Why Skill Development and Job Creation are Superior to an Employment Guarantee Program.....?

India possesses one of the world's largest young populations, a demographic dividend that could fuel unprecedented economic expansion. However, this potential can only be realized if the workforce is adequately skilled and employed in productive sectors. A recent report highlighted a significant disparity between the skills possessed by graduates and the requirements of modern industries, indicating a "skills gap" that hinders economic progress. Addressing this gap is not just an economic necessity but a social one, as meaningful employment improves livelihoods, reduces poverty, and fosters social stability.

Sustainable Economic Growth

Employment guarantee programs, like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), serve as crucial safety nets, particularly in rural areas during times of distress. However, they are inherently designed for short-term relief, typically focusing on unskilled manual labor.

Reliance on Government Spending: These programs are funded by the state and put a continuous strain on public finances. They can lead to dependency and do not foster a self-sustaining private sector.

Limited Skill Enhancement: The nature of the work offered often does not build transferable skills that can lead to career progression or higher wages in the formal economy.

Market-Driven Demand: Skill development and private-sector job creation, conversely, are driven by market demand. Training tailored to industry needs ensures that individuals gain relevant, high-value skills that attract private investment and lead to sustainable, higher-paying jobs.

Leveraging the Demographic Dividend

India adds millions of potential workers to its labor force annually. Transforming this large pool of human capital into a productive asset requires a fundamental shift towards capacity building.

From Subsistence to Productivity: Skill development moves workers from subsistence-level jobs to more productive roles in manufacturing, technology, and services.

Increased Innovation and Competitiveness: A skilled workforce is essential for India to compete in the global market. Highly skilled workers drive innovation, improve efficiency, and attract foreign direct investment.

Need and Scope with Data

The need for skills development is starkly illustrated by current data:

Low Formal Skill Training: Only a small percentage of India's workforce has received formal vocational training. Data indicates that a significant portion of young people in India lack job-ready skills, a major barrier to employment.

Skill Gaps in Industry: The IT/ITeS sector, for instance, frequently reports difficulties in finding candidates with the required advanced technical and soft skills, even with a large number of engineering graduates.

The Formal vs. Informal Economy: A significant part of India's workforce remains in the informal sector, characterized by low wages and lack of social security. Skill development is key to transitioning these workers into the formal economy.

The scope of skill development is vast, encompassing:

Future-Ready Skills: Training in emerging technologies like AI, data analytics, and renewable energy to prepare the workforce for the jobs of tomorrow.

Entrepreneurship: Fostering entrepreneurial skills to encourage job creators rather than just job seekers.

Vocational Training: Expanding vocational education and training (VET) programs through initiatives like Pradhan Mantri Kaushal Vikas Yojana (PMKVY) to provide practical, industry-relevant skills.

While employment guarantee programs provide vital social security, they cannot be the primary engine of a modern, ambitious economy. India's future prosperity lies in investing in its human capital through targeted skill development and fostering an environment conducive to job creation. This approach ensures that the country's vast youth population becomes a powerful engine of growth, driving innovation, increasing productivity, and securing a sustainable and prosperous future for all citizens. India needs skill development and job creation, rather than a universal employment guarantee program, to achieve long-term, sustainable economic growth and leverage its demographic dividend. While employment guarantee schemes offer immediate relief, they are not a scalable solution for a rapidly growing population with diverse aspirations. 

MGNREGA Vs VB-G RAM G.....

 The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), enacted in 2005 under the United Progressive Alliance (UPA) government, was a landmark social welfare legislation, hailed as the largest work guarantee programme in human history. Its unprecedented nature stemmed from its establishment of the 'right to work' as a legal entitlement for rural households, fundamentally shifting the approach to poverty alleviation from discretionary government schemes to a rights-based, demand-driven framework. This provided a crucial social safety net in a country where a significant majority of the poor resided in rural areas and often lacked formal skills for stable employment.

The Unprecedented Nature of MGNREGA Under UPA

MGNREGA was unprecedented due to several innovative design features:

Legal Guarantee: Unlike previous employment programmes which were allocation-based and discretionary, MGNREGA legally mandated 100 days of unskilled manual work per financial year for every rural household that demanded it. If work was not provided within 15 days of application, the applicant was entitled to an unemployment allowance, a liability borne by the states, creating an incentive for efficient implementation.

