Enlightened labour laws are imperative to create millions of new jobs and ensure that Make-in-India and other national programmes are a resounding success.
Talks about labour reforms are once again doing the rounds and even being touted as a prerequisite for the success of the Make-in-India campaign. Unfortunately, labour reform issues have spanned a narrow prism in the past 60 years, pivoting around people already employed and not those seeking employment or employed in the unorganised sector.
Moreover, the concern has been only about safeguarding existing employment, notwithstanding the fate of the enterprise. If labour reforms are to make a mark, the emphasis should be on creating more enterprises so that demand for labour is robust. The above mistakes should, therefore, be avoided in any attempt at labour reforms.
Labour policy imperatives
Based upon 40 years’ professional experience with manufacturing industries, outlined below are the essentials of a new labour policy I believe are imperative if India’s manufacturing industries are to thrive.
To begin with, the labour policy has been misconstrued solely as a dispute-resolution mechanism between trade unions and managements. Though important, this is not the essence of any labour policy, the crux of which should be employment creation, encompassing not only the employed but the yet-to-be-employed too.
In other words, the labour policy should be an ‘employment policy’ creating the maximum number of job opportunities. Make-in-India can only be meaningful if it creates jobs because a consumer is not concerned whether a product is manufactured in India or abroad. Consumers only care about the quality and proper pricing of products. For this, Indian enterprises need to be competitive.
Employment is crucial in India because 10 to 15 million new employment opportunities are needed annually to absorb those joining the workforce every year. These opportunities cannot be confined to high-tech or IT sectors only, as these are required for those moving out of agriculture and seeking something worthwhile, even if it is in low-end manufacturing.
Such high numbers can only be generated by new enterprises. Consequently, at least 1 million first-time entrepreneurs are needed to offer the requisite number of new jobs each year. India’s labour laws should, therefore, be in sync with current realities and requirements. But labour laws are antiquated, though they may have been apt for the protected economy of the pre-liberalisation era. Before July 1991, a company could manufacture barely 2,000 cars and still make money.
In the 1950s, 1960s and 1970s, even if an enterprise floundered, the government took control in order to protect workers’ jobs. Not surprisingly, many businesses run by the government had turnovers that were insufficient to even meet staff salaries.
The current scenario is drastically different. Manufacturers can make millions of cars and still lose money. The consumer is truly king. Business is now conducted in a dynamic environment where failure can be commonplace. Such an ambience calls for a new mindset.
In the new business environment, it’s essential to acknowledge that failure is a possibility and employment in a failed company cannot be protected. Jobs can only be safeguarded if companies are viable and the enterprise, entrepreneur and employees’ interests are interlinked.
Furthermore, failure of a business is no fraud. In an ultra-competitive environment, some businesses succeed, while others fail. In order to develop, the experience of failure should be utilised as a learning lesson. A positive mindset on failure could facilitate a successful takeover of a failed unit by a vibrant enterprise. Only controlled economies keep failed enterprises going at all costs.
Being part of an ILO governing body, one hears it’s impossible to retrench workers in India. But if one can do so, the exit costs are the cheapest worldwide. Such notions ill behove any nation. Indian companies should follow global norms and ensure that any person given a pink slip receives robust compensation, if not a golden handshake, so that s/he can keep the home fires burning until a worthwhile job is secured.
Indian labour laws need to be revamped and entrepreneurs allowed the option of retrenching workers and closing down unviable enterprises after employees are fairly compensated. Currently, workers in India may lose their jobs when a business fails, but are rarely compensated adequately because the law doesn’t recognise failure and bankruptcy. Such a scenario should be changed.
To achieve this, it calls for an employment policy regime that takes good care of employee interests, fosters employment and allows industry to operate unfettered by archaic laws. This employment policy should have a single objective—boosting employment and bringing all employable persons in the working age group within the folds of gainfully employed people.
Enlightened labour laws
Three major elements may be required to achieve the objective. One, the employment policy must be related to the overall policy for promoting enterprises. Accordingly, it should be easy to establish a business since this alone can create employment opportunities. In this context, the MSME sector should be promoted because it creates the largest number of employment opportunities by employing between three and 10 people per enterprise.
Two, employment generation via the opening up of large-scale manufacturing units is vital. During the past two decades, the services sector has played a key role in generating employment, particularly in urban areas. It’s time simple laws are enacted encouraging large-scale manufacturing like China. It’s possible to employ relatively-unskilled workers at entry-level positions in manufacturing and then train them on specific skills. China is the best global example of increasing employment through large-scale manufacturing. India also needs a manufacturing model whereby 40,000 or 50,000 workers could be employed by a single unit. Even within industry, unorganised employment predominates, comprising more than 95% of overall employment in industry, especially manufacturing. Such employees must be formalised. Reformed labour laws are the need of the hour.
Three, an employment policy should possess a framework for incubating entrepreneurship, since entrepreneurs create new employment. Promoting entrepreneurship is the best avenue to expand employment. Flexible laws are also necessary that allow an entrepreneur to hire or retrench people, as required, albeit the latter could be permitted only with a proper severance package.
Reformed labour laws should safeguard the basic parameters of employment: wages, work hours, leave entitlements and social security benefits (including provident fund and gratuity). Less contentious issues may be left to employees and entrepreneurs to decide. In such an ambience, entrepreneurs will no longer be afraid to hire.
Only via enlightened labour laws will 10 million youth entering the workforce annually be assured of gainful employment. This is the fundamental issue the nation’s employment policy must address.
The author is chairman & MD, Great Eastern Energy Corporation Ltd. He is also in the governing council of the International Labour Organisation.