Tax buoyancy and elasticity of employment
Tax buoyancy which was 1.16 has declined 1.4 in revised estimate of 2023-24 and will further decline to 1.09 in 2024-25. It was negative -1.21 in 2019-20 due to corporate tax cut. Tax buoyancy is the ratio of the change in tax revenue relative change GDP.
The employment elasticity indicates the ability of an economy to generate employment opportunities for its population as per cent of its growth (development) process. An employment elasticity of 1 denotes that employment grows at the same rate as economic growth.
India experienced a job growth of 3% p.a in the 70s at a time when our economy grew at 3-3.5% p.a but over the last 3 decades our economy grew at over 5-8% p.a but our job growth has been close to 1% p.a.
Employment elasticity, percentage growth in employment for one percent growth in GDP, has fallen from close to unity in the 70s to 0.4 in the 90s to less than 0.1 today. Hence, the phenomenon of India’s jobless growth.
The employment elasticity has gone down further and is estimated to be less than 0.1 and despite GDP growing at over 7% p.a, the growth in employment is close to 0.6%.