Creating Good Jobs: Assessing the Labour Market Regulations Debate in India
Radhicka Kapoor (Fellow, ICRIER) [Download Paper]
It has often been argued that it is India’s inflexible labour market regulations which have hurt the growth of employment in the manufacturing sector. The new government is seeking to reform labour laws with the understanding that these reforms will improve industrial growth and expand the possibilities of enterprise. However, there is already ample evidence from within India that this obsession with reforming labour law, particularly in the way the government has done it till now, will not take us any closer in creating more jobs or a healthy industrial sector. These reforms will neither help firms adapt to ever changing market conditions nor will they ensure greater security of employment.
Creating Jobs in India’s Organised Manufacturing Sector
Radhicka Kapoor (Fellow, ICRIER) [Download Paper]
Despite witnessing a decade of rapid economic growth, an acceleration of growth in the organised manufacturing sector has eluded India. Using data from the Annual Survey of Industries, we examine the factors holding back the growth of output and employment in this sector. We find that there are heterogeneities in the performance of the manufacturing sector across industries and states. Recent economic growth has benefited industries which rely more on capital and skilled workers as opposed to unskilled/low skilled workers. This fact combined with the rising capital intensity of production over the decade partly explains the limited contribution of the manufacturing sector to employment generation. At the state level, we find that states with more inflexible labour regulations have witnessed slower growth in employment and output in manufacturing than states with more flexible labour market regulations. However, it would be incorrect to put the entire onus of the dismal performance of the manufacturing sector on labour regulations as firms are responding to rigidities in the labour market in innovative ways such as the greater use of contract workers. Factors such as cumbersome product market regulations and infrastructural bottlenecks have also adversely affected the growth of the manufacturing sector. Given that the days of industrial licensing are gone and markets are influenced not only by regulations enacted by central government, but also those enacted by state governments, much of the action for improving the business environment needs to be taken at the state level.
Labour Regulations and Growth of Manufacturing and Employment in India:
Balancing Protection and Flexibility [Download Paper]
Anwarul Hoda (ICRIER Chair Professor, Trade Policy and WTO Research; Former Deputy Director-General, WTO) and
Durgesh Kumar Rai (Research Associate, ICRIER)
The study will undertake an examination of the role of labour regulations as a constraint on the expansion of the manufacturing sector in India, with focus on industrial relations. It will analyze the inputs obtained from manufacturing enterprises and associations of such enterprises through a survey. A central feature of the study will be comparison of the regulations on industrial relations in India with those in East and South East Asian countries, which have been successful in the manufacturing sector, such as Korea, China, Thailand and Malaysia. Through the process of analysis and comparison the study will identify the deficiencies in the regulations in India, which are hampering the growth of manufacturing and employment generation in the country, and make recommendations to address them. It will be based on both desk work and interviews/survey with the stakeholders.
Labour Regulations in India: Contract Labour (Regulation and Abolition) Act 1970 and implication for Formal Manufacturing Employment [Download Paper]
Deb Kusum Das (Associate Professor, University of Delhi),
Homagni Choudhury (Lecturer in Economics, Aberystwyth University, UK) and
Jaivir Singh (External Consultant, ICRIER)
One particularly significant piece of labour legislation in India is the Contract Labour (Regulation and Abolition) Act, 1970 (CLA,1970), which regulates labour hired by firms through the offices of a labour contractor – such labour being referred to as ‘contract’ labour in India. This paper seeks to examine this Act and its implication for manufacturing employment in India. While empirical evidence seems to indicate the presence of large number of ‘contract’ workers in the Indian manufacturing sector across a spectrum of industries, this increasing contractualisation of the workforce has not been typically discussed as a pointed labor regulation issue. It has been widely argued that Indian labour law imposes institutional rigidities inhibiting employment expansion; but note needs to be taken of a ruling by the Supreme Court in 2001 which interpreted the CLA, 1970 in the case of Steel Authority of India v. National Union Water-Front Workers. This judicial interpretation has enabled Indian firms to employ ‘contract’ workers widely, often employing them in jobs where they work alongside permanent workers. Against this backdrop, we attempt to document the increase in engagement of ‘contract’ workers and to dissect the data to see patterns in the use of ‘contract’ workers in organized manufacturing. These empirical patterns help us generate hypotheses for further work on the normative consequences of large scale use of ‘contract’ labour – the use of ‘contract’ workers no doubt brings in flexibility in labour usage and can be judged as a beneficial development for employers, however issues of investment in skills remains a hindrance in enhancing labour as well as overall welfare.
Trade and Jobs in Indian Manufacturing [Download Paper]
Pankaj Vashisht (Fellow, ICRIER)
After following inward oriented economic policies for nearly four decades, India opened up to international trade in early 1990s. Since then, the trade integration of Indian economy in general and manufacturing sector in particular has increased phenomenally. Against this backdrop, this paper analyzes the impact of trade on jobs in Indian manufacturing sector. We find that the direct impact of trade on manufacturing jobs have been positive. However, the trade induced decrease in labour demand has neutralized the direct job gains to great extent. Therefore, unlike other Asian economies, the overall employment gain from trade has been minimal. The paper argues that supply side constraints should be removed urgently to gain from international trade.
Manufacturing FDI, capabilities, skills and jobs- Lessons for India
Deboshree Ghosh (External Consutant, ICRIER) and
Arpita Patnaik (Research Assistant, ICRIER)
Since the past few decades, many developing nations are devising policies to attract manufacturing FDI to improve growth and employment in their economy. The quality of human capital is considered an important factor determining the flow of FDI in an economy. In order to improve the quality, it is important to assess the expected quantity and the variety of skills that would be demanded by new investments. This paper thus clarifies two concepts: first, the definition of skills has to be based on tasks performed by workers and second, the mode of entry and the purpose of FDI have a considerable impact on the type of skills demanded (depending on their core activity). These concepts need to be considered before revamping any skill development system.
Human capital potential of India’s future workforce [Download Paper]
Ali Mehdi (Senior Consultant – Social Sector and Development, ICRIER) and
Divya Chaudhry (Research Assistant, ICRIER)
Indian policymakers – like most of their counterparts across the developing and developed world – have been concerned with the employability of their working-age populations in particular, for obvious economic and sociopolitical reasons. However, such concern has been largely missing as far as the future workforce is concerned. This paper discusses India’s demographic dynamics and argues that policymakers have the widest window of opportunity with that segment of population which is poised to enter the workforce between 2030 and 2050 – those in their infancy today and the following decades. They should realize that our employability crisis (as well as to some degree, inequality in the economic and human development sphere) has its roots, inter alia, in the country’s grossly inadequate, inefficient and inequitable early health and education systems. Early childhood interventions hold immense importance in fostering the employability potential of the future workforce, especially in developing countries that are still a few decades away from their peak demographic opportunity. Since early health has not received the attention it deserves within the human capital framework, we highlight pathways through which it potentially impacts not just health and productivity, but learning outcomes as well as cognitive and non-cognitive skill development during formative years. Another neglected area that we have discussed is soft skill development and the role of preprimary education. In conclusion, India will have to focus, inter alia, on early health and preschooling (soft skill development) to reap its demographic dividend in a manner that is commensurate with the demands of a knowledge economy.