|
Among
the many surviving relics of India’s socialist past, the
most prominent are the Soviet-style five-year plans that
the government still insists on producing.
The 11th
plan was recently unveiled, when almost one-and-a-half
years—or 30 percent—of the period it seeks to cover have
already lapsed. So much for timeliness.
Even the
usefulness of the planners’ advice to the policymakers
is suspect because the latter probably don’t even bother
to listen carefully to what the former has to say.
Take the
issue of job creation.
Planners
are highlighting the need to create decent jobs—those
that come with social security and other benefits.
Policymakers are doing exactly the opposite.
In its
report, the Planning Commission devoted a good deal of
attention to what it calls “informalization” of
employment.
Statistics collected by a government-appointed advisory
panel show that from 2000 to 2005, the Indian economy
added 61 million jobs. Tiny enterprises, employing 10 or
fewer workers, accounted for 52 million of these new
opportunities. Even the remaining 9 million people hired
by larger companies were offered “informal” employment
with no benefits or social security.
These
findings perhaps exaggerate the extent of
informalization. Based on consumption trends—such as a
15-fold growth in mobile-phone subscribers in the past
five years—it’s hard to believe that the fast-growing
Indian economy is only producing poor-quality jobs.
Too
‘casual’?
Out of
India’s 500 biggest, publicly traded companies,
up-to-date employment statistics are available for 93:
The median rate for one-year employment growth is almost
9 percent for these enterprises, three times the annual
pace at which the work force in the country is
expanding.
Even
then, it would be wrong to dismiss increasing
informalization as merely a statistical artifact.
Another
government survey, which covered the same 2000-2005
period, showed that bigger enterprises hired both
“regular” and “casual” employees in large numbers,
though the growth of job creation was much higher for
the latter category.
This is
a worrying trend which at least the Planning Commission
is taking seriously. One of the “major challenges,” it
says, is to expand formal employment at bigger firms.
Policymakers have come up with a solution to deal with
the challenge: Make social-security contributions
mandatory for more of the smaller firms. The result may
be exactly the opposite of the one intended.
Provident fund
Until
now, firms with fewer than 20 workers were exempt from
social-security plans funded by contributions from
employers and employees.
The
government decided last month to lower the threshold to
companies with 10 workers or more.
Its
decision is a “death knell” for attempts to increase
formal employment, says Manish Sabharwal, chairman of
Mumbai-based Teamlease Services Pvt., one of India’s
largest providers of temporary workers.
Participants in the so-called Employee Provident Fund
program must set aside 24 percent of their salaries,
while surveys show a quarter of employees in firms that
have between 10 and 19 workers are able to save only 9
percent of their pay, Sabharwal wrote last week in the
Financial Express newspaper.
“Forced
savings of this magnitude at lower salary levels are
impossible and force informalization,” he added.
Curiously, the authorities bungled the expansion of
social security just as they sought to lower the cost of
building nest eggs to levels that are impressive even by
global standards.
Fund
managers chosen last month through competitive bidding
have undertaken to charge no more than 0.01 percent of
assets for managing a part of the $60-billion kitty.
Labor
laws
Forcing
tiny enterprises to create formal employment isn’t a
pro-labor move.
A more
honest and effective approach would be to ease the
country’s labor laws. This will create an incentive for
companies to increase the scale of their operations to a
point where they can absorb the social-security costs
out of the benefits that they derive from being legally
aboveboard.
The laws
currently in force have the opposite effect: They serve
to keep labor-intensive companies small and weak. The
worst offender is the so-called Chapter V-B of the
Industrial Disputes Act of 1947. It stipulates that
companies employing more than 100 workers must obtain
government approval before firing people or closing
down. Needless to say, this permission is seldom
granted.
As a
result, employers in India are reluctant to hire workers
they won’t be able to dismiss if there’s a sudden slump
in demand for their products.
This
draconian law is a “psychological block for
entrepreneurs against establishing new enterprises with
a large work force,” says the Planning Commission,
calling for “practical solutions” to the problems
created by labor laws.
For a
relic of socialism, the Planning Commission is offering
sage advice. Both the quantity and quality of employment
need to rise in India. That’s the only way to keep
inequality under control and raise living standards
quickly for all. |
