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Saturday, Jun 15, 2002

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Opinion - Labour Reforms

Labouring over joblessness

S. D.Naik

THE Planning Commission finds itself in a quandary with two of its members bringing out reports on employment which differ vastly not only on their estimates relating to unemployment, but also on the desired policy prescriptions to generate more employment opportunities during the Tenth Plan period.

The Prime Minister's Special Group headed by Planning Commission member, Dr S. P. Gupta, on targeting 10 million jobs annually has estimated the unemployment rate in 1999-2000 at 7.3 per cent of the total labour force. This is much higher than the estimate of 2.2 per cent arrived at by the Task Force headed by the former Planning Commission member, Dr Montek Singh Ahluwalia, which submitted its report in July last year. In terms of the number of unemployed, the Working Group estimate is 26.56 million against 8.97 million estimated by the Task Force.

The big difference in the estimates of unemployment is mainly because of the different methodologies employed by the Working Group and the Task Force in arriving at the actual number of unemployed persons. While the estimate by the former is based on the utilisation of a person's time over the previous seven days, the latter has gone by the body count estimate of the unemployed over the major part of the year as per their Usual Principal and Subsidiary Status (UPSS). As a result, the Task Force data on unemployed excluded a large number that was unemployed for over six months or less during a year or sometimes even marginally employed for a few hours in their working days.

It is also a matter of concern that the employment scene has worsened considerably over the past two decades with increased casualisation of employment and the deterioration in its quality. The formidable challenge before the nation is, therefore, not only to create more employment opportunities for the new entrants in the labour force, but also to improve the quality of employment of the vast majority that is not fully employed and earns low wages.

What can be done to generate more employment opportunities and to improve the quality of employment? Here comes the real problem with the two reports as the Working Group and the Task Force reports have come out with entirely different prescriptions. For instance, while the Task Force report says that the future job potential of agriculture sector is near zero, the Special Group says that the sector has high employment potential subject to restructuring and deregulation. The Task Force wanted top priority for accelerating the growth of the organised sector as it provided better quality jobs. However, the Special Group is of the view that the thrust should be on the unorganised sector where the potential for creation of new job opportunities is much greater.

It is rather difficult to understand the basis on which the Task Force wants priority for organised sector jobs. Today, the organised sector employs only about 28 million, or just 7 per cent of the total employment of 397 million. Moreover, over two-third of the organised sector employees or 19 million, are in the public sector. Because of a spate of voluntary retirement schemes (VRS) in public sector units aimed at trimming the excess workforce, the growth rate in public sector employment has declined sharply from 1.52 per cent per annum during 1983-1994 to 0.03 per cent per annum during 1994-2000.

While there is no denying that the organised sector provides better quality jobs and social security to workers, it may not be in a position to generate more job opportunities over the next five years even if the growth rate is stepped up to 8 per cent or so. The public sector jobs are unlikely to grow over the next five years. They may, in fact, decline because of the efforts being made to downsize government departments and the restructuring and privatisation of PSUs. Hence, the Working Group would like to bank on the unorganised sector for generating more employment opportunities. It points out that this sector is currently contributes nearly 59 per cent in GDP, 92 per cent in employment and also substantially to exports. In manufacturing, its growth rate has been consistently two-three points above that of the organised sector. Hence, in the opinion of the Working Group, the employment strategy for the future, to meet the employment goals of the Tenth Plan, should be to encourage the use of labour-intensive technology, in general, and to rejuvenate the growth of the unorganised sector, in particular.

The Working Group report says that the growth and quality of jobs in the unorganised sector has been very much hit by the absence of timely low-cost credit, improved technology, good infrastructure, quality consciousness, modern marketing, proper organisation and a synergy with the large organised industries. It is certainly possible to remove some shortcomings of the unorganised sector and also improve the quality of employment by providing infrastructure and institutional support and introducing suitable social security legislation.

The two groups also differ on the incremental employment generation potential of the services sector, which now contributes about 50 per cent of GDP. While the Task Force places it at a high 70 per cent, the Special Group says that the sector could contribute about 50 per cent of the incremental employment. It appears that the Task Force has overestimated the employment potential of the services sector and underestimated that of the agricultural sector.

True, the agriculture sector is saddled with surplus manpower but there is still scope for creating jobs in this sector by stepping up investments in rural infrastructure, minor irrigation and agro-processing industries. Also the new projects in forestry, watershed development and wasteland development could provide large-scale employment. The Task Force recommends de-reservation of the small-scale industry at one go, whereas the Special Group feels that theis should be done on a case-by-case basis as recommended by the Planning Commission Committee on SSIs.

Here one is inclined to agree with the recommendation of the Task Force. A number of panels and expert groups, including the Abid Hussain Committee, have recommended total de-reservation of the items reserved for the SSIs. This is necessary if the country is to improve its export competitiveness. Moreover, with the opening up of the economy and removal of all import controls, reservation has lost its significance and could prove counter-productive.

On the question of labour reforms also, the Task Force and the Working Group have expressed divergent views. The Task Force has highlighted the labour market rigidities in the organised sector as a constraint to increasing employment opportunities. Surprisingly, however, at a time when most experts have been advocating flexible labour laws, the Working Group has urged the Government to go slow on labour law reforms. Moreover, in an economy where unorganised sector accounts for 92 per cent of the total employment, delaying the labour market reforms will not protect many jobs. Instead, it will continue to encourage the organised sector to look for capital-intensive technology leading to jobless growth as witnessed over the past two decades.

The Working Group concludes that with the current daily status of employment, an 8 per cent growth per year with unchanged patterns and the continuance of the increased capital-intensity in production, especially in the organised sector, will generate around six million jobs a year on an average. In other words, some 30 million jobs will be generated over the Tenth Plan period against the target of 50 million. It has, therefore, suggested that another 20 million job opportunities should come from specific employment-generation programmes. However, with rampant leakages and corruption, the experience with special employment generation programmes in the past many years has been far from encouraging. Thus, it appears that the target of generating 10 million jobs over the next five years is not going to be easy.

The Working Group on Employment Planning and Policy for the Tenth Plan has estimated that the labour force will grow at around 1.71 per cent per annum. This would mean in absolute terms an addition of 7-8 million persons to the labour force every year or 35-40 million over the Plan period. Add to this the backlog of about 30 million unemployed at the beginning of the Plan period. Hence, even if the target of 50 million new jobs is achieved, it will still fall short of the requirement by some 15-20 million.

Against this backdrop, instead of getting entangled into the wide differences over the suggested strategies, the policy-makers would do well to concentrate on the following time-tested policies to generate more employment:

  • Bank more on growth rather than special programmes. As suggested by management guru C. K. Prahalad in a recent interview, India should be looking at double-digit growth of around 12 per cent to create some 15 million jobs every year. If not 12 per cent, we should aim at not less than 8-10 per cent GDP growth over the next five years. To achieve this, it would be necessary to step up the rates of savings and investments.

  • Step up both public and private investment in infrastructure sectors to improve competitive strength of the Indian industry and make India a more attractive destination for foreign direct investment (FDI); and

  • Facilitate more investments in food processing, travel and tourism, real estate, construction, road transport and housing. These sectors are capable of generating more job opportunities, that too quality jobs, per unit of investment.

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