Notes on Articles
1. Centre and state government policies and incentives towards businesses
— 1a) Atmanirbhar Bharat policies to make in India for export & domestic needs, like PLI scheme for bringing economies of scale, attracting foreign firms and building supply chains for products and components; and China plus one [Apple smartphones]
— 1b) Atmanirbhar Bharat policies to push Indian producers (incl PSUs) to enter hereto underserved sectors, and signifantly reduce or eliminate import dependence eg. energy [biofuels, solar], defence [buy-Indian make-Indian, import ban list], engineering [metro trains, fast trainsets, forged rail wheels, TBMs], specialist steels [RPS: h/s plates, SAIL: naval], technology [railways signalling, 4G/ 5G, drones], chemicals [nano-urea], pharma [active ingredients, vaccines], healthcare [PPE kits], textiles [extreme cold weather uniforms], consumer goods [toys, bamboo incense sticks]...
— 1c) Financial incentives [eg. lower corporate taxes, start-up policy, state incentives]
— 1d) Complete industry ecosystem incl. Specialist cluster developments like textile parks [farm, fibre, fabric, fashion, foreign], food-processing value chains [cold chains, contracted farmers/ FPO, farm equipment hire, specialist processing units, kisan rail, downstream retail]; fisheries holistic development [eg. mariculture, deep-sea fishing, inland cage fisheries] along with infrastructure upgrade; quality tourism [new attractions, restorations, events & exhibitions, conference halls, air transport, fast & safe transport, securuty, cleaniless & quality public amenities, modern telecom, digital banking, online reservations, visa-free & e-visas, etc]
— 1e) Logistics upgrades incl. Economic corridors with supply of efficient logistics and utilities infrastructure; multi-modal logistics parks; new UDAN air routes to Tier 2 cities; new expressways, upgrades to NH/SH, new tunnels/ flyovers & bridges, railways & waterways; national infrastructure pipeline; and holistic/ multimodal infra planning [Gati shakti masterplan]
— 1f) Power, fuel, telecoms & water availability eg. — POWER: Much higher power generation, using mostly low-cost indigenous fuel; low-cost grid solar & wind power along with PSP & battery storage, subsidies for roof-top solar; massive transmission lines expansion, single national power grid, use of efficient HVDC and substations upgrades; underground power cables in vulnerable locations; universal household power connections; — FUEL: Interstate gas pipelines, city gas distribution, CNG stations, biofuels, green hydrogen; flex engine autos; EV infra & low-cost production; — TELECOM: very low cost data, 4G/ 5G; fibre connection to every village, FTTH, Wifi to remote location, satellite telecom, undersea OFC to A&N islands; — WATER: Major dam projects & distribution projects like lift irrigation, dam restorations, new water bodies and massive expansion of hyper-local water storage; water conservation via micro-irrigation, sewage water cleansing, industrial water recycling, desalination; universal household water connections.
— 1g) Technology infusion [eg. Industry 4.0, UPI, JAM Yojana, eNAM, GeM, Open Network for Digital Commerce, Digital Rupee, FASTag, single window clearances, Smart Cities Mission, drone mapping & distribution, satellite positioning & tracking, face recognition cameras, (rural) telecom & internet mass access, work from home, paperless office, cloud storage & blockchain, big data & data analytics]
ONDC & eNAM are critical parts of Digital India that will drive fast, inclusive growth.Business standard: "Open Network Digital Commerce has already onboarded 9 platforms and is in advanced talks with another 17 platforms".
— 1h) Ease of doing business [Business Reforms Action Plan]
— 1i) Education and skilling [numbers growth, IITs & AIIMS, industry-specific universities, industry-led skilling institutes, higher quality & research orientation, govt-industry-academia-skills collaborations, innovation in high schools (eg. Atal Tinkering Labs (ATL) as part of Atal Innovation Mission), a big climb in Global Innovation indices]
— 1j) Foreign policy, trade policy, FTAs and WTO, incl. lines of credit, trade & defence attachés, transit routes like INSTC & Indo-Bangla rail & waterways, GOI-aided foreign projects [small like road, hospital], Japan-India-US JVs in Africa / Indo-pacific [large projects]
2. Labour reforms
— 2a) States eg. Raj, TN and AP are getting promising results from labour reforms. Signs of successful labour reforms are higher total employment, more non-agricultural/ salaried jobs and lower percentage of casual/ self-employed jobs; higher wages and social protection; more factories, esp those with 300+ employees; higher total factory output and output per factory; faster growth and higher productivity; firms with better economy of scale operations, competitively priced products and/or niche products with better margins; firms that can meet project timelines and recruit skilled workers as required.
— 2a) Labour laws based on worker number thresholds wrt retraction/ employee dismissals, contract law provisions, etc. were relaxed, so firms can grow larger before stricter rules apply [State labour reforms, MSME definition]
— 2b) Fixed employment contracts in labour-intensive or seasonal sectors, and for time-bound projects
— 2c) Ease of running businesses by reducing compliances/ licences/ regulations: faceless interactions, transparent inspection process [Shram Suvidha portal], self-certification, single-window platforms, codified or simplified labour laws
— 2d) Improved benefits enjoyed by formalised workers and organised sector [eg social security, access to credit], plus disincentives for unorganised sector [eg. GST].
Labour reforms and the rise of jobs link
States that deregulated their labour markets have seen a positive impact on overall growth and formal employment
Over the last eight years, the Union government under Modi has worked for creating employment in the formal and informal sectors, with job-creating schemes such as MUDRA Yojana, Svanidhi Yojana, Garib Kalyan Rozgar Abhiyaan and MGNREGA 2.0. In June 2022, Modi announced a mission to recruit 10 lakh people over 1.5 years across various government departments and ministries. It will not only create employment but also strengthen the Atmanirbhar Bharat policy, of making India a global powerhouse by tapping its full potential.
