The government needs to introduce a programme, along the lines of the production-linked incentive (PLI) scheme, to incentivise employment generation directly, which will ultimately boost income levels at the grassroot level and keep up the growth momentum, CII president TV Narendran told FE in an interview.
Any such programme, he said, should link incentives to job creation and target employment-intensive sectors like textiles & garments, gem & jewellery, engineering goods, among others.
“It will complement the PLI schemes, which typically tie incentives to investments and production, although they spur job creation indirectly.
The pandemic has exacerbated joblessness. According to CMIE data, the unemployment rate rose to 7.9% in December from 7% in the previous month.
Before the Covid struck, the unemployment rate was 6.3% in 2018-19 and 4.7% in 2017-18.
To soften the blow of a spurt in input prices to small and medium businesses, which are more vulnerable to inflationary shocks than large corporations, Narendran suggested that the government forge index-based contracts with such entities, instead of fixed-price ones.
In the private sector, too, such index-based contracts exist, especially with transporters; so, when the fuel price goes up, the index goes up and vice-versa. Such a mechanism will safeguard the interests of both the parties against input price fluctuations caused by global factors.
Procurement of goods and services by various ministries/departments and public-sector units from small businesses were as much as Rs 39,538 crore in FY21.
Elaborating on his wish-list for the upcoming Budget for 2022-23, Narendran said the government must continue to bear the maximum burden of heralding a virtuous cycle of investments, although the long-elusive private capex is gathering steam of late, especially in sectors like steel and chemicals. For instance, in steel, investment of about Rs 1 lakh crore could come up over the next 3-4 years, Narendran, also the managing director of Tata Steel, said.
Large-scale investment in infrastructure and creation of durable assets remains critical to the country’s economic resurgence in the aftermath of the pandemic, he stressed. Gross fixed capital formation grew 11% in the September quarter, aided by a conducive base (it was -8.6% a year before).
However, private consumption, the principal pillar of the economy, remains fragile, especially in the middle-and-low-income strata, although it still grew in the first half of this fiscal.
“The Budget for FY23, therefore, must continue to support consumption through greater outlay for programmes like the National Rural Employment Guarantee Scheme, he said. Private consumption grew 19.3% in the June quarter and 8.6% in the September quarter, supported by contracted base.
Pandemic-induced uncertainties about jobs and fears about a likely spurt in health expenditure due to emerging Covid situations have prompted people to postpone discretionary spending.
“Household balance sheet is fragile. That is a part which needs to be handled a little more carefully to ensure quick recovery,” he added.
The upcoming Budget should also focus on further bolstering health infrastructure. It will not just enable authorities to contain the Covid spread effectively but also boost confidence of people and could ultimately help lift private consumption.
Similarly, the Budget must step up focus on quality education and skilling — two pre-requisites for meaningful employment.
Narendran conceded that the evolving Covid situation poses some down-side risks but added that overall sentiments were very upbeat.
“Until the first week of December (before the latest surge in Covid cases), the mood was positive; we were seeing that demand was reasonably strong and most sectors were at pre-pandemic levels, and most companies were exporting more. Capacity utilisation for most of our (CII) members was as much as 70-80% and people were planning investments. Of course, there were risks due to the emerging Covid situation,” he added.