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When you swing hard, keep your mind focused on where you want the ball to go, or it may end up somewhere else—even into a fielder’s hands," is the rule that Virat Kohli seems to follow. It makes him a great batsman. It is a rule India’s policymakers must follow. Some economists and short-sighted businesspersons are taunting the government to get tough and change labour laws to make it easier for employers to fire their employees. This will not create more dignified and better paying livelihoods around the country, which should be the government’s goal. Hardline labour reformers insist employers need more flexibility or they will not employ more people. Their opponents concede the need for flexibility, but are adamant that workers must be treated fairly.

Many forces—economic, societal, and technological—are interacting to cause “jobless" growth in India. It would be wise to step out of the ideological cross-fire and dispassionately consider what policies will stimulate more employment. A systems’ analysis reveals that to create conditions for sustainable growth of incomes and jobs, the government should focus on the creation of effective social security systems (including life-long learning and re-skilling systems) rather than wasting its political capital on making it easier for employers to fire workers.

The inability to fire workers is highly exaggerated as a constraint on the growth of enterprises in India. All surveys of small enterprises in India, who are the largest generators of employment, have revealed that the principal constraints on their growth are obtaining finance, problems of dealing with bureaucracy, and access to markets. They must overcome these constraints and grow their enterprises before they hire more workers.

It is widely believed that there is a “missing middle" in India’s industrial structure: lots of small and tiny enterprises at the bottom and some good, large ones on the top, and too few in the middle. The reason, it is believed, is that tiny enterprises find it hard to cross some line in the middle, and so they remain small. Therefore, India is missing the boost needed for growth of industries and employment, which it could have if small enterprises could cross that line. Some suggest that this line—the Lakshmanrekha—is the limit beyond which industrial dispute laws apply. Therefore, a move has begun in some states to raise from 100 workers to 300 workers the line at which “hire and fire" laws will apply with the expectation that small firms will now hire more workers and employment will grow.

These changes in laws will have a marginal effect on growth of employment. A report to improve India’s employment data by NITI Aayog has a diagram of India’s industrial pyramid, which shows that there is indeed a “missing middle". A total of 69.5% of workers are employed by firms that employ fewer than five workers, and 21.2% by firms employing more than nine workers. But only 9.3% of workers are in firms with six to nine workers. Therefore, the crimp in the shape of the pyramid is when firms are very small, employing much less than 100 persons, where the industrial disputes act does not apply. They have other constraints on their growth, as mentioned before.

Large firms have been affected by India’s rigid labour laws. However, they have found ways to overcome them by hiring workers on contract. In fact, in many large companies, 50-70% of production workers are on contract. These firms hire more workers when their business grows, and let them go when business contracts. They have the flexibility they need. Therefore, if Indian manufacturing firms have not grown larger, labour laws have not been a major constraint. They have other constraints on growth. Workers and unions complain that employers have obtained the flexibility they want at the cost of fairness to workers. Contract workers are paid lower wages than regular workers doing the same work. Often, they are not even provided safety equipment. Moreover, while the flexibility provided by contract work enables employers to adjust costs, the workers have no social security to support their families when they are put out of work.

The effects of India’s “rigid" labour laws on growth of employment have been exaggerated. On the other hand, large weaknesses in social security systems for workers have not received the attention they should have. Treating human beings as merely resources for production, and treating markets for labour like any other market where suppliers must be beholden to buyers, may produce good economic contracts, but very bad social contracts. As societies evolve, they adopt better norms for social justice and fair treatment of all human beings. In India, fair treatment and social security for domestic workers, who have been at the mercy of employers in a market in which supply of workers desperate to earn something exceeds demand, are now becoming policy issues. Even in the “gig" market, of so-called “self-employed" workers and “contractors", that technology platforms like Uber have spawned, fair treatment of workers and social security have become contentious issues.

The Union government must focus on policies that will generate more dignified and sustainable livelihoods than the Indian economy is presently producing. The ideology of greater freedom for capital and investors is being confronted, globally, with demands for more fairness for all. Policies bashing the rights of workers and unions may have passed their “sell-by" dates. While ensuring employers have the flexibility they need, Indian laws ensuring fair treatment of all workers must be more effective than they are. Constraints on the formation and growth of small enterprises must be reduced. Overall, social security must be provided in various forms, by skilling and retraining, health insurance, pensions, and other means, to create the conditions required for more fairness with flexibility. That is the way to hit to make sure the ball will cross the boundary.

Arun Maira served in the erstwhile Planning Commission.

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