The unfinished business of job creation


Waiting all the day Joblessness is hurting the economy and the people

If Modi is serious about fulfilling his poll promise on employment generation, he must go big on labour reforms

During his election campaigns, Narendra Modi promised India’s 365 million youth 10 million jobs every year if he was voted to power.

Now, almost two-and-a-half years later, numbers tell a discomfiting story. The Labour Bureau’s latest quarterly survey reveals that barely 1.34 lakh jobs were created in July-September 2015 . That was the lowest ever in the corresponding period, since this survey was initiated in 2009.

Even previous quarterly surveys showed a similar trend. The period from January-March 2015 spawned just 64,000 jobs, with April-June reporting a decline of 43,000 jobs.

An analysis shows up that barely 1.55 lakh new jobs were generated from January-September, 2015, as opposed to 3.04 lakh and 3.36 lakh jobs in the comparable periods of 2014 and 2013, respectively.

Data collated by BSE-CMIE paint an even sombre picture. The study shows that the overall unemployment rate rose, from 8.84 per cent in June to an astronomical 9.84 per cent in August 2016. The current unemployment rate for urban population stands at a staggering 11.24 per cent and for rural at 9.18 per cent.

Make in India

No doubt, Modi was right on the money when he associated a bleeding manufacturing sector with the loss of job opportunities. The manufacturing sector’s share in India’s GDP is a meagre 17.4 per cent, which is significantly less than South Korea’s (at 30.2 per cent) or even Thailand’s (at 27.8 per cent).

With an intent to turnaround the dismal performance of the manufacturing sector, the idea of ‘Make in India’ (MI) was envisioned. MI, projected as a one-stop solution, was supposed to aggressively attract FDI in labour intensive sectors, increase manufacturing’s share to 25 per cent, and finally, create vast employment opportunities.

With all the ballyhoo around it, one was certainly made to believe that MI is a smash hit. But, the devil, more often than not, lies in the details.

The recent annual report released by RBI points out that FDI inflows in the manufacturing sector, in fact, dropped from $9.6 billion (2014-15) to $8.4 billion in 2015-16.The proportion of FDI in manufacturing against the total FDI received plunged to a mere 23.39 per cent, the lowest ever in the last 5 years.

This is echoed by the fact sheet, published by the Department of Industrial Policy and Promotion (DIPP) for the FY 2015-16. According to the DIPP, core manufacturing sectors, such as pharma, power, automobiles and construction, drew hardly 13.8 per cent of the total FDI, as against other sectors like services, computer software and hardware and trading which alone attracted a cumulative of 41.5 per cent.

The most recent estimates released by Central Statistics Office further indicate the trend. The Index of Industrial Production (IIP) witnessed a negative growth of 0.27 per cent during April-August, 2016 — the lowest ever in the corresponding period of last 10 years – predominantly due to a negative growth of manufacturing and capital goods sector.

Quick fixes rarely work in policy making, and the so-perceived magic FDI bullet has clearly failed to revive the manufacturing sector and generate jobs.

Labour reforms

Which is why, the need of the hour is to take a rather spiky yet a more rewarding route — labour reforms. Time after time, studies have evidenced a strong negative correlation between stringent labour laws and job demand in the manufacturing sector. A detailed econometric analysis, by Besley and Burgess (2002) shows that excessively pro-worker Indian laws have resulted in a strikingly lower output, investment, employment and productivity in the manufacturing sector. There is a stack of academic research, which backs up the demand for an overhaul of labour laws.

Consider, for instance, the inflexibility of the Industrial Disputes Act, 1947 (IDA). Chapter VB of the IDA mandates the industrial establishments, employing 100 workers (or more), to seek a prior approval of the government for closures, retrenchment and even lay-offs.

The pro-labour tilt of IDA can be realised from the fact that, barring public utilities, there is no requirement for the workers to issue a strike notice.

Going too far, Section 9-A of the IDA further necessitates every employer to give a 21 days’ notice before altering any specified service conditions which includes even ‘rationalisation, standardisation or improvement of plant or technique’!

Take the outdated Trade Union Act, 1926. Needless to say, the over-politicisation and multiplicity of labour unions has crippled the efficiency of the establishments. It is a virtual ordeal for the employers to negotiate with the unions, since there is no provision for determining the bargaining agent.

The draft Industrial Relations Bill, 2015 attempts to hammer out these issues; however, the government is yet to convince the unions and other stakeholders. Even the other 3 labour codes relating to wages, social security and health are hanging fire.

Desperate measures

Moreover, while the government did pass the Factories (Amendment) Bill, 2016 to increase the overtime hours, it must not miss the woods for the trees. The crucial 2014 Bill is still pending, which, among other measures, permits women to work during night hours, and create meaningful job opportunities for them. If passed in its current form, the 2014 Bill is likely to reverse the country’s declining female labour force participation rate.

Desperate times call for desperate measures. Germany credits its bold Hartz reforms for halving its unemployment rate from 11 per cent to 5 per cent.

France’s El-Khimri law is another push in this direction. Likewise, if Modi is indeed serious about fulfilling his promise of job creation, his government must go big on structural reforms.

Sharma is a partner and Gaind is an associate with JSA, Advocates and Solicitors. The views are personal

Published on October 20, 2016

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