The National Democratic Alliance government has begun to act on its election promise - to create an environment conducive to doing business and review labour laws that are outdated, complicated and contradictory. The Rajasthan government has initiated changes in major labour laws, which will make it easier for employers to retrench workers and raise (that is, ease) the applicability of the contract labour and factories Acts. Other states may follow suit.
It is doubtful whether making hiring and firing easier will create more jobs. A flexible labour market already exists through the contract-worker route. However, changes in archaic labour laws, which increase the ease of doing business and reduce the scope for "inspector raj", are necessary and welcome.
Two major related issues before the Indian economy are not enough jobs being created and serious deficiencies in the quality of jobs. On creating enough jobs, the scenario is not alarming, but worrisome. There is a declining trend in employment growth since the late 1970s, with a pattern of a particularly poor five-year period being followed by a good five-year period (Papola and Sahu, 2012). The 2000-05 period saw the highest growth rate in jobs since 1973-78, followed by the worst during 2005-10. Employment elasticity (in relation to gross domestic product growth) has followed a similar pattern. The end of the 2000s saw the global financial crisis and the Great Recession, which affected exports and jobs. According to the International Labour Organization, unemployment may touch 3.8 per cent in 2014, after rising from 3.5 per cent in 2011.
In the organised sector, where the better jobs are, public sector employment growth has been declining since the 1970s and turned negative in the mid-1990s. In the private sector, job creation fell since the 1970s, turned negative in the mid-1980s, recovered in the 1990s, and has been up and down in the 2000s. Overall - that is, in the public and private sectors - there has been a steady decline in the jobs growth rate till the mid-2000s. In the entire economy, the share of casual workers has gone up right through; that of regular employees has fallen till the mid-1990s and then gone up slightly thereafter.
But not all organised sector jobs are tenured or regular. The state sector is now a significant employer of contract workers. As for the private sector, it has embraced contract workers with open arms. A survey by the Associated Chambers of Commerce and Industry of India found that in 2013 the hiring of contract workers across industries rose by 39 per cent (up from 22 per cent in 2010); that of tenured workers went up by only 25 per cent. As much as 60 per cent of staff in telecom and 56 per cent in the automotive sector are on contract. It is in software and financial services that there is a relatively higher level of regular staff. In information technology (IT) and IT-enabled services, only 42 per cent of staff are on contract.
Contract workers can lose their jobs any time and earn much less, sometimes a third of regular employees. Although temporary workers are carefully covered by various laws that determine job quality, regulation - the working of these laws - in most of the economy is extremely poor. Unskilled workers are often barely literate and not unionised. This means that they are not able to insist on their rights even when they know them. Nevertheless they perform important functions as cleaners, guards, loaders and the like.
Other than better regulation, training and skill development is all important. The apprentice scheme - which is languishing - needs revamping and must be made more relevant. Better training will improve skills, raise productivity and pave the way for better wages. If decent working conditions are introduced, social security according to existing laws is provided and wages are revised periodically, then that would take care of the major aspirations of contract workers. The one change in law that will create more contract jobs is removing the provision by which the government can abolish contract workers in an area of work or establishment, forcing the conversion of existing contract workers into tenured ones. This dissuades employers from creating contract jobs.
The Bharatiya Janata Party's manifesto speaks of issuing identity cards to workers in marginalised sectors, so as to deliver better education and healthcare, and strengthening pension and health insurance. The Union labour minister has already announced that employees earning up to Rs 15,000 a month will be eligible to join the provident fund scheme, for which it will increase the cap from Rs 6,500 a month; also, the minimum pension will be doubled.
To create more jobs and improve productivities simultaneously, it is necessary for the economy to grow fast, at nine per cent or more. But such growth rates for India are inevitably linked to global boom conditions, which do not last. To grow sustainably in tandem with manageable energy prices, India should target no more than six or seven per cent. This is the central dilemma.
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