Macro Economy

‘Regulatory cholesterol’ is hampering creation of jobs

Our Bureau New Delhi | Updated on January 20, 2018 Published on February 26, 2016

Growing trend Contract workers increased from 12 per cent of all registered manufacturing workers in 1999 to over 25 per cent in 2010, said the Survey   -  REUTERS

Industry being forced to hire contract workers





Creation of more formal sector jobs to cash in on India’s demographic advantage is closely linked to removing ‘regulatory cholestrol’ in the system, especially with regard to dismissal of workers, which is forcing the industry to hire contract workers, says the Economic Survey.

It may be noted that of the 10.5-million new jobs created between 1989 and 2010, only 3.7 million — about 35 per cent — were in the formal sector.

In this period, total establishments increased by 4.2 million. However, informal sector jobs have declined, possibly due to increased use of contract labour.

“Contract workers increased from 12 per cent of all registered manufacturing workers in 1999 to over 25 per cent in 2010,” said the Survey. “Hiring workers through a contractor can be more expensive — 14 per cent more expensive — according to the Indian Cellular Association.”

Noting that 50 per cent of ‘good jobs’ that are safe and pay well are in the manufacturing sector, the Survey pointed out that “formal sector manufacturing firms reported labour regulations to be a significant barrier to growth, and specifically “dismissal norms under the Industrial Disputes Act” and “the cumbersome nature of compliance with labour regulations”.

It said States are under pressure to be seen as attractive destinations for investments that will create jobs and boost growth.

“Several states, such as Rajasthan, have responded by amending their labour laws with the goal of attracting large employers… other States like Gujarat and Maharashtra are considering steps in this direction.”

Make EPF a choice

The Survey also suggested that formal sector workers be given a choice of not investing in social security schemes run by retirement fund body EPFO, as this would reduce the cost of hiring and incentivise more people into formal jobs.

“The employer’s 12 per cent contribution to EPF/EPS would be unaffected. The only difference would be that employees could choose whether or not to save 12 per cent of their salary into EPF or keep it as take home pay,” it said.

The Survey also expressed concerns at the workforce participation rate of women, which is significantly lower than that for males in both rural and urban areas.

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Published on February 26, 2016
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