Hardly Working: Difficult to generate jobs if freebies remain the focus of states’ policy

job sector, job

By TV Mohandas Pai and Nisha Holla

Recently, a chief minister of a central Indian state mocked the central government about the gap in job creation. Other CMs of opposition parties, too, routinely raise this question, forgetting it is their responsibility as CMs to provide quality jobs to the citizens that elected them. Most of them never refer to job creation in their budget speeches. They seem to believe handing out freebies and subsidies is the raison d'être of their economic policies.

Today, jobs-and economic expansion to support job creation-are the need of the hour in India. We are at a GDP of Rs 209.8 lakh crore, or $3 trillion, in 2019-20. To reach our goals of $5 trillion, and then $10 trillion quickly, we must prioritise industrial expansion and the creation of quality employment opportunities. The question, then, is who is responsible for economic development-the Centre or state governments?

Research shows states have considerable resources, larger spend budgets, and more substantial impact on the economic entity they govern, but most states lack focus on job creation.

The accompanying graphic details expenditures by the Centre, and aggregately, by states since 2015. The share of spending by the states was over 70% of total spending in 2015 and increased to 75.5% in 2018-19. Meanwhile, the central government's share of expenditure has steadily decreased from 30% of total spending in 2016 to 24.5% in 2019. The Centre's ability to influence economic expansion and job creation by deploying the capital required is limited.

The role of the central government is to create a functioning environment for the Republic of India to thrive. In this regard, its duties are to formulate the right policies and regulations, collect and distribute taxes to the states, maintain an effective military and defence, manage external affairs and currency, skill development, and build an infrastructure network. Beyond these essential duties, the Centre's ability to spend to drive economic growth is low and steadily decreasing.

Meanwhile, the creation of jobs in India has been ongoing, but:

1. The number of quality jobs with good pay must increase.

2. Job creation has been uneven in pockets around the country-concentrated mainly in the southern and western states.

The Employee Provident Fund Organisation (EPFO) is a good proxy for formal job creation in India. EPFO records net new jobs created, and has been publishing monthly reports since September 2017. Our previous article (bit.ly/2HO3jqd) demonstrated India was creating about one crore new jobs a year registered with EPFO alone. EPFO recently update its methodology, but has not yet analysed state-wise data with this updated method.

Maharashtra tops formal job creation with 34.3 lakh new jobs created between September 2017 and November 2019. Karnataka is a distant second with 13.7 lakh new jobs created, followed by Gujarat at 12.86 lakh new jobs. In general, all South/West states are creating new jobs, with Andhra Pradesh lagging. Job creation in the North/East/Central zones is particularly low, especially when we factor in larger populations, as analysed below.

Here is why the responsibility of economic expansion is on individual states:

1. States have larger budgets and can draw on these corpora to pursue deep-impact and long-term expansion plans.

2. Increasingly, jobs depend on the actions of state governments because the allocation of land, power, water and many essential utilities are in their hands. They have to ensure jobs come to their state by marketing these facilities to industry.

3. The Centre cannot take on job creation due to its limited budget. Even if the Centre were to take on the spending and planning necessary to create jobs everywhere in India, they would implement one common policy across the country. India is not a monolith; we are diverse, so such a common policy would fail to produce the desired results.

4. India's states are very diverse. Indicators like economic growth rates and GSDP, development of human capital through higher education, formal employment opportunities, urbanisation and industrialisation, population growth rates, and demographic compositions vary widely between states (see graphic). State governments must take the lead in understanding the unique requirements of their respective states using data, and operationalise those insights by investing appropriately.

The southern/western states, in general, have high per-capita GDP, higher Gross Enrolment Ratios (GER) in higher education and graduates, are creating a higher number of jobs, all of this while having smaller populations. The focus in these states has been on education, development, economic expansion, industrialisation, and human capital development. This has resulted in smaller, well-educated, higher-income communities compared to the north.

The combined south/west population, estimated at 42.74 crore, has created 60.8 lakh new formal jobs between September 2017 and November 2019. Meanwhile, the North/Central/East zones, with a combined population of roughly 68.97 crore, have created only 23.5 lakh new formal jobs in the same period.

States in the North/Central/East zones have, in general, failed to develop human capital and expand their economies. GERs are particularly low. Where there are more graduates, like in UP or Rajasthan, per-capita GDPs are low as well a shortage of job creation congruent to graduates. These states have large young populations who need gainful employment. Without quality jobs, people there are either resigned to their fate or are migrating south in search of better opportunities.

The data clearly shows the most developed states have more jobs. These states are developed because previous state governments have invested in human capital and the development of the state. The time has come for state governments all over India to take up responsibility for their economic entities, and create the necessary industrial and urban environments for job creation.

Pai is chairman, Aarin Capital Partners & Holla is technology fellow, C-CAMP. Views are personal.