The Hindu Business Line : Rangarajan calls for labour law flexibility, but not hire and fire

Dr C. Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, on Friday called for more flexibility in labour laws. But the flexibility he advocated was "the ability to fix the wage rate depending upon the demand and supply situation in the labour market" and not "hire and fire at will."

Delivering the Fifth C. Ramanujam Memorial Lecture, on the theme `Employment and Growth — Is there a conflict,' Dr Rangarajan said that business units have to function "under legitimate restrictions" and must be given larger flexibility in dealing with labour "in a manner that does not militate against the basic concerns of labour."

He stressed that it was important that policies be tailored to shift labour from unorganised to the organised sectors, so that the workers got a better deal.

"This is possible only if the rigidities in the labour market are relaxed and wage determination begins to reflect the resource endowment in the country. This would discourage firms to prefer capital-intensive technologies over the labour-intensive.

Quoting figures from the Report of the Task Force on Employment Opportunities, first released in June 2001 and later revised in 2004-05, Dr Rangarajan said that if the economy grew by eight per cent and the labour force increased 1.5 per cent annually, then it would take up to 2018 to reach a point when there is no unemployment.

On an assumption of a growth rate of 8.5 per cent and the same rate of growth in labour force, unemployment would go in 2015, he said.

Dr Rangarajan noted that historically in any economy, agriculture initially contributed the most to the GDP, followed by manufacturing and then by services. As the economy developed, the share of agriculture and manufacturing would come down and that of services would rise.

However, in contrast, in the Indian economy the share of agriculture to GDP was coming down and the services sector, leapfrogging manufacturing, grew faster.

Generally, sectoral employment generation followed the sector's contribution to GDP, but in India the employment growth lagged the sectoral growth. Also, agriculture was employment inelastic because of productivity increases and because of a disproportionately high contribution of agriculture to employment.

On the other hand, services sector was also not contributing to employment growth because of lower base of employment.

In this context, Dr Rangarajan highlighted the role of SMEs in employment generation.