Jobs, not the government’s job

But Chapter V-B doesn’t apply to all industrial enterprises. It applies to enterprises that employ more than 100. Workmen, mind you, not employees. Till ’84, the threshold used to be 300. Sit down with Annual Survey of Industries data and count how many industrial enterprises and workers are covered by this clause. You will arrive at a figure that is 2.41 per cent of the Indian workforce. Not even 8 per cent. As of today, even if Chapter V-B didn’t exist you might have a different figure. The PM was reiterating what the CMP says about no automatic hire and fire. But let’s accept facts. This is about 2.41 per cent. No more. And we should also ask another question. Do unions and labour leaders reflect the interests of the labour aristocracy of 2.41 per cent or labour in general?

Chapter V-B is certainly unnecessary. Teachers invariably refer to capital as a fixed input and labour as a variable input. Not true if you are in the organised sector in India. Labour is the fixed input and capital is the variable input. And, therefore, in the organised sector, despite

India’s labour cost advantage, production becomes artificially capital intensive. We may be protecting existing jobs. But in the process we are losing out on future jobs. Nor is it the case that labour will necessarily suffer if we scrap Chapter V-B. There are several other laws that protect labour. And there are several ways to circumvent Chapter V-B, without even paying labour the mandatory severance pay of 15 days’ salary per year worked.

It is far better, therefore, to increase the severance pay to 45 days’ salary for every year worked and scrap Chapter V-B. Alternatively, increase the threshold from 100 to 1,000. This is precisely what Yashwant Sinha’s ’01-’02 budget promised in a new Bill. Nothing happened because hire and fire is controversial. IDA alone doesn’t cause rigidities in the organised labour market. Other laws and 39 different inspectors also have a role to play. In contrast, India’s labour cost advantage is already exploited in the unorganised sector. Witness the export sectors that are doing well. Mostly unorganised. But not only will we not touch Chapter V-B, we might actually end up extending it to the unorganised sector following the recommendations of the Second National Commission on Labour (’02).

Till then remember the figure of 2.41. India is in a stage of demographic transition. Fewer babies are being born at present. But babies born 25 years ago are entering the labour force and the dependency ratio is dropping. Estimates for East Asia suggest that when East Asia underwent this process, two clear percentage points were added to GDP growth. We can replicate this, provided the workforce has the requisite skills and are provided jobs.

The PM’s speech mentions that 67 per cent of the workforce is illiterate or semi-literate and only 5 per cent workers in the 20-24 age-group have job skills. There can be no quarrel with the proposition that literacy, training and skill up-gradation are needed. But it raises a policy question: who will do this vocational training? As Professor Indiresan keeps reminding us, if you leave it to the government, every male will be trained to be a carpenter regardless of what the market wants. How do we get the private sector involved in this training? Consider the NSS sample data between ’93-’94 and ’99-’00. Agriculture failed to create jobs. Jobs were created in sectors like construction. The problem with construction is that no one provides the requisite training and real wages stagnate, if not actually shrink. We won’t have the training as long as we have this system of contractors and fail to get builders/real estate developers interested. Similarly, increasing growth and its employment elasticity; creating jobs in agro-processing, rural industries and informal sectors are unexceptionable propositions. But they don’t create jobs in the government sector. The government, including the public sector, employs 20 million. We can’t seriously expect 10 million jobs a year within the government.

There is also the additional point that, regionally, most additions to the workforce are in areas where there are sick PSUs and where private sector employment creation is zero. If we controlled investments, either public or private, we could have directed them towards these areas. But that kind of control has gone. If we fail to create a favourable environment for private sector investments, we will continue to have a situation where a few measly jobs in the Railways will be fought over. Hence, there should be clarity that delivery of employment is a private sector affair. The government’s role ends with creating a facilitating environment.

Finally, there is the Employment Guarantee issue. Do we have delivery mechanism for its implementation in most states? The PDS, or failed attempts to target PDS, doesn’t inspire confidence. We will pick 150 backward districts, so that most people will opt for this scheme. We won’t be able to find jobs for them. So will end up with the Rs 100 per day unemployment insurance. Better to have unemployment insurance alone, without the employment guarantee.