Jammu And Kashmir's Employment Policy Misses Viability Strategy
By Bilal Hussain
05 January, 2010
Countercurrents.org
The Jammu and Kashmir chief minister, Omar Abdullah, recently unveils the employment policy. The policy document gives a good reading, mentions exploitation of most economic sectors of the state and generation of huge employment. However, like most of the state’s policy documents it too misses the much needed viability strategy.
The document talks about rising of employment opportunities to absorb the army of educated yet unemployed youth of the state. Although it mention little about the sustenance of these tall claims and the policy finds no talk on the much need finances for supporting such initiatives. Will the state resort to its older means of putting begging bowl to New Delhi? If not then the state would raise funds internally if yes then how?
In J&K the unemployment rate currently stands over 6 percent, and the outlook for employment is poor unless labor markets are given some type of boost. To explore the opportunities to provide the needed boost, the collation government has come up with the much hyped ‘employment policy’ which talk about ‘most possible avenue for job creation.’
The divestment in various state corporations could be a way forward to absorb youth of the state. The various corporations currently run by the state government had incurred a whooping loss of Rs 1877.01 crore during the last fiscal. The financial position of most state corporations is not a good sign for economy of the state. Ten corporations had suffered a loss of Rs 1877.01 crore till March 31, 2009. However, seven corporations had managed a profit of Rs 916.93 crore during the period. Besides, other two corporations were running on loss no profit basis.
The corporations which had suffered losses include J&K Handicrafts (S&E) Corporation ltd (Rs 88.85 crore), JK Handloom Development Corporation Ltd (Rs 77.87 crore), JK Industries Ltd (Rs 340.15 crore), State Industrial Development Corporation (Rs 46 crore), Small Scale Industries Development Corporation Ltd (Rs 7.80 crore), JK Minerals Ltd (Rs 422 crore), JK SC/ST and other backward classes Ltd (Rs 100.34 crore), JK Horticulture Production and Processing Ltd (Rs 4.50 crore), JK Agro Industries Development Corporation Ltd (Rs 400.63 crore), SRTC (Rs 389.21 crore).
Those who are in profit include, JK Tourism Development Corporation, JK Cements Ltd , JK Cable Car Corporation, JK Project Construction Corporation, JK Power Development Corporation, JK Forest Corporation, JK Police Housing Corporation. And those running on no loss no-profit basis are JK Women’s Development Corporation, JK State Finance Corporation.
It is high time for the state to go for divestments of the corporations which are in RED. By the step huge sum of Rs 1877 crore could be saved and diverted for the development of other cash starving productive sectors and could generate huge employment avenues for the youth of the state. Unfortunately the ‘employment policy’ didn’t explored the option.
To mention for the fiscal 2008-09 the state spends about 60 per cent of the budget in paying salary-bill of the state. At present the state has over 3.32 lakh employees on its rolls. On the main items of expenditure, the current year’s non-plan salary provision is Rs 6,594 crore in comparison to Rs 4,973 crore of past year. Additional provision of Rs 121 crore has been kept for salaries of migrant employees. The state finds it hard to mange resources for its existing employees, now the recent decision of hiring over one lakh people in the government sector would further worsen the situation.
Power sector is another major concern for J&K, wherein the state has failed miserably in bringing deficit due to it down. Previous government managed a zero deficit budget by taking out power bill and put it separately as ‘power budget’, which hardly helped the state to bring down its electrical energy bill but could be termed as ‘good window dressing’. The state has already the gap between expenditure incurred on purchase of electrical energy and revenue collected has nearly doubled from Rs 767 crore during the year 2003-04 to Rs 1,406 crore during last year. Huge army of youth could get absorbed in this vital sector right from the generation, transmission to fee collection.
The state government has two main policy tools at its disposal which, the present government can employee through spending on goods and services and changes in taxes. Additionally, the government can also hire labor directly which is a separate category.
The tax cuts and other changes that do not involve the direct purchase of goods and services, or the direct purchase of labor, by the government to local private players would encourage private sector job creation.
These policies can increase employment, but the effect is indirect. The idea is that the tax incentive will increase the demand for goods and services and increase profits, and the increase in profits will, in turn, lead to the firm to hire more workers.
The problem with these policies is that much can go wrong along the way. For example, the tax cut may be saved instead of spent, the extra profits may be used for some other purpose than hiring new workers, and the policy may be relatively slow to unfold. Thus, the regulators job to ensure the increase in profits is used for stimulating employment.
The policies that are indirect such as tax cuts on profits to encourage new capital purchases are the most uncertain, slowest, and least effective while more direct policies such as tax cuts to encourage hiring fare much better.
The policy should involve tax changes or transfers of money of one sort or another. Another possibility is the direct purchase of goods and services by the government. These purchases can be categorized according to whether they are government consumption or government investment. The spending on a government sponsored gatherings, rallies and many other shows is an example of government consumption since there is no long run benefit beyond the memories, while spending the same amount of money on roads, infrastructure building etc. would be an investment since the benefits would persist.
Government investment, particularly investment in infrastructure, should be a major component of the stimulus package. These policies, which are aimed at stimulating the economy in the short-run output and increasing economic growth over the longer run, can increase employment, but as we have seen with the stimulus package, infrastructure projects can be slow to implement.
Given the poor state of the labor market in the state, the uncertain and apparently meager effects of the tax cuts that were part of the stimulus package, the insufficiency of the first round of government spending, and the time it would take for other polices such as more infrastructure spending to be put into place, direct employment creation policies through government purchase of labor services are worth taking seriously.
The high levels of unemployment are costly not only to the individuals and families directly affected, but also to local and regional economies and the economy as a whole. We can make a distinction between the economic costs arising from people out of work and the social costs that often result.
Unemployment causes a waste of scarce economic resources and reduces the long run growth potential of the economy. An economy with high unemployment is producing within its production possibility frontier. The hours that the unemployed do not work can never be recovered. But if unemployment can be reduced, total state output can rise leading to an improvement in economic welfare. High unemployment has an impact on government expenditure, taxation and the level of government borrowing each year
An increase in unemployment results in higher benefit payments and lower tax revenues. When individuals are unemployed, not only does the state would be forced to pay them certain benefits in form of subsidies and other allowances and would receive no income tax. As they are spending less they contribute less to the government in indirect taxes.
Rising unemployment is linked to social and economic deprivation - there is some relationship between rising unemployment and rising crime and worsening social dislocation.
Areas of high unemployment will also see a decline in real income and spending together with a rising scale of relative poverty and income inequality. As younger workers are more geographically mobile than older employees, there is a risk that areas with above average unemployment will suffer from an ageing potential workforce - making them less attractive as investment locations for new businesses.
It is not clear at this point how committed the administration is to expending the political capital it would take actually to implement such a plan, we will have to wait and see if this is all for show or if the government leads to actual policy change.
The state might get some change in employment as a result of the policy, but I don’t expect any large policy initiatives, certainly nothing like what is needed to make a large dent in the employment problem.
[Bilal Hussain is a journalist, and writer. In 2009 he attended the McGraw-Hill Personal Finance Reporting Program Courses, supported by The International Center for Journalists.He was also the sub-editor, ‘Business section’ with the leading local English daily, Greater Kashmir. His principal interests are capital markets, developmental sector and ecological economics. He can be reached at [email protected]]