Demand-Driven and Self-Targeting: The programme was triggered by the demand for work by wage-seekers, ensuring that benefits reached those who needed them most without complex targeting mechanisms that often led to exclusion errors.

Decentralized Planning and Implementation: The Act gave a significant role to Panchayati Raj Institutions (PRIs) in planning, executing, and monitoring works, with at least 50% of the works assigned to Gram Panchayats. This bottom-up approach aimed to align projects with local needs and priorities, such as water conservation and rural infrastructure.

Transparency and Accountability: The Act incorporated robust accountability measures, including mandatory social audits by Gram Sabhas, proactive public disclosure of records, and electronic fund transfers, which aimed to reduce corruption.

Social and Financial Inclusion: It ensured equal wages for men and women and mandated that at least one-third of the beneficiaries were women, contributing to women's empowerment and financial independence. It also had high participation rates from Scheduled Castes (SCs) and Scheduled Tribes (STs).

The Challenge of Skill Shortages and UPA's Initiatives

While MGNREGA provided immediate income support and a crucial safety net, it primarily focused on unskilled manual labour. The underlying challenge was the majority of the rural workforce lacking formal, marketable skills to transition to higher-productivity, full-time employment.

The UPA government (and subsequent governments) recognized this gap. The foundational credit for initiatives to address this challenge goes to schemes like the Deen Dayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY), a placement-linked skill training program for rural youth, and the National Rural Livelihood Mission (NRLM). These programs, aimed at skill development and entrepreneurship, were designed to work in synergy with the employment guarantee, enabling a pathway from basic manual work to more skilled livelihoods. Project LIFE-MGNREGA was later formulated to formally link MGNREGA workers who had completed 100 days of work to these skilling programs.

The BJP Government's Approach: An Updated Version?

The current government under the BJP has recently repealed the original MGNREGA Act and introduced the Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) (VB-G RAM G) Bill, 2025. The government frames this as a modernised, outcomes-focused, and corruption-free upgrade to align rural employment with the long-term vision of Viksit Bharat 2047.

Key changes and data under the new framework include:

Increased Guarantee (Cosmetic?): The guaranteed employment has been increased from 100 to 125 days per rural household. Critics, however, argue this is a "red herring" as the national average days of work provided under the old scheme rarely crossed 50 days, and only about 7% of households completed 100 days of work in FY 2023-24.

Shift in Funding Pattern: The original 100% central government funding for unskilled labour costs has been replaced with a 60:40 fund-sharing model between the Centre and most states (90:10 for North-Eastern and Himalayan states). This potentially increases the financial burden on states and could impact implementation in poorer regions.

Centralized Control and Discretion: The new Act introduces "normative financial allocations" decided by the Central Government, moving away from the purely demand-driven, open-ended entitlement of the original act. It also allows the central government to notify specific rural areas for implementation and includes a 60-day "no-work period" during peak agricultural seasons to ensure labour availability for farming, which critics argue undermines the workers' bargaining power.

Focus on Skill Development: The updated approach strongly emphasizes skill development through integration with existing programs like DDU-GKY and RSETI (Rural Self Employment Training Institute), aiming to help workers transition to full-time employment. However, previous skilling projects under MGNREGA (like Project UNNATI) have struggled to meet targets due to implementation challenges.

Recent Data: The person-days generated increased to 309.2 crore in FY 2023-24 (up from 265.4 crore in FY 2019-20). Women's participation has increased to over 58%. The share of individual beneficiary works has also risen significantly to over 73%, aligning with the asset creation focus.

