Column : Solving the labour conundrum

Written by Arindam Bhattacharya | Updated: Jun 29 2011, 07:21am hrs
The recent labour strike at Marutis plant at Manesar had hit the headlines of all the business newspapers. When it ended, one of the press reports seemed to suggest that both the management and workers were left unhappy with the final agreement; while, I am sure, Haryanas state labour authorities heaved a sigh of relief. While such industrial action brings sharp focus on the specific issues between the management and the workers, and labour authorities get into a solution mode to solve these issues, once the strike is called off, it is back to business as usual. The core structural labour issues facing us, which have resulted in a distorted employment structure in India and also impact our long-term manufacturing competitiveness, remain unaddressed.

Many believe that the Gurgaon-Manesar belt, one of the Indias major manufacturing hubs, is facing a time bomb in the form of a large number of contract workers who constitute 50-75% of the employees in the plants dotting the region. Ask the business leaders the reason and they will tell you that they are forced to adopt this approach not so much from the need to reduce wage costs, but more to get around the rigidities imposed by our labour laws.

This has led to two unintended consequences, one direct and the other indirect. The direct consequence is on the growth of organised employment in manufacturing sector. While the 1990s saw hardly any growth in manufacturing employment, the last decade saw growth but only in the unorganised sector, which today, as a consequence, constitutes nearly 90% of the 60 million manufacturing employees. The indirect second consequence has been on the impact on labour productivity. To achieve our aspiration of becoming one of the leading manufacturing nations, we have to significantly improve our labour productivity growth from the current level of 3-7% per annum. As a comparison, Chinese manufacturing labour productivity grew annually at 12-13% in the last decade as it became the largest manufacturing country in the world. Having such a large share of contract employees in each plant is a big roadblock to any productivity improvement drive.

Why can we not go beyond addressing the symptoms that surface from time to time via industrial actions, like the strike at Marutis Manesar plant, and solve the core structural issues in the management of our labour Unfortunately, liberalising our labour policies to address these issues has been a virtual no-go area for our policymakers under the guise of protecting worker rights.

Given the challenges as articulated earlier, it is high time we start a debate on objectives of our labour policies. Is it to generate organised and fair jobs and improve manufacturing labour productivity, or to protect worker rights through maintaining status quo Unless we openly debate this fundamental question, we will not shake up the mind-set that locks us into the status quo. At the same time, we have to also recognise that the labour unions have a legitimate fear that changing the laws to make it easy to hire and fire can lead to its misuse. Understanding this fear and addressing it squarely has to be a critical part of any solution. The second mistake we make is to see the labour issue as a simple fight between greater labour flexibility for businesses and maintaining worker rights. It is clear that if we want to break this labour conundrum, we have to look beyond the simplistic description of the problem as labour flexibility vs worker rights trade-off.

Such a solution has to necessarily have four inter-related sets of policy measures. The first set of measures should be focused on driving manufacturing employment. These could include creating mega-manufacturing zones to policies that make it easier to set up MSMEs through effective micro-credit programmes and institutions that help them reduce cost of compliance. The second set of measures have to focus on improving employability through better training and skill development programmes, which is the core objective for the Prime Ministers National Council for Skill Development (and various ministries with skill development programmes and agencies like the National Skill Development Corporation). The key is to align their activities with the other labour policies and not run them as independent initiatives. The third set of measures should deal with protection of worker rights in an environment where businesses have greater flexibility in managing their labour with changing market conditions. These could include institutional arrangements to provide direct cash support, job-loss insurance and re-training and re-deployment. The final set of measures should be to create a more efficient way to match demand and supply by completely revamping our employment exchanges.

It is not to say that we have not taken steps in the above four policy areas. However, in my view, these initiatives suffer from two problems. First, they end up as half measures from a two-step forward and one-step back approach and, second, they are often formulated independent of each other, the victim of our governance model where each central ministry and state government seem to go their own way. If we want to achieve the aspirational target of increasing manufacturing sectors contribution to Indias GDP from 16% to 25% and creating 100 million new jobs as set out in the draft Manufacturing Policy from the Department of Industrial Policy and Promotion (DIPP), we have to integrate the initiatives in these four areas into an effective and holistic solution to our labour conundrum.

Trying to do this across the country at the same time makes it a virtual non-starter. From that perspective, the recommendation by DIPP to create National Manufacturing and Investment Zones across the country, where all the four policy measures can be integrated in a contained geographical location without any baggage from the past, is a pragmatic and workable solution. We can, of course, continue to debate the issue of labour flexibility vs worker rights till the cows come home. Or decide that time is ripe to enter into a new labour contract with our workers that will generate new organised jobs and improve the competitiveness of our manufacturing sector.

The author is managing director, the Boston Consulting Group, India. These are his personal views