...And justice for all

There is a lot of talk on labour policy and labour reforms. This appears somewhat misplaced. 

From my personal experience of starting and running labour intensive industries for decades, my take on the issue is different: for me, it should be Employment policy, rather than a Labour policy.  Moreover, it is an imperative, if Prime Minister Narendra Modi’s “Make in India” campaign is to succeed. Let me explain.

In the context of a developing economy like India, what is needed is not only reform of labour laws, but to enact a law to promote employment, which may be called “Employment Promotion Law”.

Labour laws cover only organised labour, which constitutes less than 8% of the work force. The labour laws were framed in a different context when employees were not so organised  and were vulnerable to  exploitation.

Things are now quite changed. Labour is today, strong, cohesive and can  look after or protect its interests.  But then what happens to 92 per cent unorganised labour and 10-12 million young boys and girls who join the labour force every year?

The present labour laws in India discourage both small and big  entrepreneurs to go in for labour intensive processes -- whether that be  manufacturing or services. As the application of labour laws is dependent on certain threshold numbers, the tendency is to employ below that number in the case of small scale industries, and  to go for capital-intensive processes in the case of large scale industries, even though in India capital is expensive. 

Laws have to be  simple, protecting wages, hours of work, holidays and social security on one hand, while providing flexibility to  enterprises to adjust to economy and markets so that the entrepreneur is not afraid of taking risks in setting up or expanding business and hiring people. Flexibility is not to remove labour at will, as in a competitive environment no enterprises can survive without skilled manpower, but flexibility means freedom to  salvage and redeploy resources or even to close down failing business, after compensating  labour.

No entrepreneur can afford to lose a worker who has been trained or is skilled. The challenge today is retaining trained manpower as is the experience of the software industry. Being  altogether a new activity, the industry by and large remained outside the framework of existing labour laws but still  grew faster.  

The demand for skilled manpower has been so strong that industry is setting up gyms, exclusive entertainment  lounges, flexible working hours and what-not to keep the workers engaged. This leads to the inevitable conclusion that increasing the demand for labour, upgrades  the level of engagement programmes and ultimately the quality of life. 

Restrictions on business’s right to close down a losing venture have discouraged employment of labour from the start. No one starts a business to close it down but running a business has its intrinsic risks and the risk taker need to be assured that he can easily wind up his business if situation so demands.

Unfortunately, in India, the right to close inviable units has been taken away from industry subjecting it to Government scrutiny since Emergency days in 1976. As a result, losing business is kept on the ventilator for years together and ultimately winds up without paying compensation to employees. At the same time, owners also cannot redeem or liquidate the assets which are left over. Flexible laws in such circumstances can allow restructuring of business after paying labour their dues. That will serve the overall interest as the new businesses will generate fresh employment opportunities and create new income streams. Also, the entrepreneur should be allowed to replace unavailing and unskilled workers. However, this flexibility should not be used for reducing the number of workers.

You cannot protect employment through artificial means if the firm goes sick. It will only distribute poverty besides adversely impacting economy. Businesses must thrive to enrich workers, society and economy.

Entrepreneurs, enterprise and workers’ fates are interlinked

Employment laws, as I see it, should cover not only those who are employed, but also the unemployed and those in the informal sector.

For me, an employment policy should have three major elements and one single objective. The objective will be to increase employment and bring all employable working age populations within the fold of the employment. 
There could be three main strategies for achieving this objective:

First, employment policy is related to the general overall policy for promotion of enterprises. That is, it should be easy to start businesses as they alone can create employment opportunities. For this purpose, the micro, small and medium enterprises need to be nurtured and encouraged. It is the MSME sector –employing 3 to 10 people -- which creates largest number of employment opportunities. 

Secondly, and speaking specifically of India, what we need is employment generation through setting up large-scale manufacturing units. India has so far grown with the development of the services sector. However, employment in services sector is more skill-based than in manufacturing. We need simple laws that encourage large-scale manufacturing like in China.  

It is still possible to employ relatively unskilled workers at the entry level in manufacturing and then train them. I hope, amendments in the Apprenticeship Act will take care of that. China has been the best example of   increasing employment through large-scale manufacturing. We need to have in India large-scale manufacturing, employing say 40,000-50,000 workers in a single unit.

Even within industry, unorganised employment predominates. Informal employment constitutes more than 95% of the overall employment in industry, more particularly in manufacturing. 

Thirdly, an employment policy should also have a framework for incubating entrepreneurship. It is the entrepreneur who creates fresh employment.  Entrepreneurship development is the best bet for expanding the employment base. 

With an expanding population, India needs to create no less than 10 to 12 million fresh jobs every year to absorb the additions to the labour force. To accommodate these new job seekers we must nurture a million new entrepreneurs. This is a stupendous task.

India is said to have a demographic dividend as the country will still have a thriving working age population till about 2050 when the rest of the world will have an ageing population. This also imposes a responsibility that we have to create job opportunities for those who are joining the workforce through an employment policy.

The author is a former FICCI president