The elections are underway and all political parties are in a frenzy of promises that vary from the usual bijli, paani and makaan to removing corruption, good roads and good governance. Whichever party or coalition comes to power the single biggest challenge for the incumbent government is going to be tackling the unemployment problem and creating more jobs. Given the state of the economy, this is going to be challenging.
The stagnant international market has kept the exports at subdued levels. The low cost manufacturing sector in China is under pressure and along with rising wages, presents an opportunity to India to step in. With signs of a slow but sure recovery in the developed markets, India needs to put its act together. So will the next government rise up to the occasion and show political will? The bigger question is, will the coalition partners allow the government to take steps in crucial areas like Labour reforms?
Take a look at the ILO’s World of Work Report, 2013, India’s snapshot:
- The economic recovery that commenced in 2010 has not been sustained. GDP growth declined 4% in 2012 from 11% in 2010 largely due to declines in corporate sector investment, foreign direct investment and exports.
- The unemployment rate, which was stagnant at 4% since the early 2000s, declined to 3.6% in 2009-10.
- The female labour force participation declined by 8% percentage points between 2004 and 2005 (37%) and between 2009 and 2010 (29%).
The Indian manufacturing sector is stressed. Availability of low cost capital is scarce. Input costs of raw materials have risen significantly and on top of that labour is beginning to raise demands. Recent events have not helped. Labour intensive high wage sectors like automobiles have been under pressure from labour unions. Both Maruti and Toyota of late have faced the brunt. The UPA government was unable to show political will to address this crucial policy issue, thanks to coalition pressure politics. So will the next government be any different?
- How to control rising cost of raw materials in manufacturing.
- How to control rising wages.
- How to balance policy on contract labour vs full time jobs.
- How to address the exit policy for the manufacturing sector.
- How to create new jobs across segments.
India has to create jobs and that can only happen with investment. Investment will not happen if the above issues are not addressed. For long, India has pursued pro-labour policies and has stunted growth and held back our economy. More jobs mean more wages which in turn boasts spending which helps create more jobs. Along this path, there will be those jobs which are not efficient, these need to shut. So unless there is a workable Exit policy that gives non-competitive industries the option to shut, we will continue to hold back job creation.
A large part of India is below the poverty line and there is an urgent need to provide social protection through minimum wage guarantees. This segment desperately needs minimum assured days of work in a year. Here, schemes like MNREGA can be a catalyst to the economy, if properly implemented. The question is will the next government continue to support MNREGA and further improve its delivery mechanisms by plugging in the loop holes?
Public sector sloth
The last six decades has seen the government take up the mantle of a job provider. This has to go. The investment guzzling Air India is a case in point. There is absolutely no purpose served with the government keeping an inefficient and over subsidized organization like Air India alive. Let the market forces determine which airlines remain and which survive. However, several public sector companies are efficient and these must be corporatized and encouraged to grow. Its time all public sector employees came under the ‘perform and reward’ or ‘fail and perish’ parameters of business. The Indian public sector has the opportunity of becoming a role model for developing countries to emulate, if only they become competitive and efficient.
Labour Law reforms
Here again ‘Labour reforms’ across sectors are crucial and the role of the unions need to be redefined. It’s time the unions take up the role of a responsible mediator between the management and the workforce. It’s essential to keep in mind that the company has to be competitive and growing, in order to ensure that jobs are retained and wages grow, in line with the growth and profitability of the company.
The government’s role is to create policies that will facilitate job creation rather than take up the role of a job provider. The government must create a healthy environment for the industry to stimulate entrepreneurship and leave it to the private sector to play the role of a job creator.
The nation is upbeat about Narendra Modi becoming the next Prime Minister and has assumed that with him in-charge, the economy is going to shift gears and India will be back to its earlier glory days of growth. But will he be able to take the ‘Reforms’ bull by the horns? Will coalition partners allow him the leeway? Good question.