Sudarshan’s pearls of swadeshi wisdom mean low growth and far fewer jobs

And while both he and fellow-traveller Dattopant Thengdi (the BMS chief addressed a mammoth rally in Pune the same day) warned the government about its ‘‘anti-labour’’ policies, what they didn’t say is that it is because India has such such rigid labour laws that it has among the lowest growth in employment in all of south Asia.

In the Tenth Plan period, 2002-2007, the Planning Commission has targeted a GDP growth of 8 percent — that’s the only way India can solve its poverty and unemployment problem. Clearly it needs huge savings, and hence investments, for this. Since India needs an investment level of 32.6 percent of GDP for this, where’s the money going to come from?

Domestic savings levels are currently around 23 percent, but the Planning Commission has very heroically assumed these will rise to 29.8 percent. So there’s still a gap, of 2.8 percent, and this can be financed only from foreign investment. (Of course, if savings don’t go up, as they probably won’t, the need for foreign money will be even higher).

What if, as per Sudarshan’s advice, India doesn’t get the foreign investment? Given the current levels of what’s called the Incremental-Capital-Output-Ratio (ICOR), India’s GDP growth in the next five year plan will be much lower, around 7 percent or so.

Historically, countries which have had high foreign investments are also those which have had high GDP growth rates.

In China, for instance, foreign investments comprise 12-13 percent of total investments.

If India has an 8 percent GDP growth target, given the elasticity of employment, this means a total of around 47 million new jobs will be created in the next five years. But if GDP growth comes down to 7 percent, the number of new jobs created falls by a whopping 6 million, a figure that’s an eighth lower.

Even more frightening, a study by FICCI-AIOE shows, thanks to labour laws that don’t allow industry to dismiss workers, the labour component of Indian industry’s cost of production has fallen dramatically over the years — Sudarshan and Thengdi are recommending these laws be kept unchanged.

The share of wages in the total cost of production, according to the survey, halved from 11 percent in 1991-92 to 5.5 percent last year. Not only that, India’s employment grew just 1.4 percent per annum between 1980-97, while that of countries like Malaysia which have flexible laws grew by 3.5 percent (see graphic). So labour reforms of the type the government is contemplating, will actually increase employment growth.

The reason why labour laws in India are so unflexible is because organised trade unions, like Thengdi’s BMS, won’t allow any change.

But the organised labour force in India comprises just 8 percent of the total work force, and a mere 2.7 percent of the population.