India is having a severe jobs crisis. Despite several promises from politicians, the angst and uncertainty about employment is on the rise. Nearly 33,000 new youth start looking for a job every day while less than 500 new jobs get created. For every white-collar job in India, there are 27 graduates fighting for it. Even after searching for employment for one full year, 4 out of 10 could not find one. Unemployment came up as the number one issue in the two recent Mood of the Nation surveys conducted by ABP-Lokniti and India Today. Additionally, 77 percent of Indian households have no regular wage earner.
The Central Government has realised the problem, which is why various schemes and measures have been introduced in the Union Budget 2018. First, the government has proposed to lower the tax burden on Micro, Small and Medium Enterprises (MSMEs) that have an annual turnover of under ₹ 250 crore. The government hopes that the lower corporate income tax rate will leave the companies with higher surplus to invest which will lead to job creation. Second, the government has proposed to increase customs duty on imported mobile phones and other electronics to promote jobs via Make in India.
The tax cuts provided to only MSMEs will act as a disincentive for small companies to expand their operations. The government has effectively created an impediment for existing firms to grow bigger and create more jobs. The higher customs duty will also impact the job creation negatively. Higher duty will reduce competition in mobile and consumer electronics industry as Indian firms will have reduced threats from foreign firms. Lack of competition will lead to fewer choices and inferior quality for all consumers while benefiting a few producers. Also, the consumers will end up paying more for imported mobile phones and other electronics, leaving them with less money to spend on other goods and services, and thus causing loss of jobs in those industries.
If the government really wants to enhance job creation in the country, it should remove burdensome entry barriers to start a business. Currently, a start-up needs to do as many as 85 regulatory filings per year. Moreover, we should treat every business equally. Creating various segments like MSMEs, big companies, Limited Liability Partnerships, proprietary firms, etc., just ends up making lawyers and accountants rich who help companies jump through numerous loopholes. The government would be well advised to think about the unintended consequences of its policies and judge them by their potential outcomes rather than good intentions.