In its first budget since returning to power with a reduced majority, the Bharatiya Janata Party-led government has made job creation a central focus, introducing financial incentives aimed at expanding formal-sector employment. Although the specifics of the three targeted schemes are still pending, they primarily offer financial benefits to both first-time employees and employers. Despite this, India’s ongoing structural weaknesses in the job market, particularly within small enterprises, and the historical reluctance of employers to formalize workers unless necessary, leave uncertainty about the impact of these new measures on the country’s labour crisis.
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The one thing we know is the three schemes are framed in formal-sector employment. This takes the shape of workers being registered with the Employees’ Provident Fund Organisation (EPFO), which is mandatory for firms with 20 employees or more. In the last few years, net new EPFO enrolments have risen progressively, with first-time employees aged 25 years and below accounting for about 50% of net additions to EPFO payrolls.
Between 2021-22 and 2023-24, an average of 6.3 million new EPFO members aged 25 and under were added annually. If each were to receive the maximum ₹15,000 , as per one of the three schemes, it would cost the government approximately ₹9,500 crore, though this amount could be lower depending on any duration clauses. In 2022-23, while there were 277 million EPFO members, only 68 million were ‘active’—at least one EPFO deposit was made in their account over the past year.
Lacking security
Additions to the EPFO subscriber base do not necessarily indicate new job creation. Rather, at most, they indicate the size of the formalised workforce, with a substantial proportion of enrolments likely to be of workers who were formerly casual workers and have been ‘formalised’. The government’s Periodic Labour Force Survey (PLFS) annual report for 2022-23 estimates that only around 20% of the workforce were regular wage or salaried workers. Even within them, the share of workers with no social security benefits—such as EPFO enrolment—was 54%.
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Using the government’s population estimates for 2023, and applying PLFS estimates of the share of population employed, the number of workers with job-related social security benefits works out to only 78 million. What this highlights is the historical tendency of Indian employers to refrain from formalizing their workforce unless required. Now, they have a financial incentive, with the government contributing up to ₹3,000 per new worker per month towards their EPFO for two years. But it may not be strong enough.
Gender gap
Within these PLFS numbers, there is a sharp disparity between male and female workers who have job-related social security—59 million men versus only 19 million women. The same is also seen in average earnings. In this budget, the government has promised to pay, via a direct benefit transfer, one-month salary to a first-time employee who is enrolled in EPFO, up to a maximum of ₹15,000. This amount is roughly equivalent to the average monthly salary earned by regular wage/salaried workers across the economy, as estimated by the PLFS for 2022-23.
Earnings for self-employed and casual workers were far lower though, with female casual labour earning less than ₹5,000 per month. Given that close to 80% of workers in the economy do not earn regular wages or salaries, the government has its work cut out in terms of upskilling them to enable them to enter the ‘formal’ workforce.
Size Matters
According to the latest Economic Survey, as of 2021-22, factories employing less than 100 people constituted 79.2% of all factories but only 22% of persons employed. This is also where the greater labour stress is. The survey argues that employment has been rising in bigger factories as compared to smaller ones, “suggesting a scaling up of manufacturing units”. Average compound growth in employment for factories with less than 100 employees was 3.9% between 2017-18 and 2021-22. For factories with more than 100 employees, it was 12.2%.
Even in terms of number of factories, the number of such units with over 100 workers grew at an average rate of 11.8%, compared with 0.4% for factories with less than 100 employees. If this trend holds, this also leads to relatively better conditions for workers, as workers in larger factories tend to earn more. While the three new schemes could boost labour formalisation, a true measure of their effectiveness will be new jobs created.
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