MGNREGA under the UPA was revolutionary because it gave employment generation the unprecedented status of a legal right, providing a critical social protection floor for millions of rural poor and empowering local governance. The ongoing challenge of a lack of skills in the rural workforce has been a persistent issue, and the credit for establishing national-level skill development programs to address this largely goes to the UPA's initiatives and subsequent integration efforts. The BJP government's replacement with the VB-G RAM G Act aims to modernize the approach by increasing the guarantee to 125 days and integrating employment with planned infrastructure development and skill training. However, the changes in the funding structure and the shift from a pure demand-driven legal entitlement to a system with central control and "normative allocations" have drawn sharp criticism. Critics argue that these modifications dilute the very rights-based foundation that made the original MGNREGA a global exemplar of poverty alleviation, potentially turning a legal right into a discretionary welfare scheme and placing a greater financial burden on state governments. The actual impact of the new legislation will depend on its implementation and whether it can genuinely empower rural workers with both immediate income security and long-term skill-based livelihoods.

The Skill Gap as India's Opportunity....

India, a rapidly growing economy projected to become the world's third-largest by 2030, possesses a vast youth population, a significant demographic advantage. However, a large portion of this workforce lacks the precise skills and education for high-productivity roles, leading to significant potential GDP loss and underemployment, a stark contrast to the vision of an educated, skilled workforce driving advanced economic growth.

Current Scenario (Recent Data)

GDP Growth: Projected around 6.4% for FY24-25, with Q2 FY25-26 seeing strong 8.2% growth, reflecting robust domestic demand and investment.

Workforce: Roughly 56.5 crore workers (2022-23), with ~45% in low-productivity agriculture, ~11.4% in manufacturing, and ~29% in services.

Skills: The assumption of 4.4% having "required" skills highlights a massive gap, with many in informal, low-skill jobs.

The Fully Skilled India: A Transformative Scenario

If 100% of India's workforce were skilled:

Sectoral Shift: A massive migration from low-value agriculture to high-tech manufacturing (Industry 4.0), advanced digital services, and specialized agriculture (agri-tech) would occur.

Productivity Boom: Worker productivity, currently constrained by skills, would skyrocket, directly increasing GDP output per worker across all sectors.

Innovation & Entrepreneurship: A skilled populace fosters R&D, new ventures, and technological adoption, fueling sustained growth.

Higher Wages & Demand: Increased skills mean higher wages, boosting domestic consumption (a key GDP driver) and creating a virtuous cycle.

Estimating GDP & Growth

Potential GDP Multiplier: Some economic models suggest that improving human capital could boost GDP by several percentage points annually. With current GDP around $3.7-$4.1 trillion (projected $4.26 trillion by 2027), a fully skilled workforce could add $3-5 trillion or more in the medium term.

GDP Growth Rate: India's potential growth could leap from ~6-8% to 10-15% or higher, mirroring East Asian "miracles," as labor transforms into human capital.

Example: A 10% sustained growth means doubling GDP in roughly 7 years, a massive acceleration from current projections.

Conclusion: The Human Capital Dividend

Achieving universal required skills is not just an educational goal but India's pathway to becoming a developed economy ("Viksit Bharat") by 2047. The current 4.4% skill level represents a huge untapped potential; transforming this into 100% would unlock unprecedented GDP growth, make India a global innovation hub, and ensure equitable development, far exceeding current growth trajectories and solidifying its status as a global economic superpower. If India's entire workforce had required skills, its GDP could potentially double or more, with growth rates potentially hitting double digits (10-15%+), by transforming from a labor-intensive economy to a highly productive, innovation-driven one, leveraging its massive demographic dividend, moving beyond agriculture, and boosting high-value services and manufacturing, essentially realizing a "Viksit Bharat" (Developed India) vision far sooner, given current GDP growth around 6-8% and vast untapped human capital. 

The Geopolitical Energy Shift.....

Following the imposition of Western sanctions on Russia to curtail its oil revenues, Moscow began offering substantial discounts on its crude. India, as the world's third-largest oil importer, seized this economic opportunity to meet its vast energy needs at a competitive price, increasing Russian oil's share of its total imports from a negligible 2.5% pre-conflict to nearly 40% in 2024-25. This strategic shift not only secured affordable energy for India's domestic market but also had a profound, stabilizing effect on the international oil market.

Mechanism of Price Containment and Inflation Mitigation

India's purchases helped contain global oil prices and inflation through the following mechanisms:

Preventing a Supply Shock: By absorbing millions of barrels of Russian oil that might otherwise have been "stranded" and unsellable in the global market, India prevented a massive supply disruption. Petroleum Minister Hardeep Puri stated that without India's intervention, global oil prices could have skyrocketed to over $120-$130 per barrel.

