Posted in GS 3, Economic Development, Editorial Analysis

Do subsidies and safety nets take focus away from generating jobs?

 September 8, 2023  Leave a comment
subsidies and safety nets

Syllabus: GS 3 – Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment

Source: The Hindu – 8/09/2023

Content

Subsidy:

  • A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment from the government or a targeted tax cut.
  •  In economic theory, subsidies can be used to offset market failures and externalities to achieve greater economic efficiency.

How subsidies and safety nets take focus away from generating jobs in India?

  • Subsidies and safety nets can lead to a culture of dependency, where people become reliant on government handouts instead of seeking employment opportunities.
  • It can create disincentives for people to work, as they may receive more money from government handouts than they would from working.
  • It can lead to inefficiencies in the economy, as resources are diverted towards unproductive activities.
  • It will also cause lack of investment in sectors that generate jobs, as investors may prefer to invest in sectors that receive government subsidies.
  • Subsidies and safety nets can lead to a lack of innovation, as companies may not feel the need to innovate if they are receiving government subsidies.
  • It can lead to a lack of competition, as companies that receive government subsidies may not face the same competitive pressures as those that do not receive subsidies.
  • It also causes a lack of fiscal discipline, as governments may be tempted to spend more money on subsidies and safety nets than they can afford.

How subsidies help generate employment in India?

  • Subsidies can be used to purchase equipment, raw materials, and other resources needed to start a business thereby encouraging entrepreneurship. Eg: Start up India
  • Subsidies can be also used to Promote small-scale industries. This helps create more jobs in the manufacturing sector.Eg:PLI(Production Linked Incentive) scheme
  • Subsidies to exporters help them compete with foreign companies. This helps create more jobs in the export sector.
  • Subsidies to companies that produce renewable energy such as solar and wind power helps create more jobs in the renewable energy sector. Eg:PM KUSUM
  • Also, Subsidies to Encourage Research and development and training and skill development create more jobs in the economy. Eg:Pradhan Mantri Kaushal Vikas Yojana

Unemployment:

  • Unemployment is not synonymous with joblessness. The International Labour Organization (ILO) defines unemployment as being out of a job; being available to take a job; and actively engaged in searching for work. Therefore, an individual who has lost work but does not look for another job is not unemployed.
  • The National Sample Survey Office (NSSO) has been the key governmental agency in India at the national and state levels to study employment, unemployment and unemployment rates through sample surveys.
  • It reports employment or unemployment results once every 5 years

Methods for Measuring Unemployment in India:

  • Measuring unemployment in India is difficult due to the informal nature of jobs.
  • The NSSO adopts two major measures for classifying the working status of individuals in India — the Usual Principal and Subsidiary Status (UPSS) and the Current Weekly Status (CWS)
  • Usual Principal and Subsidiary Status (UPSS): UPSS is the combination of Principal activity status and Subsidiary economic activity status (ps+ss).
  • Principal activity status(ps)– The activity status on which a person spent relatively long time (major time criterion) during 365 days preceding the date of survey, was considered the usual principal activity status of the person.
  • Subsidiary economic activity status(ss)– The activity status in which a person in addition to his/her usual principal status, performs some economic activity for 30 days or more for the reference period of 365 days preceding the date of survey, was considered the subsidiary economic status of the person.
  • Current Weekly Status: The activity status determined on the basis of a reference period of last 7 days preceding the date of survey is known as the current weekly status (CWS) of the person.
  • UPSS unemployment rates will always be lower than CWS rates because there is a greater probability that an individual would find work over a year as compared to a week.

Intensity of unemployment in India:

  • According to the Periodic Labour Force Survey (PLFS) released in 2017, the unemployment rate of India was 6.1%, the highest ever recorded in India.
  • The PLFS of 2021-22 showed unemployment reducing to 4.1%, much lower than before, but higher than some developed economies.

Causes of unemployment:

  • India’s underdeveloped agricultural sector provides employment seasonally. It is estimated that at least for five to seven months a year, depending upon conditions, the agricultural workers face seasonal unemployment. Approximately 15% of the working population in agriculture is considered to be unemployed.
  • Slow economic growth of India is a major reason for unemployment. For the expanding labour force, slow growth rates are unable to produce enough work opportunities. The labour force is substantially larger than the number of available job opportunities.
  • Population growth has been a severe issue and is a significant element in the unemployment rate. Despite the completion of twelve five-year plans, the amount of unemployment has increased.
  • Low capital formation reduces potential for expansion in the agricultural and industrial sectors.
  • Inefficient or inadequate education can lead to unemployment as people may not have skills required by employers.
  • Low Rates of Saving and Investment is another reason for unemployment. India lacks sufficient capital across the board. Likewise, savings are low and the result is that investment which depends on savings is also low.

