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Home / Opinion / Columns /  India’s labour and farm reforms should be just a start

Summoned to New Delhi in 1964 after Prime Minister Lal Bahadur Shastri declared he wanted national milk cooperatives along the lines of what had been accomplished in Anand, Gujarat, Verghese Kurien found himself up against bureaucrats protecting their turf and insisting that a national dairy board be headquartered in the capital. Kurien stormed out of a meeting with the agriculture minister.

The incident is a reminder that setting up 10,000 farm producer groups, as the Narendra Modi government proposes to do in the wake of the abolition of agricultural procurement monopolies, may prove to be easier legislated than done. Still, decades on, Gujarat Cooperative Milk Marketing Federation (Amul) and the dairy industry are templates for what could be accomplished if producers’ cooperatives are well run and built from the ground up. R.S. Sodhi, managing director of GCMMF, points out that revenues from milk sales in India are more than wheat, paddy and sugarcane combined; producers’ income growth far outstrips that in agriculture. “Few people know this, but there is no [minimum support price] in poultry or milk, no power subsidy, nor is animal husbandry tax exempt," Sodhi told me.

The recent legislation of labour and agriculture reforms may prove to be the most significant by the Modi government, but their implementation will be critical. The government passed an over-complicated goods and services tax and then rushed ahead with an overly ambitious start date in July 2017 before firms and indeed the government were ready. Given that industry was substantially de-licensed from 1991 onwards, agricultural reforms were long overdue. Raising productivity on farms and allowing firms to grow larger by removing restrictive labour laws were important and well sequenced parts of China’s liberalization decades ago. Historian Frank Dikotter points out that agricultural reform in China was, in fact, led by peasants and farmers in the late 70s after the chaos of Mao Zedong’s Cultural Revolution. Collectivization was abandoned and small farmers started selling their surplus. “They subverted the planned economy and hollowed out the party’s ideology," Dikotter writes. In an economic if not political sense, “they buried Maoism."

From 1980, Deng Xiaoping set up special economic zones (SEZs), starting with Shenzhen, where town and village enterprises operated as private factories would, and in Fujian. Huge investments flowed into Guangdong, China’s most industrialized province just across the border from Hong Kong, from the Chinese diaspora in Hong Kong and Taiwan, which had the knowhow and know-who to sell labour-intensive products to the West. In 2019, Guangdong’s exports were $444 billion, comfortably ahead of India’s total manufactured exports. As Guangdong and other parts of China saw labour costs rise by double-digits through much of the past decade, labour-intensive factories migrated to Vietnam and Bangladesh, whose garment exports are now twice those of India’s. These countries have broadly followed the China model; labour laws allowed companies to build large factories and gain economies of scale, and the workforce participation of women was similar to China’s in places such as Vietnam, among the world’s highest at 73%. By contrast, India’s is 20%, currently one of the lowest globally and declining. When I was a journalist in southern China between 2010 and 2013, I was told by factory owners that women were much better workers than men. Their role in the workforce, much higher East Asian agricultural productivity, and the advantage of global networks that Taiwanese, Hong Kong and Korean businessmen gave East Asian economies are all under-appreciated foundations of their development story.

Firm size also matters in raising industrial productivity. India’s restriction on hiring and firing workers without first seeking government permission—hitherto limited to companies with less than 100 workers and now raised to 300—and a host of other compliance issues have handicapped the country’s industry for decades. A recent McKinsey & Co report found that not only did large companies in India play a much smaller role in the country’s economy, but also their “productivity levels were on average one-tenth to one-quarter those of (their) peers" in other “outperformer" economies. Arguably, India’s labour code changes are already decades too late.

Nonetheless, large companies such as Apple and many others are looking to diversify and move some production out of China as tensions with the US, India and Taiwan continue unabated. India would gain by being less like Communist China and by burnishing its reputation as a democracy and an open economy to forge military and trade alliances . Sadly, challenging the Vodafone arbitration and events such as the closure of Amnesty International’s office in India this week, after it said it had suffered “reprisals" by the Indian government for reports on Kashmir of human rights abuses and the patently biased police investigation of the Delhi riots earlier this year, send all the wrong signals. These are very likely to figure in legislative hearings and shareholder meetings, just as pressure on Apple to improve labour conditions at factories making its products in China surfaced repeatedly a decade ago until it was forced to act. More than ever, we need mavericks in business and public administration to speak truth to power, as Kurien did.

Rahul Jacob is a Mint columnist and a former Financial Times foreign correspondent.

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