Economic Indicators and Various Reports On It- GDP, FD, EODB, WIR etc

India’s Path to Prosperity through Formal Employment


From UPSC perspective, the following things are important :

Prelims level: NA

Mains level: Emmployment issues



  • Mass prosperity for massive populations is hard. India’s large remittances from a small population overseas and IT sectors employability reinforce that our mass prosperity strategy should be human capital and formal jobs.

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Why human capital formation is effective tool for mass prosperity?

  • Disproportionate contribution of IT employees: A strong case for human capital-driven productivity is our software employment — 0.8 per cent of workers generate 8 per cent of GDP.
  • Remittance by NRIs: This case is reinforced by remittances from our overseas population of less than 2 per cent of our resident population crossing $100 billion last year.
  • Shift towards formal employment: A World Bank report suggests that the qualitative shift during the previous five years from low-skilled, informal employment in Gulf countries (dropped from 54 per cent to 28 per cent) to high-skilled formal jobs in high-income countries (increased from 26 per cent to 36 per cent) is significant.
  • Remittances are higher than FDI: Our rich forex remittance harvest roughly 25 per cent higher than FDI and 25 per cent less than software exports is fruit from the tree of human capital and formal jobs.


Limitations of Fiscal and monetary policy

  • Credit availability is bigger issue: Monetary policy is, at best, a placebo, painkiller, or steroid especially since credit availability is a bigger problem in India than credit cost.
  • Source of finance is important than expenditure: Global experience suggests where governments spend money (pensions, interest, salaries, education, healthcare, roads, etc) and how this spending is financed (taxes or debt) matters more than how much is spent (about Rs 80 lakh crore in India this year).
  • Fiscal policy tends to overshoot: Covid made enormous fiscal and monetary policy demands, but the bigger the binge, the bigger the hangover. Western central banks are struggling to shrink their balance sheets because they used what Harvard’s Paul Tucker calls “unelected power” to chase goals outside their mandate, administer medicine with poorly understood side effects, and speed down highways with no known return paths.
  • India avoided the fiscal and monetary trap: Rich-country borrowing rates have risen by 300 per cent plus and inflation hurts the poor the most. India avoided these fiscal and monetary policy excesses. This prudence now combines with previous structural reforms (GST, IBC, MPC, UPI, DBT, NEP, etc) and a reform “tone from the top” to create a fertile habitat for productive citizens and firms.


What should be the strategy in next fiscal year for employment generation?

  • Targeting the job creation: The Finance Bill must target productivity and continuity by legislating human capital and formal job reforms previously proposed.
  • NEP should be implemented in 5 years: It should reduce the implementation glide path for the powerful National Education Policy 2020 from 15 years to five years.
  • Abolishing the licensing: It should abolish separate licensing requirements for online degrees and freely allow all our 1,000-plus accredited universities to launch online learning.
  • Accelerating apprentices: It should accelerate growing our 0.5 million apprentices to 10 million by allowing all universities to launch degree apprentice courses under tripartite contracts with employers under the Apprentices Act.

What are the other steps that can be taken through next budget?

  • Notify labour code: It should notify the four labour codes for all central-list industries while appointing a tripartite committee to converge them into one labour code by the next budget.
  • Universal enterprise number: It should continue EODB reforms by designating every enterprise’s PAN number as its Universal Enterprise Number.
  • Remove the factory act: It should explore manufacturing employment by abolishing the Factories Act this painful Act accounts for 8,000 of the 26,000 plus criminal provisions in employer compliance and require all employers to comply under each state’s Shops and Establishment Act (like Infosys, TCS, and IBM India do).
  • Ensuring better compliances by employer: It should create a non-profit corporation (like NPCI in payments) that will operate an API-driven National Employer Compliance Grid and enable central ministries and state governments to rationalise, digitise and decriminalise their employer compliances.
  • Making EPFO contribution optional: Making employees’ provident fund contributions optional but raising employer PF contributions from the current 12 per cent to 13 per cent. It should notify a previous budget announcement to create employee choice in their contributions to health insurance (ESIC or insurance companies) and pensions (EPFO or NPS).
  • Subsidy to high wage employer: Most importantly, it should link all employer subsidies and tax incentives to high-wage employment creation (a difficult-to-fudge and easy-to-measure effectiveness metric for this public spending is employer provident fund payment).


  • Experience and evidence now firmly suggest the odds of mass prosperity in the planet’s most populous nation rise from possible to probable by anchoring our strategy in human capital and formal jobs rather than fiscal or monetary policy.

Mains Question

What are the limitations of Fiscal and monetary policy in mass welfare of people? What are the possible strategies for creation of mass prosperity in India?

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