Column: We need 21st century solutions

Written by Arindam Bhattacharya | Updated: Nov 7 2012, 06:12am hrs
Contract and permanent were labels developed in 20th century, in response to labour laws formulated in 19th century

The recent Cabinet reshuffle has raised high expectations. Reactions have been generally positive, ranging from cautiously optimistic to laudatory. Young blood and fresh faces are being implicitly equated with new ideas and a renewed sense of purpose and action. The finance ministers statement on controlling deficit is icing on the cake, and markets have reacted positively. Yes, it is time for renewed purpose, fresh ideas and action on the most critical problem facing the nation, namely, creating more jobs. We cannot afford jobless growth. We have to create 200 million new jobs in the next decade and a half, half of these in the manufacturing sector, for our young and increasingly more educated population.

We have been failing on this all-important front. Our manufacturing growth rates have fallen to their lowest in a long time and whatever growth we have has been largely jobless. The formal sector is reluctant to create permanent jobs, a segment of the workforce which now constitutes a minuscule 5% or so of the total. Instead, the industry is using more contract workers and/or investing in automation, even if it means higher investment. Our labour laws, framed to support our workforce, have ironically ended up disincentivising new job creation, and are unable to balance the needs of the workers and the industry.

Changing labour laws is not enough. We also need more investments in manufacturing. Even if we sort out our power woes, implement GST, simplify business regulations, we will not increase manufacturing investment if we do not have the land to set up our factories. From small plots for MSMEs, to very large plots for our cement, steel or automotive plants. The entrepreneurs will go and set up factories in other countries. And clearly we are finding it difficult to balance the needs of the two main stakeholdersthe land owners and the industry.

It is not as if much thought and effort have not gone into these two topics. Labour commissions have given their reports with detailed recommendations. The recent unrest in Maruti has brought in a sense of urgency but only on addressing the immediate symptom of contract versus permanent workers. Similarly on land, we have been going to and fro. A Bill has been under development, which after much discussion was about to be tabled in Parliament when certain provisions were found to be unacceptable. So, it seems we may be back to the drawing board.

This brings me back to a renewed sense of purpose and fresh ideas. If there are two critical topics where we need fresh ideas, these are labour and land. But we need fresh ideas to solve for the future and not for the past.

Let us first look at labour. Contract and permanent were labels developed in the 20th century, as a response to the labour laws formulated in the 19th century. Why do we need this categorisation in the 21st century when technology, mobility and up-skilling and new-skilling will make them redundant Why are we not asking the fundamental question of what it will take to grow organised sector employment, and improve our labour productivity which is not growing fast enough

The answer will then lie in implementing a multi-pronged solution. (1) Eliminate contract as a category rather than regularise it through the back door by bringing compensation on par with permanent workers. (2) In return, allow industry to downsize easily up to a certain percentage of total workforce in a transparent manner, under-pinned by a job-loss scheme, unemployment insurance and re-training fees. (3) Provide an incentive to create more permanent jobs in the form of a tax discount for every 100 jobs created, to be paid out after three years of the job being sustained.

This will eliminate the biggest cause of dissatisfaction among workers today, provide greater flexibility to industry and incentivise it to create more jobs. Of course, these will have to be supported by revamping our employment exchanges and linking them to re-skilling and up-skilling centres to create a more efficient labour market, and well have to modernise our laws governing union formation and their politicisation but give more worker participation in the management decision through systems of worker council.

Land is an emotive topic and its acquisition for industry has emerged as one of the thorniest issues in developing a robust manufacturing sector in India. On one side, investors and manufacturers need timely acquisition of contiguous land to ensure proper return. On the other side, landowners are wary of selling their most valuable asset at significantly less value than those landowners who sell at a later time. Manufacturers are unable to acquire land and therefore either postpone projects or place them outside India.

Can we not break this compromise and think beyond simply increasing compensation to the land owners as the current land Bill seeks to do Why do owners/operators of a factory need to own the land on which the plants are set up as long as they have long lease to use it Can we not look at the model where asset owners are separate from those running the operations If we can reduce the risk to those who have invested in the plants, and find a way for the asset owners to monetise the growth in value of their land on top of lease rentals, we create a win-win model for both. Sectors like hotels and hospitals have done this. Why cant manufacturing, given the specific situation we face in the country

Of course, none of the fresh ideas are easy to implement. But neither are the problems they are trying to solve. Still, if we want to create thriving manufacturing in India, geared to compete in the 21st century, we need to solve for the future and not paper over the cracks of the past. A worthy challenge for the government which has a new sense of purpose!

The author is managing director, the Boston Consulting Group, India. Views are personal