The lagging manufacturing sector
- Despite low wages, India is not a global manufacturing hub, even while being one of the fastest growing service sectors in the world
- India’s service sector has grown at an annual rate of 9% since 2001, and contributed 57% of the GDP in 2012-13
- The industrial sector, meanwhile, only recorded a negligible increase and contributes nearly half at 26% of GDP
- Despite the availability of human resources, India has not been able to leverage its demographics for industrial development
This disparity is considered to be an outcome of:
- High rates of corruption
- Excessively complex worker-centric labour regulations
- Low labour productivity
Issues in Indian labour laws:
#1. Archaic laws
- In the pre-independence period, British colonialists in India suppressed labour rights, trade unions and the freedom of association among workers. As a result, labour activism became a part of the Indian freedom struggle
- In 1950, the newly framed Constitution of India looked to undo these wrongs by including fundamental labour rights, along with complex labour laws. These laws made hiring additional workers increasingly difficult
- Despite several decades of economic progress, these laws have not been amended or reformed in order to foster a friendlier climate for business
#2. Labour productivity
- India has low labour productivity in comparison with other developing nations
- As a result, in the early days of offshoring, Western firms showed greater interest in setting up manufacturing facilities in Thailand, Mexico, China, Vietnam and Philippines rather than in India
- All of these countries had as bad a record of bureaucratic corruption as India did at the time, but labour productivity was found to be higher
#3. Politics
- In Kerala alone, for example, there were nearly 363 hartals between 2005 and 2012, causing loss of working days
- In addition, in the 1970s and 1980s, Indian politics was dominated by socialists who created the impression that profit making by private enterprises is undesirable
- Policymakers also further strengthened India’s complicated labour laws
#4. Complexity
- Labour is a subject in concurrent list of the Constitution of India. Thus both centre and states can enact laws on labour matters
- There are about 45 central government laws and more than 100 state statutes, sometimes overlapping or contradicting
#5. Rigidity
- India has one of the most rigid labour regulatory frameworks in the world
- Example- Industrial Disputes Act of 1947 stipulates that a firm with 100 employees or more cannot close down without government permission
- Such laws curtail the growth of a firm by forcing it to hire fewer workers and remain small
#6. Cost of compliance
- There are also high costs involved in complying with several labour laws
- Example- under the Factories Act, firms with 10 or more workers and firms which use electric power are required to keep records and file regular reports on matters such as overtime work, wages, attendance, sick leave and worker fines
Need for reforms:
- As early as in 2002, the Second National Commission on Labour suggested the formulation of labour codes similar to those in Russia, Germany, Poland, Hungary and Canada
- The commission recommended that labour legislation be divided into five broad areas: industrial relations, wages, social security, safety and welfare, and working conditions
- It is predicted that the size of India’s workforce will swell to 249 million by 2050, while China’s is set to decline to 166 million during the same period
So how should the Indian government and Indian industry build India’s human resources for the cause of future growth?
Way ahead:
- Legislative reforms such as those taken up recently by central government and states such as Rajasthan, Gujarat, MP are very much needed
- Empowering women to enter the workplace and providing them additional support
- Physically challenged- Increasing current 3% reservation in governmental and government-funded jobs. Also ensuring that workplaces are disabled-friendly
- Example- Karnataka granted exemptions to IT industries from the Industrial Employment (Standing Orders) Act of 1946. It undermines the employer’s autonomy in determining the terms of employment, working hours, leave grant and similar matters
- Providing social security to workers in the informal sector would also pave the way for a more satisfied and productive workforce
- Training and skilling- India has a demographic advantage but in order to utilize this dividend, India needs to invest heavily in training its talent
- India’s supply of labour presently outnumbers industry’s demand for them. As a result, the government and manufacturing firms need to invest in training and skilling
Conclusion:
The guiding principle for India’s labour policy reformers should not merely be ring fencing jobs but safeguarding workers through social assistance, re-employment support (such as that which is provided in several Western nations) and skill building, and supporting employers in employee training and development.
- From our collection on Govt schemes:
Published with inputs from Swapnil