No jobs without growth, also EPF/ESI choice is huge
It is unfortunate that leading trade unions, including the Bharatiya Mazdoor Sangh (BMS) that is affiliated to the RSS, chose not to get the point made by both prime minister Narendra Modi as well as finance minister Arun Jaitley at the 46th Indian Labour Congress on Monday. As Jaitley pointed out, unless there is investment in the economy, there can be no fresh jobs creation which will hit at the heart of all trade union activity. And with too much trade unionism and rising wages—the government has not acted upon the trade unions’ suggestion that the minimum wage be hiked to R15,000 a month—fresh investments will be curtailed, and as the contraction in India’s exports shows, the country looks like it is rapidly losing some part of its competitive edge. A Crisil study, as we have reported, already found that employment elasticity—the percentage rise in employment for every percentage point rise in GDP—fell from 0.52% in FY00-05 to 0.38% in FY05-12. With the opposition by the unions to several of the changes made in the industrial relations code—making union membership tougher, allowing negotiations with only the principal union, etc—it looks as if most will be put on hold now.
But more than this, what the short-sighted unions didn’t get was the import of the big changes already made by the government. The EPFO, for instance, is the biggest source of problems with 24% of an employee’s salary getting appropriated under this head. Were the EPFO to provide a good return, this would not be a problem, but as compared to the NPS that has delivered a return of 11%, the EPFO has delivered much less. Every 1% hike in annual returns raises the final corpus—over a 40 year-life cycle—by 30%. Apart from this, there is the question of stuck funds. Since transferring money from an employee’s own EPFO account is next to impossible today, around R30,000 crore of employees’ money is stuck in the EPFO. Apart from pushing the EPFO to provide better service including account portability and a universal account number, Modi/Jaitley have ensured employees have the option to use the NPS in place of the EPFO. Any trade union that has the genuine welfare of its constituents in mind would have cheered this.
Even worse is the lack of appreciation of what has been done on Employees State Insurance Corporation (ESIC), another boondoggle. While a part of employee salaries are compulsorily sequestered for ESIC payments, this has the worst payments record among all health insurance schemes. As FE reported on Tuesday, just 48% annual payments are paid out in the form of benefits—the huge difference tells you just how much extra poor employees are being asked to fork out each year. In the Budget, finance minister Jaitley said he would now allow employees to choose between ESIC and any other IRDAI-approved insurance product. Unions would also do well to keep in mind that while they have effectively fobbed off any big labour change by the central government, states like
Rajasthan have already changed their labour laws—and, as the BMS chief pointed out, Madhya Pradesh and Maharashtra are rushing to do the same—in order to attract investment. The unions can either embrace the new reality and work with governments to better their interests, or they can simply perish. The choice is theirs.