Effects of unemployment:

Challenges to tackle unemployment in India:

  • Sufficient skills: Many people in India lack the necessary skills and education to be able to find jobs that match their qualifications.
  • Gender inequality: Women in India face many challenges when it comes to finding employment, including discrimination and lack of access to education.
  • Lack of infrastructure: Poor infrastructure in many parts of the country makes it difficult for businesses to operate and create jobs.
  • Inefficient labour laws: Labour laws in India are often complex and difficult to navigate, which can make it difficult for businesses to hire workers.
  • Lack of foreign investment: Foreign investment can help create jobs by providing businesses with the capital they need to expand. Lack of foreign investment is a challenge to tackle unemployment.

Govt. initiatives:

  • Pradhan Mantri Rojgar Protsahan Yojana (PMRPY): Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) was launched to incentivise employers for creation of new employment.
  • Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): MGNREGA is to provide at least 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work.
  • National Career Service (NCS) Project: Project for transformation of the National Employment Service to provide a variety of career related services like job matching, career counseling, vocational guidance, information on skill development courses, apprenticeship, internships etc.
  • Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Pradhan Mantri Kaushal Vikas Yojana (PMKVY) is the flagship scheme of the Ministry of Skill Development and Entrepreneurship (MSDE) implemented by National Skill Development Corporation (NSDC). The objective of this Skill Certification scheme is to enable Indian youth to take up industry relevant skill training that will help them in securing a better livelihood.

Way Forward:

  • India also has mostly poor quality jobs and hence training is needed for people to get better jobs. Skill certification is needed as well as a focused industrial policy and a national employment policy.
  • Need to foster domestic competition and protect domestic industries against foreign competition.
  • Rapid Industrialization: One of the most sure-shot remedies of the unemployment situation in India is rapid industrialization. Increased industrialization will translate into an increased number of employment opportunities.
  • Entrepreneurship: Encouraging entrepreneurship can help create jobs and reduce unemployment.
  • Foreign Direct Investment (FDI): FDI can help create jobs and reduce unemployment.
  • Infrastructure Development: Infrastructure development can help create jobs and reduce unemployment
  • Education: Education is an important factor in reducing unemployment, as it helps individuals acquire skills that are in demand in the job market .
  • Government Intervention: The government can intervene by providing incentives for job creation, investing in infrastructure development, and promoting entrepreneurship.

Related topics

Labour Force:

  • Labour force refers to the part of the population, which supplies or offers to supply labour for pursuing economic activities for the production of goods and services and, therefore, includes both employed and unemployed persons.
  • Those neither employed nor unemployed such as students and those engaged in unpaid domestic work are considered out of the labour force.

Unemployment rate:

  • The unemployment rate is measured as the ratio of the unemployed to the labour force.
  • The unemployment rate could also fall if an economy is not generating enough jobs, or if people decide not to search for work.

Jobless growth:

  • In jobless growth, the growing workforce struggles to secure employment even as GDP continues to rise.

Under employment:

  • Underemployment refers to a situation in which individuals are forced to work in low-paying or low-skill jobs.
  • Underemployment can be caused by a variety of factors, from economic recessions to business cycles.

Disguised Unemployment

  • Disguised unemployment is unemployment that does not affect aggregate economic output. It occurs when productivity is low and too many workers are filling too few jobs.
  • Here,more people are employed than needed. Usually, this has been traced in the agricultural and unorganized sectors of the economy.

Seasonal Unemployment

  • Seasonal unemployment describes a situation where workers are unemployed at certain times of the year when demand has decreased.

Eg: Agricultural labourers are employed according to the harvest seasons of different crops.

Structural Unemployment

  • Structural unemployment is long-lasting unemployment that comes about due to shifts in an economy.
  • This type of unemployment happens because though jobs are available, there’s a mismatch between what companies need and what available workers offer.

Unemployment as an effective tool in politics

  • Garibi Hatao (eradicate poverty)…… slogan of the Indian National Congress.
  • Sabka Saath, Sabka Vikas (Cooperation with all, progress of all)…. Motto of Bharatiya Janata Party
  • Land-for-all, Right to work… supported by left-wing politics.

Reference:

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