Making capital costlier in relation to labour may help generate more jobs

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₹10,000 per month in 2022-23 (at constant 2011-12 prices). Casual wage labour, the worst form of employment, fetched only ₹4,500 per month.

The self-employed, accounting for over 57% of total employment, had comparable monthly real earning of only ₹7,000 per month. Clearly, since the absolute level of wages (or earnings) remains so depressingly low, the policy goal here has to be not lowering but raising the absolute level of real earnings, based on rising productivity and rising labour demand.

What about the denominator? In India, where the government is the dominant, pre-emptive, borrower of funds and government-owned financial institutions also the dominant suppliers of funds, the cost of capital is essentially a quasi-administered price that does not reflect the scarcity value of capital in a capital-scarce developing country. As per our NIPFP Mid-Year Economic Review, the yield on the benchmark 10-year government security has been stationary in the 7-7.5% range for the past couple of years and the short-term Treasury Bill yield has converged with it (NIPFP Policy Brief May 2024).

The yield curve on corporate bonds has also closely tracked the sovereign bond yield with just about a half percent risk premium. Pande and Mehta have estimated that the 10-year G-Sec yield has been at this level or lower during most of the past two decades and the short-term Treasury Bill yield has usually been significantly lower.

With headline inflation hovering around 5-6% for the last couple of years, and higher in many years during the past two decades, it implies that the real interest cost of capital is around 2% at present and was significantly lower, even negative, in many years during the past two decades. What policies can raise