Need a new ‘SEZ’ | The Financial Express

Need a new ‘SEZ’

Budget FY24 must provide tax incentives for ‘special employment zones’ in backward districts that harness the employment potential of PLI & other such schemes.

sez, employment, unemployment, special employment zone
A total of 75 million new jobs have been recorded by ESI between September 2017 and October 2022. (Illustration/IE)

By TV Mohandas Pai & Nisha Holla

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The NDA II government, in its nine years so far, has overseen the largest step function in development in Independent India by deploying social schemes for access to basic amenities like housing, water, electricity, etc. It has also built infrastructure that networks the whole country, improved productivity, and provided the military a better standing to protect India’s sovereign borders. Jobs is the next prominent socio-political frontier.

Steady generation of formal employment has accompanied India’s growth– gauged by the extensive data available with the Employee Provident Fund (EPF) and Employee State Insurance (ESI). These are reliable databases since new subscribers are only recorded on receiving the actual deduction. Close to 11.2 million net new subscribers joined the EPF scheme in FY19. The number dipped to 9.47 million and 9.45 million in FY20 and FY21, respectively, presumably due to the pandemic’s recessionary effect. With the economy rebounding strongly in FY22, a record high of 13.8 million new subscribers was recorded. In FY23, between April 2022 and October 2022, 9.86 million new subscribers have already registered—71% of the FY22 total. Trends suggest the FY23 total will exceed the strong performance in FY22. A significant total of 61.2 million new jobs have been recorded on EPF between September 2017 and October 2022.

The ESI scheme has also recorded robust growth, with 14.9 million new subscribers in FY19, 15.1 million in FY20, 11.5 millioon in FY21, followed by a strong rebound of 14.9 million new subscribers in FY22. Between April and October 2022, 10-million-plus new subscribers have already been registered—68% of the FY22 total. As with EPF, trends suggest the FY23 total will exceed FY22’s. A total of 75 million new jobs have been recorded by ESI between September 2017 and October 2022.

Claims that these only indicate formalisation do not hold for two reasons. First, these databases record data of establishments remitting their first cheque in the financial year, an indication of existing jobs getting formalised. For example, 62,535 establishments remitted their first cheque in FY22 on EPF, amounting to 1.25 million jobs formalised. This means 12.6 million jobs were newly created in FY22, outside formalisation. 

Second, a significant number of jobs are being created in the 18-25 age bracket. In EPF, 5.64 million new jobs created in FY19 were in that age bracket—50.1% of the total. Similarly, 53.3%, 51.4%, 52.4% and 51% of total jobs created were in that bracket in FY20, FY21, FY22 and FY23, respectively. On ESI, the corresponding percentages are 48.2% (FY19), 48.6% (FY20), 48.4% (FY21), 48.2% (FY22) and 47.9% (FY23). It is highly unlikely that existing jobs being formalised would count such an overwhelming percentage in that young a population. 

The percentage of women among new subscribers seems to be climbing. In EPF, women formed 18.1% of new subscribers in FY18, which has increased to 26.5% in FY23. Similarly in ESI, women formed 15.5% of new subscribers in FY18 and 19.1% in FY23.

While employment growth is reasonable, strategic investment and incentives are necessary to provide adequate employment for India’s aspiring population. The agriculture-dependent workforce has been moving to services and industry at the rate of 1% per annum since 2000, and this trend is accelerating. They need robust opportunities where they can be skilled and upskilled to find suitable local employment. A related matter is the availability of jobs with adequate salaries to meet aspirations. Today, most EPF and ESI jobs pay less than `20,000 monthly.

Budget FY24 is an opportunity to broaden job availability by utilising the phenomenal work undertaken with the social schemes and infrastructure development over the last nine years. Atmanirbhar Bharat, PLI, Make-in-India and Skill India initiatives, and export-linked manufacturing plans, all provide a robust foundation to launch a employment generation movement. It is suggested that these be established as Special Employment Zones (SEZs)—a vision to create 50 million new jobs in India’s heartland over five years. 

A significant allocation in Budget FY24, with continued allocations thereafter, will help achieve this vision. The allocation will be used to develop industry clusters, incentivise employers to set up factories there, and the complementary urbanisation required to make the clusters globally competitive. It is expedient to locate these clusters in labour-surplus regions. The scheme can identify 300 of India’s backward districts and 1,000 tier 2/3/4 towns, establish these clusters close to them, and facilitate connectivity for the workforce as well as rapid movement of goods and materials. 

The Budget can provide a tax deduction to entities registering in these SEZs, covering 130% of salaries and wages paid for employees residing in the neighbouring towns and districts for 10 years. The Kaushal scheme can be incorporated for skilling and to verify salaries and wages via payment towards EPF or ESI. Women can find suitable employment close to their homes and fully engage in the economy, thereby increasing their workforce participation significantly. The SEZ mission will promote large-scale job creation in India’s heartland, enabling backward districts to grow faster than their states. 

Job creation will be a significant 2024 election issue. Promoting large-scale employment in India’s heartland will prove politically sagacious. This will be similar to how delivering development to these doorsteps during the 2014-19 term propelled the NDA II back to victory in 2019. Budget FY24 will demonstrate the resolve to keep the evolving interests and aspirations of the citizens front and centre.

Disclaimer: Author TV Mohandas Pai is Chairman, Aarin Capital, and Nisha Holla is technology fellow, C-CAMP. Views expressed are personal.

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First published on: 19-01-2023 at 00:20 IST