May 1 is the Labour Day. It should be a day of celebration for millions of workers in a growing economy creating millions of jobs. But, instead, we are forced to reflect on our labour policies and ask ourselves why we have jobless growth and falling wage indexed labour productivity. Four recent and very disparate news reports, taken together, give hope that finally these questions are being recognised and debated, the first step to change.
The first news item was a story on a Planning Commission report which said that despite two decades of growth that had made India the second-fastest growing economy in the world (before the recent slowdown), the growth in organised sector employment has hardly kept pace with the economic growth. Most of the growth of jobs during this period has been in the unorganised sector or contract workers, which today, as a consequence, constitutes nearly 90% of the 60 million manufacturing employees, which is what has clearly led the unions to change the focus as above.
This has had two serious consequences. First, in the organised sector, it has led to growing tensions between the contract workers and management, which resulted in the unfortunate tragedy in Maruti’s Manesar plant earlier this year. Second, this has impacted investments by companies to improve labour productivity, which has grown between 3% and 7% in recent years, lower than growth in wages and thus reducing competitiveness of Indian industry. It is no surprise that many companies prefer to increase the level of automation in their plants despite higher investment. The case being made out was that we seriously need to rethink our labour policies to reverse this alarming trend and create more jobs.
The second news item was a story on trade unions. It said that the coordination committees of all trade unions submitted a memorandum to the Prime Minister which asked for increase in minimum wages, parity of wages of contract workers with regular workers doing the same job, etc. The usual demands and not surprising, but what was surprising was a statement that the unions were shifting their focus from ‘job protection to job creation’. This fundamental change in their stance was being forced on them by the greater enrolment of unorganised sector workers compared to regularised workers reflecting in the changing structure of our labour force recognised by the Planning Commission. If true, this would represent a very fundamental shift in the thinking of our trade unions, and remove a perceived critical barrier to modernising our labour policies.
The third news story, while not directly linked to labour policies, is critical to transform the mindset of our leaders, an important pre-requisite to any change. In this article, a leading economist and columnist said that government’s own data shows that rural wages has grown faster when the economy grew, and because of this growth in rural wages the enrolment in the landmark programme MGNREGA has been falling in last two years. The key message I took away from the article was that focus on growth and job creation was a much more powerful lever to reduce poverty levels and increase rural income, and there was a need to rethink in the efficacy of such ‘entitlement’ policies in reducing poverty. Hopefully, our leaders reading this article come to similar conclusion and would pay as much emphasis on employment generation as on new entitlement schemes.
The fourth piece of ‘news’ was embedded in the numerous articles on the speech made by Rahul Gandhi at the CII Summit in New Delhi recently. It was supposedly his first public speech to a gathering of business leaders and many people in the audience saw him as the driving force behind the distinctly ‘socialist’ tilt of the present government. Perhaps Rahul Gandhi had also seen the same data referred to by the columnist above, but many in the audience were pleasantly surprised when he strongly articulated the importance of entrepreneurs in pushing economic growth and creating millions of new jobs. Our performance on this dimension has been rather discouraging if we go by the number of new companies registered with the ministry of corporate affairs between 1990 and 2010, which has stagnated largely between 20,000 and 40,000 despite the economy having grown three and a half times during this period; no doubt justifying the low ranking of 132 in World Bank’s Ease of Doing Business. Hopefully, Rahul Gandhi’s speech will serve as a clarion call to significantly improve this lowly rank, and make it easy to set up and expand new businesses.
For a country that desperately needs jobs, a massive 220 million in next 15 years, creating employment should be our number one policy priority. These four articles (i) provide a strong case for supporting this priority, (ii) suggest a critical shift in mindsets of our labour unions to support it, (iii) use data to make a case that it will be politically rewarding, and (iv) offer a concrete policy reform to drive this priority. Indeed a powerful beginning, but many such bright ideas have floundered in the past at the altar of competitive politics and entrenched mindsets. On the Labour Day today, I hope that this time it will be different.
The author is managing director, the Boston Consulting Group, India. Views are personal