Survey makes case for labour law reforms

New Delhi: Findings of the Labour Bureau’s latest survey of job trends across states have challenged the conventional wisdom that stronger pro-worker policies will protect jobs and ensure higher employment, reinforcing the case for changes in labour laws.

The survey showed that states that have actively carried out labour reforms—Haryana, Himachal Pradesh and Gujarat are examples—had less unemployment than those perceived to pursue pro-labour policies such as Kerala and West Bengal.

“Inter-state differences on labour force participation rate and/or unemployment rate also throw some surprises. Some of the states having pro-labour rights policies have not performed well in terms of unemployment rate,” underlined the report.

The findings come as a surprise given that the labour ministry had staunchly resisted the commerce and industry ministry’s proposal for more liberalized labour laws within the proposed National Manufacturing and Investment Zones—industrial enclaves that will be benchmarked against the best manufacturing hubs in the world.

The proposal was passed by the cabinet only after the labour ministry’s demand for government oversight of implementation of labour rights within the zones was accepted by the commerce ministry.

The new manufacturing policy aims to create 100 million jobs and increase the share of manufacturing in India’s gross domestic product to 25% by 2022, from 16% now.

Pravat Chaturvedi, a former labour secretary in the Union government, said the Labour Bureau survey’s findings suggested that merely following pro-labour policies wasn’t enough; the creation of employment opportunities was key.

“States like West Bengal may have good policies, but there is not much industrialization,” Chaturvedi said. “So the job creation and the working population are not proportionate.”

The unemployment rate in Bihar (8.3%) and West Bengal (7.8%) is more than double the national average of 3.8%. In states such as Kerala (9.9%) and Tripura (14.1%), it is even higher.

States such as Haryana and Himachal Pradesh have attracted industrial investment because of two reasons, Chaturvedi said. Either they offer locational and infrastructural advantages, or economic concessions such as tax breaks.

According to the survey, while Gujarat has an unemployment rate of just 1%, Himachal Pradesh and Haryana also have an unemployment rate lower than the national average, at 3.1% and 3.2%, respectively. It would appear that low unemployment is also correlated to economic growth, given that the three states are among India’s fastest growing.

The report seems to suggest the blind pursuit of industrialization, said Shibu Baby John, labour and rehabilitation minister in the Congress-led Kerala government. “Labour laws are exploited all across the country, even in Kerala. But the state is sensitive to labour issues,” he said.

On labour reforms, John said the state should first strive to change popular perception.

“There is an impression that the investment atmosphere is bad here due to political strikes, etc.,” he said. “But the fact is that the state has not lost a single man-day due to strikes during this year. Such perceptions have to be corrected. We have to convince the investors that we have a better investment climate.”

West Bengal labour minister Purnendu Bose accepted that the unemployment rate was high in the state, but laid the blame at the door of the Left Front that bowed out in May 2011 after a 34-year stint in power.

“They (Left Front) failed to frame any policy that will lead to job creation,” he said.

The current West Bengal government led by Trinamool Congress leader Mamata Banerjee is trying to focus on skill development to make workers more employable, Bose said. “We are also planning to tie up with a placement agency, launch an employment bank and a Web portal to create more opportunities for the unemployed youth,” he added.

Dola Sen, state president of the Indian National Trinamool Trade Union Congress, an affiliate of the ruling party, said that in the past 34 years, at least 56,000 small and big industries in West Bengal had closed down.

“The previous government stayed in power for over three decades, but was neither industry-friendly nor workers-friendly. It had no plan to create jobs. For example, in 2010, six million man-days were lost due to protests, lock-ups and other related reasons,” Sen said.

B.K. Roy, principal secretary labour (in-charge), Tripura, declined to comment.

To be sure, the Labour Bureau said its survey wasn’t intended to arrive at any findings on the trade-off or connection between pro-labour rights and pro-labour reform policies.

Pronab Sen, principal adviser to the Planning Commission, said aggregate employment in a state does not depend on the labour-friendly or labour-unfriendly nature of the state.

“It rather depends on the entrepreneur-friendly nature of the state,” he said.

Yet, labour experts and recruitment agencies say that such findings, coming as they do from a government body, reiterate the need for labour reforms to promote industrial growth.

“Both labour reform and job creation have a very good correlation, and these findings are perhaps referring towards this reality,” said Vipul Prakash, managing director of Gi Group (India), a staffing firm.

“I hope these findings will encourage authorities to rethink. You need a balance between the pro-industry and pro-labour thought process. By providing a conducive atmosphere to industries, you give more choices to your own labour force,” he added.

The country needs flexible labour laws to create large-scale employment, said E. Balaji, who heads human resource firm Randstad India.

“The labour-intensive manufacturing sector would look for a favourable (working) climate,” Balaji said. “Large-scale investment can create a lot of jobs, but for that there needs to be a conducive atmosphere. Mobilization and demobilization of workforce should be allowed.”

Prime Minister Manmohan Singh said on 14 February at the 44th Indian Labour Conference in New Delhi that rigidity in labour laws was hurting employment growth.

“Though our government remains committed to protecting the interests of our workers, we must periodically take a critical look whether our regulatory framework has some parts which unnecessarily hamper the growth of employment, enterprise and industry without really contributing significantly to labour welfare,” he said.

States that follow alternative strategies include Himachal Pradesh and Gujarat.

In Himachal Pradesh, for example, manufacturing units get 100% excise duty exemption, and in Gujarat, companies have an easy exit policy. Though these are financial measures, such actions encourage investors to invest, said Prakash of Gi Group.

When states support labour unions without thinking whether their actions are good or bad, it discourages industries and thus affects job creation, experts say.

When states allow the easy mobility of labour, it makes life easier for industries, said Rituparna Chakraborty, senior vice-president at Teamlease Services.

“First, we have to tackle the mass issue of job creation,” she said, adding that a state that has a focus on job creation and simplifies labour law compliance doesn’t mean it’s anti-labour. Gujarat is a good example, she said, and added, “It invites investors with a promise that it will take care of their needs while creating jobs for its citizens.”

The report was based on a household survey conducted for 2010-11. While the sample size for the 2010-11 survey was more than 128,000 households, the one used in the previous year was a little over 46,000. The 2009-10 survey covered 300 districts in 28 states and Union territories; the latest was conducted across the country.

While states can use the findings if they help, Labour Bureau director Bal Ram said the survey was not meant to be a report card for the various states.

prashant.n@livemint.com

Liz Mathew in New Delhi and Romita Dutta in Kolkata contributed to this story.