Most expectations from the finance ministry around the Union Budget are unfair, irrational and imprudent. The ministry’s control of purse strings give it power, but it does not have the mandate to issue fatwas around issues that are multi-ministry and involve the legislature. But the finance ministry can and must use its control over direct and indirect taxation to create incentives or remove distortions in India’s 3E agenda (employment, employability and education). A possible listing of issues that the finance ministry directly controls:

Review apprenticeship stipends: India’s current apprenticeship regime sabotages “learning by earning” and “learning by doing”. While the labour and HRD ministries review other constraints, the recent recommendation of the planning commission subcommittee on apprenticeships to give a 150% income tax deduction to apprentice stipends by companies could go a long way in converting employers to volunteers. This would not only expand workplace vocational training capacity by shifting the apprenticeship regime from push to pull but also accelerate this capacity creation in the organised sector. Another leg up for apprenticeships could be a go-ahead to the ministry of labour to match the ministry of HRD’s apprenticeship regime under which it currently reimburses employers half the stipend paid. India’s pathetic performance is demonstrated in our 2.5 lakh formal apprentices while Germany has 6 lakh and Japan has 11 lakh.

Remove service tax on vocational training: The applicability of service tax on private vocational training not only distorts the playing field against the private sector (since it is not applicable to government delivery) but imposes the burden directly on students as they do not have any offsets. Accelerating, widening and deepening skill development are key objectives for the government and removing this service tax would greatly increase capacity and quality of vocational training. Many people who need vocational training cannot afford it and the current service tax regime only raises the costs that students have to pay for “repair”.

... contd.