Budget 2024: Govt's ₹2 lakh crore skilling plan not meant for long-term growth, says industry

Employment generation and skilling has been a major area of focus of the Union Budget 2024. Finance Minister, Nirmala Sitharaman, announced a central outlay of ₹2 lakh crore to facilitate employment and skilling for 4.1 crore youth over a five-year period. Though a positive move towards getting more people into the formal workforce, the industry believes that the initiative needs to be carefully executed, else they could run the risk of either being misused or abandoned by employers in the long-term.

The FM has made three employment-linked announcements, which would be based on enrolment in the EPFO (employee provident fund organisation). It would focus on recognition of first-time employees, as well as support employees and employers. It includes a one-month wage to all persons newly entering the workforce in all formal sectors. The eligibility limit will be a salary of ₹1 lakh per month. Direct benefit transfer of one-month salary will be up to ₹15,000 in three instalments to first-time employees, as registered in the EPFO. The employee, in turn, must undergo compulsory online financial literacy course before claiming the second instalment. Further, the subsidy would have to be refunded by the employer if the employment to the first timer ends within 12 months of recruitment. This scheme is expected to benefit 2.1 crore youth over two years.

“It seems to be a great initiative on paper, but the catch is people may join the workforce for just those three months to avail of benefits and then quit,” points out Rituparna Chakraborty, co-founder, Teamlease. “An employee earning ₹25,000 in the informal workforce would get the full amount in hand, the moment he joins the formal workforce, the amount that would come in hand, will reduce due to EPFO deductions. Unless organisations woo them substantially, these employees may not stay in the workforce for long,” Chakraborty explains.

Aditya Mishra, MD & CEO, CIEL HR says these initiatives can only be incorporated by large companies of scale and not so much by the MSMEs which hire a large chunk of the workforce. The Government’s second scheme is targeted at hiring first-time employees in manufacturing. The idea is to incentivise additional employment in the sector. An incentive will be provided at specified scale directly both to the employee and the employer with respect to their EPFO contribution in the first four years of employment. The subsidy would have to be refunded by the employer if the employment to the first timer ends within 12 months of recruitment. This employer-focussed scheme will cover all additional employment within a salary of ₹1 lakh per month in all sectors.

CIEL’s Mishra says these initiatives are an advantage to employers as it would help reduce costs and would also solve the problem of availability of skilled manpower in the country, but the challenge would be to make it work. “Giving incentives to companies to add more people doesn’t mean that they would add more people. They will add to their workforce only if the environment is congenial for ease of doing business. The demand for their products should also go up, only then will they need additional people.”

“Small businesses are the largest job creators in the country. If we are trying to get people from the informal sector to the formal sector, then one needs to boost the MSMEs. Supporting the employer for the first four years with EPFO contribution isn’t enough, the government has to consider supporting the MSME for the long-term so that his business doesn’t crumble. The MSME has to have the wherewithal to sustain. These initiatives may work only in the short term,” Mishra explains.    

Apart from these employment-linked initiatives, the FM has also announced a scheme for skilling in collaboration with state governments and industry. The scheme, with a total outlay of ₹60,000 crore aims at skilling 20 lakh youth over a five-year period. To achieve this target, 1,000 industrial training institutes (ITIs) will be upgraded in hub and spoke arrangements with outcome orientation.  Further, the course content and design will be aligned to the skill needs of industry and new courses will be introduced for emerging needs. In addition to this the government has also announced a scheme for providing internship opportunities in 500 top companies to one crore youth in five years. An internship allowance of ₹5,000 per month, along with a one-time assistance of ₹6,000 will be provided. Companies will be expected to bear the training cost and 10% of the internship cost from their CSR funds.

“By committing to skill 20 lakh youth over the next five years and upgrading 1,000 ITIs, the government has ensured that our educational framework is aligned with industry needs. It will play a crucial role in enhancing vocational training by adopting an approach for outcome-oriented learning. Additionally, the collaboration with state governments will further strengthen these skilling programs, facilitating a tailored approach that meets local industry demands while fostering innovation in training methodologies. Furthermore, the Model Skill Loan Scheme, facilitating loans up to ₹7.5 lakh, will empower thousands of students to pursue their aspirations without financial constraints. These initiatives reflect a holistic approach to workforce development, driving both individual success and national progress,” says P.S. Viswanath, MD and CEO, Randstad India.