Internship Scheme For 1 Crore Youths In India

Policy Update
Kirti Ranjan

Background

The unemployment rate among urban youth aged 15-29 was 17% as of Jan-March 2024 (PLFS,2024). The budget for 2024-25 addresses these critical issues of growing unemployment in India by launching three “Employment Linked Incentive” schemes to boost job opportunities, particularly in the formal private sector. The schemes include one-month wage support for first-time workers and EPFO contributions to encourage employment in manufacturing. Additionally, an internship program which aims to provide one-year-long internship opportunities in Top 500 companies to 1 crore youth (aged 21-24 years), spanned over five years. This will provide young people with real-world business exposure and skills, significantly increasing their chances of securing full-time employment.

Functioning

The eligible candidates

Not employed and not in full-time education
Aged between 21-24 years
Not from a prestigious institution or with a professional degree like IIT, IIM, IISER, CA
None of the members were assessed for income tax, implying income below three lakhs per annum.
None of the family members are government employees, etc.

The internship scheme is to be rolled out in two phases with a total budget allocation of Rs 63,000 crore. The first phase aims to place 30 lakh interns within 2 years, while the second phase targets the employment of 70 lakh interns over the following 3 years.

The budget announced that “An internship allowance of `Rs 5,000 per month along with a one-time assistance of `Rs 6,000 will be provided. Companies will be expected to bear the training cost and 10 per cent of the internship cost from their CSR funds.” The government will bear the cost of a monthly allowance of Rs 5000. The participation of companies is voluntary.

Impact

Reduction in unemployment & Skill development in Youth: The unemployment rate among youth 15-24 years is 17 % in Jan-March 2024. The employment of 15 lakh youth per year will reduce unemployment figures. Simultaneously, it provides an avenue for learning technical and management skills from top professionals in the industry.
Opportunity to economically weaker sections: The scheme targets youth from economically weaker sections as it excludes anyone whose family member falls under any tax bracket. The primary beneficiaries will be those who have completed their education at local or state colleges. In the current system, it is profoundly difficult for students from local/state colleges/universities to secure decent internships at top companies. However, with this scheme, youth from weaker backgrounds will have the opportunity to learn from professionals, which will enhance their employability in the future.
Increase in consumption and income: By providing direct cash to one crore people, consumption is expected to increase through the multiplier effect. According to the Keynesian multiplier rule, if the government injects ₹600 crore into the economy and the marginal propensity to consume (MPC) is 0.8, this could generate a total income of ₹3,000 crore in the economy.

Emerging Issues

Capacity issues: To meet the target of 30 lakh interns over the next two years, each company must hire 3,000 interns per year. The second phase will increase the annual requirement to 4,600 interns per company. While only a few companies in the top 500 can easily meet the target, others with fewer employees will find it challenging to achieve it. If we consider the top 500 companies by net worth, those with larger workforces, such as TCS with 600,000 employees, Reliance Industries, and Infosys with 300,000 employees, are better positioned to accommodate this many interns. In contrast, companies like Hitachi India, Voltas, and TVS, which have only 2,000-3,000 employees, may struggle to do so. According to employee data available for the Top 500 companies on Fortune India, only 25 private companies have more than 30,000 employees. (Fortune India, 2023)
Quality of work: The guidelines of the scheme do not specify whether it will be an on-site or online internship, leaving room for various modes of internship and, consequently, varying learning outcomes. With a large number of interns entering the labour force, it is uncertain whether they will receive proper training from employers or if the internships will merely become a formality. Even with restrictions on hiring interns from premier institutes, it’s questionable how many companies will be willing to participate, given the potential high costs associated with training and shortlisting candidates.
Looming Recessionary Trend: Recent news of rising unemployment in the US and fears of a recession could also impact the Indian job market. India is already grappling with lower consumption and decreased demand, which slows down job creation. According to the latest GDP data released by the National Statistical Office, the growth in Private Final Consumption Expenditure (PFCE), which serves as a measure of consumption demand in the economy, slightly decreased to 3.98% in Q4 from 4.03% in the December quarter. Government spending, measured by government final consumption expenditure (GFCE), experienced a slight increase of 0.89% in the March quarter, recovering from a decline of -3.22% in the previous quarter (Business Standard, 2024). Even with the government covering the cost of internships, companies are unlikely to demand more labour if market consumption remains low.
Hiring at lower wage: With a government-provided monthly stipend of ₹5,000 and a one-time payment of ₹6,000, companies essentially get a full-time employee for less than ₹1 lakh per year. The scheme does not specify any requirements regarding working hours, which could lead to the over-exploitation of workers.
Unbalanced distribution: Most of the top companies have offices located in mega-cities, meaning that youth living on the outskirts of these cities will benefit the most. Whether the ₹5,000 monthly stipend is sufficient for survival is another matter. The distribution of benefits can also be viewed through the lens of caste, given its significance in India. The scheme does not include provisions for reservations for women or SC/STs, despite the government covering the entire cost of the stipend. Abhijit Banerjee’s study, “Labor Market Discrimination in Delhi: Evidence from a Field Experiment” (2009,) shows that discrimination exists in call centre jobs between upper castes and OBCs, though such discrimination is not observed in higher-profile jobs. Thus, the benefits of schemes will certainly not be balanced.

Way Forward

The internship scheme will help youth from economically weaker sections of society gain access to top companies, providing them with meaningful work that was previously difficult to obtain. However, given the capacity challenges, the scheme needs to be expanded to other regions.

Startups in India could greatly benefit from this plan, as it would significantly reduce labour costs while providing interns with valuable work experience. Additionally, this scheme could be extended to government offices and schools, which would not only contribute to the greater social good but also provide opportunities for individuals in rural areas, as in every village there is a government school or government office. We will see how it performs in the future as more details on the scheme are yet to be released.

References

Banerjee, A., Bertrand, M., Datta, S., & Mullainathan, S. (2008, 9 2). Labor Market Discrimination in Delhi: Evidence from a Field Experiment. Journal of Comparative Economics, 14-27. https://scholar.harvard.edu/files/sendhil/files/labormarketdiscriminationindelhi.pdf
Fortune India. (2023). FortuneIndia 500 : 2023. FortuneIndia. https://www.fortuneindia.com/fortune-500/company-listing?year=2023&page=1&query=&per_page=500
Government of India. (2024, 07 23). Budget 2024-25.
Investment demand at 4-quarter low, consumption remains sluggish. (2024, May 31). Business Standard. https://www.business-standard.com/economy/news/investment-growth-down-to-a-4-qtr-low-consumption-demand-remains-sluggish-124053101833_1.html
MoSPI. (2024, 05 15). Quarterly Bulletin , Preodic Labour Force Survey. https://www.mospi.gov.in/sites/default/files/publication_reports/Quarterly_Bulletin_PLFS_Janaury-March2024.pdf

About the Contributor: Kirti Ranjan is an Intern at IMPRI. She is a PhD (Economics) student from the Centre for Economic Studies and Planning, Jawaharlal Nehru University.

Acknowledgement – The author extends sincere thanks to Dr Arjun Kumar for the invaluable opportunity and to Nausabha and Geetam for their informative inputs.