Opinion Filling the iron bowl
The governments social sector schemes will raise wages. We need labour law reform soon,or we will be stuck with a low-employment,high-wage outcome....
On August 15 this year,Prime Minister Manmohan Singh can feel pleased that his government has begun delivering on plans to guarantee work,food and health to a large swathe of the Indian population through NREGA,the National Rural Health Mission and the food security bill. It is a politically brilliant position but it must be combined very soon with the withdrawal of cast-iron labour laws from all sectors of the economy. The space created by the PM for a safety net for the families of unorganised labour must now be filled with the scope to make the optimal use of that labour,or else well be faced with a first-class disaster in our economic policy.
This is because we now have an opportunity that will not soon come again. Not grabbing it will create problems for India of the sort that Europe has run into with its overpaid labour market. While Indias per capita GDP is far below Europes,short-circuiting the logic of constructing a social security net thats comparable with economic growth rates will pitchfork us into a Europe-style costly labour zone,pricing us out of markets for labour-intensive goods. The gap will be gladly filled by our nimble Asian competitors. Then the iron bowl of security that the government has crafted,riding the fast growth rate will begin to hurt rather than help.
The Indian economys greatest potential for a long time has lain in the availability of relatively cheap labour and the competitive advantage it could create in any sector. This has been frittered away over decades by overprotective government policy which benefited only those who had employment,and equally short-sighted industrialists who replaced labour with capital to get around the hassle. The iron bowl is going to make this worse.
Given the absolutely sub-human conditions in which a huge percentage of families below the poverty line live,there are few arguments against these pillars of social safety the government is creating. But having created them,it is equally essential to use the pillars as a foundation for the development of a strong productive economy on top. This means giving the entrepreneurs in every sector,the freedom now to deploy labour rationally. This could sound ruthless,but its essential. The alternatives which have been posited are too devoid of hard choices and so cuddlesome in their approach.
The food security bill when passed will provide an assured quantity of rice or wheat free to the lowest rung of the population. This,allied with within-village employment support,is a deadly combination in the sense that it can and will cripple labour supply to contract agriculture,and to those sections of industry which need that supply to remain competitive.
From a labourers point of view,moving away from a village where he earns NREGA support to work in the fields of other states is becoming more and more absurd. It can be argued that agricultural jobs in states like Punjab and Haryana are seasonal and so do not clash with the earning season in the labourers home villages. But the seasonality is only in the crop cycle. The demand for labour is round the year,as one crop follows another.
Evidence is already mounting from those pockets of rural India where NREGA has been a success about the withdrawal of labour. This has affected the construction industry too,the bedrock of the infrastructure sector. Just one illustrative figure is revealing: bookings on the special trains that transported labour to Punjab and Gujarat from labour-rich states like Bihar and UP have begun to plateau.
Once large farmers realise they cannot depend on labour to work their fields,a most unusual pattern will develop in agriculture. They will shift to a far deeper use of machinery basically making agriculture quite capital-intensive. The same thing happened in Indias large-scale manufacturing. The reason for the poor employment growth in large firms despite the high growth theyve witnessed over so many years is the highly capital-intensive nature of production. Here,as well as in the urban centres that depend on a large supply of labour like gems,jewellery and textiles,we need to change the labour laws.
To hire labour,entrepreneurs and farmers have to offer a better salary and possibly stronger employment benefits. But that process will be scuttled if the labour laws tilt so heavily to one side. Those jobs will then,inevitably,migrate outside the country,in a process known as contract manufacturing. Where that is not possible,machinery will replace labour,defeating the very rationale for the iron bowl. The rise in the bargaining power of labour with the available safety net will not happen as the number of jobs will fall.
For far too long the Indian state has played around with the need to amend the labour laws. The present government does not even seem to consider it a possibility. But the entire rationale for the troika of support must be to make the Indian worker better fed,healthier and more able to bargain with employers. To instead take away that very possibility,by exporting jobs across the Himalayas or replacing them with machines,seems a fabulous contradiction for policymaking.
A postscript to the story is in order. The fungibility of food stamps make them far more useful products than the awesome piles of rice and wheat the government plans to carry across the country as part of the food security plan. It has huge inflationary and black market potential,not to mention that it commandeers the freight-carrying capacity of the railways and the roadways . Food stamps can eliminate all that and,as an additional benefit,develop a first-class free market in foodgrain.
The writer is Delhi Resident Editor,The Financial Express
subhomoy.bhattacharjee@expressindia.com
Share
