Structural shift, lower GST required to boost employment: ISF

With a projected GDP of nearly $7.3 trillion by 2030, India is on its way to an economic resurgence. Shouldering more than half of the country’s GDP is the informal labour sector which accounts for nearly 85% of India’s workforce. According to the Indian Staffing Federation (ISF), informal labour requires a structural shift/overhaul to move towards formalisation.

The government already has initiatives in place targeting solutions for migrant workers, however, they represent just one portion of the affected workforce.  “A stop gap arrangement for unorganised workers will only further challenge our informal labour force for wage & social security protection in the long run,” says a vision paper by ISF.

It is predicted that India is going to grow at a pace of approximately 6-7% annually till 2028. The growth typically signifies that there should be a surge of employment opportunities across sectors. Although if that doesn’t happen, the growth doesn’t seem too viable.

The surge in consumer spending is boosting sectors such as e-commerce, consumer goods, logistics, hospitality, and travel and tourism. Conversely, labor-intensive industries like manufacturing, goods and transport services, construction, and real estate are struggling with significant challenges related to the lack of formal employment structures.

“The fact is that India is actually facing an acute and dire fiscal crunch,” says Mridul Srivastava, chief people officer, Spectra 7 VNL.

He states that the importance of building a symbiotic relationship between the industry leaders and the Indian workforce cannot be overstated, as it will be crucial in capitalising on the country’s growth potential.

A vision paper launched by ISF, a body of 125 recruitment agencies, stressed the need to formalise the country’s informal workforce of over 400 million and anticipated organised staffing companies would be able to contribute to this exercise.

As per the paper, the government has been attempting to tackle the challenges faced by migrant workers, but ISF has been advancing beyond temporary measures, advocating for their inclusion through formalisation in the labour market. A significant difference was observed during the pandemic, where the formal workforce, representing less than 15%, had access to their social security, which helped them navigate the difficulties, the document stated.

ISF proposes several recommendations, including removing employment bottlenecks, the swift implementation of the four labour codes in India, policy reforms and promotion of schemes, recognition of employment services as ‘merit services’ with a reduced GST rate of 5% accompanied by ICT benefits, as opposed to the current 18%, and the interlinking skill development initiatives to employment.

Unemployment amongst youth has been a central issue in India's election campaign, with opposition parties criticising the central government for not taking the necessary steps to overcome the challenge. The latest PLFS data on unemployment for the January-March quarter for the age group 15-29 is at 17%, a notch higher than the previous quarter.

Meanwhile, the middle-man recruitment agencies paid nearly $2.9 billion in tax to the government last year on the hiring of 5.4 million supporting staff in IT, retail and manufacturing paid $14 billion in total annually, according to ISF.

"We pay 18% goods and services tax (GST), equivalent to flying in an airline or eating at a five-star hotel," says Lohit Bhatia, president of ISF at a press briefing. He adds that this discourages many employers from hiring contract workers through recruitment agencies as they see the steep tax as an added burden.

The federation would be looking majorly into three crucial aspects to address the challenges posed: increasing the social security ambit; improving the concept of in-hand wage, implementation of labour codes; to minimise any obstacle to a favourable working condition, says the president.

The federation also expects the new government after the elections ending on June 1 to take steps to support the employment of more salaried workers.

“The plight of lower-income and semi-skilled workers underscores the pressing need for concerted action. Income inequality and rising poverty levels serve as stark reminders of the challenges we face,” says Suchita Dutta, executive director, ISF, while adding that with 85% of India’s workforce operating in the informal sector, it is imperative to initiate a structural shift towards formalization to ensure equitable opportunities and sustainable livelihoods for all.