Budget 2012: Jobs boost needed labour reforms

The excitement and anticipation surrounding the presentation of our country’s Budget appear to be waning with every passing year.

Missed targets, grand announcements with little focus on implementation, bland assurances and token changes in policy do not evoke confidence or bring energy back into a sluggish economy. And, the positive sentiment, which many Indians and Indian businesses seem to ride on, may prove inadequate to drag the economy forward, particularly at the pace desired, given the potential inherent in the country.

The Economic Survey released a day ahead of the Budget did highlight that while there has been a general uptrend in terms of employment generation over the past couple of years, the rate of growth in employment has been slower in 2011 compared to the earlier year. The services sector, particularly the IT/ BPO industry, has been credited for much of this growth.

The private sector continues to be at the forefront of employment generation. The fillip that this year’s Budget is expected to provide for enhanced investment in infrastructure sector is most likely to boost job creation. Also, if the momentum of growth in the services sector continues, it will bring along further new opportunities for employment.

However, the point that needs to be kept in mind here is that true and sustainable employment generation can happen only if the government gets serious about labour reforms and reviews our antiquated labour legislation.

The opportunity for the implementation of the proposed Direct Taxes Code (DTC) as planned earlier with effect from April 1, 2012, was long lost. Instead, we have an increase in the tax slabs that appear to be aimed at the eventual rates that will be in line with the DTC, when implemented.

While the changes to the tax slabs may be a cause for some cheer among tax payers, we cannot ignore the fact that it comes with a loss to the exchequer which could have been avoided had the DTC been rolled out, since it takes a holistic view of the income tax framework, taking exemptions and savings also into consideration.

By dragging our feet on the proposed Code, we have lost at least another year to simplify and make contemporary Indian compensation structures and improve compliance. We are assured by the finance minister’s statement in the Budget that this piece of legislation could be introduced soon. I hope this will be the last time in many years that I will be witness to and required to comment on a Budget that will tweak income tax rates in the country.

Gangapriya Chakraverti Partner at  Kelsa Solutions