Maintaining Market Liquidity: The rerouting of Russian crude to India and China maintained global market liquidity and eased the pressure on traditional Middle Eastern suppliers, introducing a competitive equilibrium.

Adherence to Price Caps: India's imports largely remained within the G7's $60-per-barrel price cap mechanism, a policy implicitly designed to keep Russian oil flowing while limiting Moscow's revenue, a goal supported by Western nations to avoid price spikes.

Indirect Benefit to US Consumers: While the direct benefit of cheaper Russian oil accrued to India, the global market is interconnected. By preventing a worldwide price surge, India's actions helped moderate the international price benchmarks like Brent and WTI crude. Lower global prices, in turn, helped check inflation in oil-importing economies, including the US, where high gasoline prices can significantly impact consumer price indices (CPI) and the broader economy.

Recent Data and Analysis (2024-2025)

Recent data from 2024 and 2025 supports this analysis:

Import Data: India's imports of Russian crude remained resilient, fluctuating but consistently high, reaching nearly 40% of its total imports in FY 2024-25.

Savings Estimates: India saved an estimated $12.6 billion over a 39-month period by purchasing oil at significant discounts. While some recent reports from mid-2025 indicated that the net annual benefit was a lower $2.5 billion due to shrinking discounts and higher freight costs, the stabilizing effect on global prices remained the primary argument for continuing the trade.

Inflation Link: An economic paper published by the Reserve Bank of India (RBI) in July 2025 noted that a 10% rise in global crude prices could increase inflation by around 20 basis points, highlighting the direct link between import costs and domestic inflation management.

Price Spike Warnings: Analysts from brokerage CLSA warned in August 2025 that if India were to stop importing Russian oil, global prices could surge to $90-$100 per barrel, driving up inflation worldwide.

India's decision to import vast quantities of discounted Russian oil after the 2022 invasion was a pragmatic economic choice that leveraged a unique market situation to ensure its own energy security and control domestic inflation. This strategy had the significant spillover effect of absorbing a key portion of global supply, which prevented an acute worldwide shortage and the runaway oil prices (potentially up to $130 per barrel) that analysts feared. Ultimately, by keeping global prices in check, India indirectly helped manage inflation and energy costs for consumers in many nations, including the United States, illustrating the intricate and interdependent nature of the global energy market. India's significant purchase of discounted Russian oil since the 2022 Ukraine conflict has played a crucial role in stabilizing global energy markets and mitigating inflationary pressures, which has indirectly benefited the US and other oil-importing nations by preventing a sharp global price spike. 

The Economic Imperative of Russian Oil Imports for India.....

India's substantial import of discounted Russian crude oil since 2022 has been a crucial element of its strategy to navigate a turbulent global energy market, directly mitigating the impact of high international oil prices, a strong US dollar, and domestic inflationary pressures. This pragmatic approach, driven by the core national interest of energy security and affordability, has saved the nation billions of dollars and provided significant macroeconomic stability.

Economic Stabilization through Discounted Crude

As the world's third-largest oil importer, India is highly vulnerable to global price volatility. By ramping up imports of Russian oil (which at its peak constituted nearly 40% of all Indian crude imports, up from less than 2% pre-2022), India secured a reliable and cheaper energy source when global prices were volatile and peaked at around $139 per barrel.

Savings and Import Bill Reduction: Official data and analyses show India saved approximately $12.6 billion over a 39-month period by importing Russian oil at a discount compared to other sources. Other estimates place the total savings even higher, at around $17 billion. These savings directly lowered the national oil import bill, which was around $186 billion in 2024, providing a significant financial cushion.

Inflation Control: Cheaper crude imports helped in managing domestic inflation. The Indian government has largely kept domestic fuel prices stable, preventing the high global energy costs from trickling down to the consumer. India's retail inflation has been moderate, partly attributable to these lower energy costs.

