those who had been violating the EPFO act till then. “After the scheme was introduced, existing employees are being added to the EPFO,” Sen told me. “So the scheme has actually facilitated inclusion of employers under this scheme.”

In April 2015, the Ministry of Micro, Small and Medium Enterprises, or MSME, launched the PMMS to provide loans of up to Rs 10 lakh to target enterprises. However, data from public-sector banks shows that loans given under PMMS since 2015—over three crore loans, worth Rs 1.5 lakh crore, were disbursed in 2018 alone—have added to the Non Performing Assets, or NPA crisis. In response to a query in the Lok Sabha, Shiv Pratap Shukla, the minister of state for finance, said PMMS loans that have turned into NPAs have doubled in the last two years to Rs 7,200 crore in 2018. Ground reports from rural areas of Maharashtra, Karnataka and Uttar Pradesh reveal that PMMS credit-driven businesses are unsustainable because the average amount of loans disbursed is Rs 30,000. These micro loans account for almost 60 percent of the loans distributed under PMMS.

Similarly, the disbursal of loans under the PMEGP—up to Rs 25 lakh for manufacturing units and Rs 10 lakh for businesses or services—has also not helped create sustainable employment opportunities. “Unfortunately what has happened under these schemes is that a lot of the focus came on really tiny micro enterprises,” Amit Basole, the director of the Centre for Sustainable Employment at the Azim Premji University in Bengaluru, told me. “The loan amount is very small.” Basole said that “very micro-enterprises are not going to be a sustainable way to generate decent employment for people—at the most they would be able to make a small livelihood.” According to Basole, the promotion of self-employment is not the solution to India’s current unemployment crisis. “We need something bigger in terms of the scale of operations—bigger loans and firms that are capable of expanding and employing more workers.” Basole said that till local governments, at the city and state level, do not provide an enabling environment with infrastructure and utilities, central-level schemes will remain ineffective.

Radhicka Kapoor, a fellow at the Indian Council for Research on International Economic Relations, told me that the majority of the self-employed are not entrepreneurs who are creating jobs. “About 80 percent of the self-employed earned less than Rs 10,000 a month,” she said. “How can these people possibly be job creators?” About half of the workers in the country are self-employed, according to the according to the 2015–16 Employment-Unemployment Survey conducted by the labour bureau. According to Kapoor, self-employment is “bothersome” in the Indian context. “There is a difference between being self-employed by choice and when someone can’t find a regular job and is compelled to be self-employed. The latter is happening with most people in India.” She added that a lot of self-employment in India is “distress employment.” This issue gains sharper focus when taken in context of Modi’s assertion that “If a person selling pakodas earns Rs 200 at the end of the day, will it be considered employment or not?” Responding to Modi on Twitter, the former finance minister, P Chidambaram, contended that “by that logic, even begging is a job.”

In July 2015, Modi announced that 40 crore people would be imparted skill training by 2022 under the aegis of PMKVY or Skill India. According to a March 2018 report by the parliamentary standing committee on labour, from the official launch in February 2016 to November 2018, the scheme had certified 33.93 lakh people of whom 10.09 lakh candidates landed jobs. According to Dharmendra Pradhan, the minister for skill development, the placement rate during this period is a low 30 percent of the trained candidates. There have also been reports of bogus enrolments by private partners who are entitled to 75 percent of government subsidy on the sanctioned cost of Rs 10,000 per candidate. According to a former official with the Ministry of Skill Development and Entrepreneurship, the data from Skill India is hardly credible because all these figures are self-reported and there is no authentication process for enrolment and certification. “There is no monitoring of the skill centres to see whether the courses are even conducted,” a former official, who requested not to be identified, told me.

Basole said the focus on short-term certifications has created young graduates who do not have required job skills and “there is no adequate follow up to see what happened to those people.” Kapoor said the training packs and courses are poorly designed. “There is just no learning that is happening there. We are training people to do jobs that are very routine manual tasks,” he said.

Sona Mitra, the principal economist at the Institute of Financial Management and Research, criticised PMKVY for training lakhs of women in conventional sectors such as weaving, bakery, apparel, and retail, instead of imparting skills that help them enter new job sectors such as construction, electronics, IT services and financial services. Basole also rued the lack of support to the handicrafts sector, which could enhance existing skills in an ecological manner in India’s rural areas.

Even sectors targeted by Modi’s flagship schemes have witnessed a steady increase in unemployment. In September 2014, Modi launched the Make in India initiative to “transform India into a global design and manufacturing hub.” Four years later, data on manufacturing shows that the sector has not seen any growth. The sector reported a loss or 87,000 jobs during April-June 2017 alone, according to a labour-bureau survey. MSMEs, the focus of credit schemes aimed at job generation, have reported a steady decline in jobs and profits since 2014, according to a 2018 survey by the All India Manufacturers’ Organisation. MSMEs in manufacturing and exports reported job losses in the range of 24 percent to 35 percent in the last four years.

According to Kapoor, Make in India failed to address manufacturing bottlenecks, such as infrastructure and power, since it’s a central policy and “regulations that govern the industrial sector ... are on the concurrent list.” Kapoor said that “states will have to take steps to get things going on the ground” for Make In India to show any results.

The experts I spoke to said that Make in India’s mandate on export-oriented manufacturing cannot solve the employment problem. “The global market has not recovered from economic slump and Indian exports cannot be expected to grow beyond a point now,” Mitra told me. “We should be focusing more on domestic market.” According to Kapoor, “We need to figure out what Indians are spending on and we can focus on those industries.” She added, “Make in India should also be Make for India.”

The CMIE report flags the falling rate of women’s participation in the workforce as a major concern. As per the report, “A person who lost a job in 2018 mostly fits a profile like: is a woman, particularly a woman in rural India, is uneducated and is engaged as a wage labourer or a farm labourer or is a small-scale trader and is aged either less than 40 years or more than 60 years.” According to Mitra, the government's push for entrepreneurship and self-employment has resulted in marginalising the Mahatma Gandhi National Rural Employment Guarantee Act, or MGNREGA, and this was “one of the public wage employment programmes of the government which saw an increased participation from women.” Mitra said that self employment-centred schemes should complement wage employment programmes but “not at the cost of MGNREGA.”

The BJP’s losses in the recent assembly elections to five states have been attributed in part to rising unemployment. While demonetisation, implementation of GST and agrarian distress have contributed to the current job crisis, neither the policy framework nor the method of implementation of government schemes adequately address unemployment and underemployment issues in the country.