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Cement and steel need a hand to create jobs

Sunil Gupta | New Delhi |

Reams of newsprint and thousands of web pages have recently devoted themselves to scrutinizing the importance, execution and the long-term impact of the latest large-scale intervention introduced by the NDA government through the sudden demonetisation of Rs 500 and Rs 1,000 currency notes. However, amidst all the hype and hoopla that demonetisation has brought with it, a more pertinent concern has managed to skip the limelight over the past year. This is an issue which could impact the Indian economy far more significantly than even this groundbreaking change in monetary policy, something that will be responsible not just for the stable economic growth of this country but also the welfare of our future generations. That issue is of job creation, or more specifically, India’s urgent need to tackle jobless growth and create large-scale employment opportunities.
In the current scenario, the problem of unemployment exists as an entirely different demon, completely unrelated to India’s fairytale growth story. More than a million Indians become eligible to join the workforce every month. Unexpectedly, for an economy considered to be one of the fastest growing on the world stage, most seekers have to be turned away.
So though the country’s GDP growth continues to be healthy, the bad news on the jobs’ front warrants the Union government’s immediate attention as jobless growth does not help anyone. According to the Labour Bureau, India’s main agency for collecting statistics related to the creation of jobs in labour-intensive sectors, no new jobs were created; there was actually a fall of 20,000 jobs across eight labour intensive sectors in the December quarter of 2015.
It would be naïve to argue that the government should be able to employ all the new or displaced job seekers, despite the existing paucity of qualified people to take up so many vacant posts in the public sector. While Prime Minister Narendra Modi’s efforts to make the bureaucracy a lean, mean and efficient administrative machine are laudable, what it also means is that the public sector will have to inevitably shrink. Compared to 1996-97, when more than 19 million people were employed in government jobs, 2016 saw the occupation of such positions reduce to 17 million, despite the massive rise in population.
If the public sector is unable to hire, then jobseekers will automatically turn to the private sector. This is where India’s broader employability problem comes into the picture. However, this has to be seen in the light of one contradictory report that says that occupation under the government’s flagship rural employment program, MGNREGA, saw more than 200 per cent hike in November and December 2016. While MGNREGA workers were not more than 3.5 million in months preceding demonetization, the post-demonetisation period saw this figure touching 8 
million.
This trend is worrying as it could mean that the number of jobs contracted in the MSME sector after trade and commerce got hit due to the cash crunch in the months following demonetisation. Is there a way out? Even when we remove demonetisation from the backdrop, job growth figures have always been a painful area for the present government. Add to it the growing number of job-seekers and the looming threat of automation that will replace humans like never before.
Here it needs to be emphasised that agriculture, manufacturing, and services by themselves cannot fully meet the employment needs of the workforce. There has to be a way out to prevent the migration of labour from asset-building jobs to MGNREGA jobs that are nothing but sops. Let us now see how this can be achieved. To generate more asset-building jobs across the country, industry should be able to look at cost-effective inputs with abundant and cheap raw materials to get its mojo back. 
In the current scenario, the labour-intensive construction industry and the infrastructure sector have tremendous potential to generate substantial numbers of jobs. Since the Union Budget 2017-18 will be presented soon, the government can ensure a boom in this sector by addressing some long-pending issues faced by stakeholders. Cement and steel being key construction inputs, it is time for our government to resolve the major pain areas of cement and steel producers.
Talking about the cement sector, the industry is currently burdened with high excise duty and the demand has not been as promising as was anticipated after the Finance Minister presented the 2016-17 General Budget, where the Urban Rejuvenation Mission, Gram Sadak Yojana and Housing for All schemes were expected to bring a boom.
It is to be noted that the prevailing excise duty framework for cement sector is a vague combination of specific and ad valorem rates, which, as per analysts is a reason why duty incidence on cement remains on the higher side. Another point to be noted is that cement industry provides substantial tax revenue to the government (annually about Rs 35,000 crore), next only to tobacco, liquor, and petroleum. Hence this critical sector cannot be allowed to suffer the adverse impact of the irrational tax structure and rates.
Coming to the steel industry, high import duty on nickel and coking coal, which are vital components of steel-making, has added to the cost of manufacturing, thus making the industry uncompetitive when compared to steel imported from China. There is no doubt that the domestic industry has been hit hard by a surge in below-cost import of steel. Add to this the excise duty pain and stagnant demand. Although the government has been imposing anti-dumping duty on imported steel products, this sector will not witness the desired growth unless domestic taxes are rationalised. Presently, the annual excise duty collection from iron and steel sector is about Rs 20,000 crore.
While the profits of big players in the steel industry are declining, the performance of small and medium units is assuming alarming proportions. From H1 2013–14 to H1 2014–15, the net profit margin for small producers became negative to the extent of about 40 per cent, and for medium producers it is about 4 per cent. Meanwhile, the capacity utilisation of many small and medium producers has gone well below 50 per cent (Source: RBI Bulletin and NCAER Report).
In view of these facts, it is suggested that in the budget for FY 2017-18, our Finance Minister must rationalize excise duty on both steel and cement, along with other duties on products that are used in their manufacturing. To ease the pain of demonetisation and also to kick-start infrastructure growth and job creation, the Union government needs to give a significant boost to these critically important industries by levying lower or near-zero or even nil excise duty on these products for the next 2-3 years.
Infrastructure growth can receive a major boost if steel and cement providers are given benefits that will enable them to stay competitive. If the government takes this step, it will automatically push demand. Then both 100 per cent capacity utilisation and economies of scale can be achieved. Needless to say, job growth will see the kind of rise that the government and job-seekers really want.
With infrastructure development, workers will be absorbed in both construction of roads and buildings and also in steel and cement manufacturing. As far as government budgetary revenue is concerned, according to financial experts and government estimates, the direct tax growth owing to demonetisation, where the tax on higher than justifiable scrapped currency notes deposited and transparency in profit reporting of businesses, plus some dividend income from RBI, have the potential to compensate for the losses.
The BJP-led government may be expecting an uptick in its support from the general public owing to the patriotic fervor involved, which did not let demonetisation spark any wide public unrest. However, the underlying truth is that the public will judge the Union government and policymakers from the many impacts that demonetisation will bring in the short, medium and long term. If contracted job growth and lessened trade and commerce will be the only outcomes, then the party in power cannot expect voters’ support in the upcoming elections.

(The writer, a chartered accountant, has served on boards of nationalized banks, the General Insurance Corporation and the Rural Electrification Corporation.)