Rupee Stability and Current Account Deficit (CAD) Management: A lower import bill reduced the demand for US dollars in the foreign exchange market, easing pressure on the Indian Rupee (INR) and preventing steeper depreciation against the strong US dollar. This contributed to a manageable CAD, which was contained at a healthy 0.6% of GDP in FY 2024-25, far below initial fears of 1.5% or higher.

Why Buckling to Pressure Is Not Advisable

The economic data suggests that the strategic decision to continue Russian oil imports is vital for India's economic resilience, and bowing to external pressure would carry significant risks.

Avoiding Price Spikes: Analysts widely agree that if India stopped buying Russian oil, that volume would likely be difficult to reroute globally, causing an artificial supply shortage and potentially driving international crude prices up significantly, possibly to $90-$100 per barrel. This would instantly negate India's economic gains and fuel global inflation.

Economic vs. Geopolitical Costs: While recent US tariffs on Indian goods in retaliation to the oil purchases could cost Indian exports significantly (analysts estimate up to $37 billion), the potential domestic economic stability offered by discounted oil is a strong counter-argument for continuing the policy based on national interest. The long-term costs of energy instability could be more detrimental than the trade disruptions.

Diversification and Strategic Autonomy: India maintains a foreign policy of strategic autonomy, choosing trade partners based on commercial viability and its energy needs, a stance supported across the political spectrum. The government has stated its priority is the affordability and sustainability of energy for its citizens, not succumbing to "neo-colonial lectures".

India's strategy of importing discounted Russian oil has been a masterstroke of economic diplomacy, effectively shielding its economy from global headwinds and ensuring stable domestic conditions. By securing billions in savings and playing a de facto role in stabilizing global energy markets, New Delhi has prioritized the welfare of its citizens. With recent data underscoring the benefits to India's inflation, currency stability, and current account balance, the economic rationale for continuing this policy is strong, and a shift in strategy due to external pressure would be economically detrimental. India is likely to continue its path of energy diversification and pragmatic sourcing, as long as Russian oil remains economically viable and not under direct formal sanctions.

Price Expectations Dynamics.....

Price expectations are participants' beliefs about the future direction of prices. These expectations are self-fulfilling to a large extent. In the broader economy, if consumers expect prices (inflation) to rise significantly, they will increase their purchases now, which actually drives up current demand and prices. In the stock market, if investors expect a company to perform well in the future, they will bid up its stock price today, reflecting that optimism in current valuations. The dynamic nature of these expectations means markets are constantly reacting to new information and adjusting present prices accordingly.

Broader Market: Inflation and Economic Behavior

In the broader market (the real economy), price expectations primarily concern the general level of inflation and have a tangible impact on consumer and business decisions.

Consumer Behavior: Expectations of future price changes directly affect current spending habits.

Example: Expected Price Increase If consumers anticipate a significant rise in gasoline prices next month, they will rush to fill their tanks today, increasing current demand and potentially causing an immediate price spike.

Example: Expected Price Decrease Conversely, if people expect smartphone prices to drop with a new model release, they may postpone their purchases, leading to a fall in current demand and potentially forcing current retailers to lower prices or offer discounts.

Monetary Policy: Central banks, such as the US Federal Reserve or the Reserve Bank of India (RBI), actively manage these expectations. They use tools like interest rates to influence inflation expectations.

Example: Fighting High Inflation If the broader market expects high inflation, the central bank might increase interest rates. This makes borrowing more expensive, which cools demand, slows economic activity, and helps to anchor price expectations at a lower, more stable level.

Stock Market: Asset Valuation and Investor Sentiment

In the stock market, price expectations are about a company's future earnings and growth potential, which are then discounted to their present value to determine the current stock price.

Forward-Looking Mechanism: The stock market is inherently forward-looking. Current stock prices reflect the collective perception and anticipation of future performance, not just the current reality.

Example: Corporate Earnings Reports If a company's actual quarterly earnings are better than the "street expectations" (analyst consensus), the stock price will jump up, as the new information changes the outlook for future profitability. If the earnings disappoint, the price falls.

Investor Sentiment and Volatility: Psychological factors like "greed and fear" drive investor sentiment and can lead to significant market volatility and herding behavior.

