The Telegraph
Thursday , February 28 , 2013
Since 1st March, 1999
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Laws blamed for job crunch

New Delhi, Feb. 27: India is not creating enough productive jobs — and the spirit of enterprise is being strangled by excessive and onerous labour laws.

The Economic Survey tabled in Parliament today said: “India has to focus on an agenda to create productive jobs outside agriculture, which will help us reap the demographic dividend and also improve livelihoods in agriculture.”

The survey, which singled out job creation for special mention with an entire chapter devoted to the subject, says the share of agriculture will fall to 40 per cent by 2020 — the same level as that in China in 2010.

Agriculture accounted for only 14.1 per cent of the GDP in 2011-12 but its share in total employment was as high as 58.2 per cent, according to the 2011 census.

The challenge is to make it attractive for a farmer to put away the hoe and pick up an industrial tool — and unfortunately India isn’t doing a good job of making this happen.

“India is creating jobs in industry but mainly in low productivity construction and not enough in formal jobs in manufacturing… The high productivity service sector is also not creating enough jobs,” the survey said.

The document says it is imperative that consensus building on labour market reforms should start soon. “It may take time to build political consensus for fundamental reforms,” the document says. In the meantime, states could be allowed more flexibility to experiment without coming into conflict with central statutes.

The survey notes that strict labour laws may have hindered the growth of organised large-scale manufacturing. The evidence certainly suggests that labour regulations may be “key impediments” to manufacturing growth.

The labour laws India has on the books are more rigid than most countries — with the employment protection laws stricter than all but two OECD countries.

But very few workers are covered by these laws. It says India may have suffered the consequences of strong worker protection. Employers have shown strong reluctance to offer workers formal jobs and prefer to use hired contract labour.

Too many small firms stay small and unproductive and are not allowed to die gracefully, the report says. Small and medium companies need an easier process of exit where the claims of the workers and financiers are quickly resolved and the assets of the failed firms put to better use.

One of the solutions to the problem is that existing permanent workers can continue till retirement with their privileges left untouched. “The remaining workers could be encouraged to move into contractual employment that can be terminated,” the survey says. But these workers should have some protections, including severance pay, unemployment insurance, and the right to reverse unfair dismissal through appeal.