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Press Release

Prof. K.R. Shyam Sundar

12th November, 2020

The Finance Minister's relief package issued today will surely make a positive impact thought limited. This is primarily because the relief is routed through the EPF route rather than a direct wage subsidy and the EPFO's coverage notwithstanding the claimed progress is still limited in terms of the existing scheme of coverage of establishments and the income threshold of Rs. 15,000.

The EPF subsidy announced today will be distortionary in some senses. The employment creation condition in the package is inequitable in the sense that the establishments are classified into simple two categories, <50 and > 50 and the number of jobs required to be created is a minimum of 2 and 5 respectively. The >50 category offers huge variation - for example according to the Annual Survey of Industries, 2016-17, 22310 factories employ 50-99 while 34,981 employ 100+. It is inequitable to ask these two disparate categories to create the same number of jobs for the same amount of subsidy for two years. There must have been finer gradations in a progressive sense. The present arrangement is regressive in this sense.

Why should big firms, i.e. say those employing 100 or 200+ enjoy full subsidy similar to those employing less than 50? Again this is a regressive move. Further the factories employing more than 999 are just 4,258 out of 1.94 lakh registered factories who will get half the subsidy.

The EPF subsidy given its low wage aspect (<15000) will most likely lead to creation of low-skilled jobs and in that sense employment generation will be low skilled and low paying jobs. Again, the FM having covered the COVID-rendered-unemployed could have provided enabled a preferential employment of them for two reasons, they were battered and mostly migrants and they are more likely to be skills-endowed. They are more likely to be job-ready than the freshers.

Also, the total effect of these jobs and their incomes will have limited multiplier effects and hence less significant impact on the aggregate demand especially in sectors which drive it like the automotive and the high-end industries.

The MNREGA engine of work-generation is seen to have run its major steam as the FM has not replenished its budgetary allocation even though in some states, unemployment levels are still higher and some of them are making job reservations for the locals which means reverse migrants are still around in these states.

The Schemes may not address fully the issues surrounding employment and wage thefts caused by COVID-19 and the Labour Ministry's intervention as reported in the media shows that it has been incomprehensibly inadequate.

Overall, the government needs to be far more daring and more comprehensive to tackle extraordinary issues of far reaching socio-economic ramifications. Crackers have been banned for Diwali, rightly so, but FM could have made a louder impact which would have been welcome!