Example: The "Fear of Missing Out" (FOMO), During a bull market, positive expectations and FOMO can drive stock prices to potentially unsustainable levels (a bubble). When sentiment reverses due to new concerns (e.g., a looming recession or geopolitical event), panic selling can cause sharp declines, as investors expect prices to fall further.

Discount Rates: Price expectations in the form of expected future returns are used to discount a company's future cash flows. Higher expected inflation often leads to higher discount rates, which reduces the present value of future cash flows, putting downward pressure on stock prices, especially for "growth" stocks that promise returns further in the future.

Price expectations act as a powerful, self-reinforcing mechanism in both the broader and stock markets. In the real economy, they govern the dynamics of supply and demand for goods and services and are the primary target of central bank monetary policy aiming for price stability. In the financial markets, expectations are synthesized into asset prices daily, reflecting collective belief in future corporate earnings and economic conditions. While the stock market can sometimes lead the real economy, the core principle remains consistent: current prices are a function of what participants believe the future holds, making expectations a critical, dynamic force in economic and financial systems. Price expectations are a central driver of economic activity, operating differently in the broader market, where they primarily influence inflation and consumer behavior, versus the stock market, where they determine asset valuations and investor sentiment. In both arenas, current prices are largely a reflection of anticipated future outcomes. 

The Game of Expectations.....

 Stock markets are mechanisms of collective foresight. The current price of a stock is not just a reflection of its present value, but primarily a consensus forecast of all its future earnings and risks. When this consensus is fractured, prices shift as new information arrives and perspectives collide. However, a fascinating dynamic occurs when the market achieves near-perfect agreement. If "everybody" expects a stock to reach a specific, high valuation, this universal expectation ceases to be a future prediction and becomes an immediate market reality.

The Mechanism of Price Adjustment

In an efficient market, expectations drive present action. If every single investor believes a stock that currently trades at $50 is "truly" worth $100 and will inevitably reach that price, none of them will be willing to sell at $50, and every potential buyer will be eager to purchase at any price below $100.

Immediate Demand Surge: All investors holding the stock will raise their asking price toward $100, while all investors wishing to buy will bid aggressively up to $100.

Price Discovery: Through the rapid interaction of bids and asks, the market quickly discovers the new equilibrium price.

Stabilization: The stock price spikes almost instantaneously to $100. Once the price hits $100, the buying frenzy subsides because the expected upside has been fully realized and "priced in."

The price reaches the expected high now because the future expectation is already a present fact known to everyone. There is no informational advantage left to exploit.

Example: The "Tech Unicorn" IPO

Consider a hypothetical, highly anticipated tech company named "Innovate Corp." Everyone—analysts, institutional investors, and retail traders alike—unanimously agrees that Innovate Corp. stock, which is about to IPO at $20 per share, is a game-changer and has an intrinsic value of at least $100 per share.

Before Trading Opens: The consensus is clear: $100 is the fair price.

At Market Open:

Sellers (the original owners/underwriters) have virtually no incentive to sell at $20 because they believe it's worth $100. They hold out for a higher price.

Buyers flood the market with orders to buy shares, willing to pay up to $100 each.

The Result: The opening trade doesn't happen at $20. The stock price immediately "gaps up" and opens at, or very close to, $100 per share as demand massively overwhelms supply at lower prices.

After this initial surge, the stock price hovers around $100. For the price to move significantly higher, new information that exceeds the universal expectation (e.g., news that the company discovered a second revolutionary product, suggesting a $150 value) would be required.

If every market participant expects the same high price for a stock, the outcome is counterintuitively simple: the expected future price becomes the current market price. The stock experiences an immediate and sharp appreciation, as the collective "wisdom" of the crowd is priced into the asset instantaneously. The market rapidly achieves a new equilibrium, and subsequent price movement requires the introduction of new, previously unconsidered information to shift that universal expectation. When all market participants unanimously expect a single, high future price for a stock, the stock price typically rises immediately to that expected high price and then stabilizes, reflecting the collective positive sentiment. This phenomenon is a fundamental principle of efficient market hypothesis (EMH) and price discovery, where all available information—in this case, the universal high expectation—is instantly incorporated into the current stock price.