The apparel industry, like most others, has constantly been complaining about the lack of labour flexibility, so critical in an export-driven industry that is inherently seasonal in nature. So, during the UPA tenure, it even suggested a double-NREGA package to the government—it would guarantee 200 days of employment in a year at a minimum wage of Rs 200 in return for flexibility. The plan didn’t fly and, among others, was a big reason for India’s poor exports performance. Unless there is labour flexibility, firms won’t grow, and unless that happens, this robs them of some of their competitiveness. In order to fix this, the chief economic advisor and the textiles secretary came up with a plan to eliminate as many of the hurdles to formal employment—among others, this envisaged the government defraying the mandatory provident fund contributions for the first three years and introduced the concept of fixed-term employment, obviating the need for messy solutions like dealing with contractors. The plan, as reported by FE on Monday, didn’t fly and just 655 units have availed its provisions so far. That, however, is not the result of the plan being faulty, but of circumstances. Demonetisation was a big blow to the industry that largely had cash transactions, and once things stabilised, GST hit it hard. While many of the state levies were subsumed within GST, this shouldn’t have been a problem since the refunds the industry got for taxes paid by it earlier would now come via GST.
Except, that hasn’t happened and most exporter refunds remain stuck. So, for the plan to really work, the government has to either ensure GST refunds come on time or find an interim solution; some solutions have been found and industry feedback needs to be taken to see if this is good enough. Fast-tracking the FTA with the EU is also critical as this will ensure Indian exports get duty-free status as is already the case with competitor nations like Bangladesh and Cambodia. Given the jobs-creating potential, it is critical this be resolved at the earliest. It is only when there is complete certainty that industry will invest since orders takes 6-8 months to materialise and investment horizons are even longer. Now that there is enough proof that the scheme is a workable one, the government needs to extend it to other areas as well.
The government had announced a leather package along the lines of the apparel one in the last budget, but it is best to announce it for all industries, not just the labour-intensive ones. Right now, thanks to pressure from the labour unions, the government is loath to announce more flexible labour laws—it had earlier planned that any units which employed under 300 persons would be free to shut down without requiring government permission. When this was shelved, it was hoped individual states would do this on their own, and while some like Rajasthan followed, important industrial ones like Maharashtra just back-tracked as well. Fixed-term employment doesn’t really affect the existing work force—indeed, it offers more stability and higher salaries than the existing contractor system since the middleman’s commission is eliminated. In which case, it may be relatively easier for the government to push this plan—and even if there is some resistance, in an election year, when generating jobs is critical, it is the government’s only hope.