While employment opportunities have been created to keep India’s growth momentum going, efforts are on to ensure the growth is human-centric; and so the government decided to address the long pending demand for labour reforms.
The subject of India’s labour market reforms has acquired new vigour and significance as many States have undertaken substantive legislative and administrative reforms in their respective labour and industrial relations arena. The objectives of these reforms, as envisioned by PM Modi, have been to progressively deregulate the labour market as it is widely perceived that India’s labour regulatory framework has been rigid and hindered the growth of output, investment and employment expansion. From workers’ perspective, the reforms were meant to improve ‘ease of living’ and to reap the demographic dividend by promoting inclusive growth and social protection coverage.
Some of the legislative reforms undertaken by a few States in the last few years include increase in the threshold of workers from 100 to 300 under the Industrial Disputes Act, 1947; from 10 to 20 workers (with power) and 20 to 40 (without power) under the Factories Act, 1948; from 20 to 50 workers under the Contract Labour (Regulation and Abolition) Act, 1970, and introduction of Fixed Term Employment (as widely prevalent in many developed and emerging economies) in sectors like textile and apparel, etc.
Similarly, to ease the administrative regulations and delays, single-window clearance, self-certification of compliance by enterprises, online filing for Registration and Returns, transparent inspection system, etc., have also been undertaken by some States.
The topic of labour reform measures, especially the legislative ones aimed at promoting flexibility, has often been a subject of discussion. The researchers supporting reforms say the existing labour regulations are complex, cumbersome and restrain enterprises from successfully operating in a competitive business environment. The Economic Survey (2018-19), which studied the impact of labour reforms undertaken by Rajasthan, showed that the post-reform period saw higher growth rate in the number of factories employing more than 100 employees, increase in the average number of workers per factory, increase in the total output and output per factory, and increase in the total wages and wages per factory, increase in compound annual growth rate (CAGR) compared to the pre-reform years. Some, however, doubt the rationale of the labour reforms and question the methodology and findings of such studies and reform outcomes.
FINDINGS OF STUDY
A study by the VV Giri National Labour Institute recently to understand the effect of labour reforms undertaken by some States on economic and labour market parameters — based on secondary household datasets of NSSO-EUS and PLFS and annual enterprise survey of ASI — showed that regulation of labour markets have had a positive impact on the overall growth and employment. Some of the key findings are as follows:
There has been a shift in employment pattern from the traditional agricultural and allied sector to the more lucrative services sector including construction. This has significant implications in improving the wages and income of the workers through formalisation, apart from enhancing enterprise productivity and competitiveness. The shift towards regular salaried work in the non-agricultural sector has been observed with an increase of 31.5 million between 2011-12 and 2018-19 compared with 19.22 million between 2004-05 and 2011-12.
On the organised manufacturing front, the employment increased at a faster pace (1.7 million) in the post-reform period (between 2014-15 and 2017-18) compared to the pre-reform period (between 2010-11 and 2014-15), where it increased by one million.
The average plant size in the organised manufacturing sector has increased over time. In the case of some States like Rajasthan, Tamil Nadu and Andhra Pradesh, the increase in the share of employment in the plant size comprising 300 or more employees during 2010-11 to 2017-18 has been more than the national average of 5.2 per cent.
The increase in Rajasthan has been a significant 10.3 per cent from 40.9 per cent in 2010-11 to 51.2 per cent in 2017-18, followed by Tamil Nadu (8 percentage point increase) and Andhra Pradesh (7.1 percentage point increase).
As of 2017-18, over 50 per cent of the employment in the manufacturing sector in all the States was in plants with 300 or more employees. This indicates that the firms are moving towards achieving economies of scale, thus making the enterprises and products competitive. Some States like Rajasthan, Tamil Nadu and Andhra Pradesh have attracted a significant number of new firms after the reforms.
Between 2004-05 and 2018-19, the total number of self-employed declined by 8.6 million and casual workers, by 14.8 million. Over the same period, the total number of regular wage salaried workers increased by 50.3 million. Out of the 50.3 million, 32 million increase happened during 2011-12 to 2018-19. This increase in the regular salaried work, which is considered a better form of employment, as it offers a stable income — both in absolute and relative terms — apart from access to some of the social security benefits, can be seen as a positive development.
The four big employers associations — Assocham, CII, FICCI and PHDCCI — reported that manufacturing and its various sub-sectors like garments, apparel, logistics, electronics, food and beverages, machinery and equipment metal products benefited the most from the reform measures related to increase in thresholds under IDA and FA including the plantation and construction sectors.
They also said that the introduction of Fixed Term Employment has led to the creation of new employment opportunities and formalisation of the workforce, thus negating the popular narrative that its introduction will result in more informality. The industry also feels that FTE has improved productivity, competitiveness and sustainability of enterprises by attracting niche skills for the required time period thus enabling them to complete even the stalled projects, with strict timelines and budget
The industry says that the self-certification scheme has led to increased trust between the employers and labour administration/government machinery. The introduction of the Shram Suvidha portal of transparent inspection system, reducing the human biases/interference and the online filing of registration, licence and returns, has been hailed by the industry associations.
This proves that reforms in the labour legislative and administrative architecture can have significant positive impact on growth of enterprises and the welfare of workers in the country.
To bring about labour reforms which will benefit both the workers and the employers, the Ministry of Labour and Employment had successfully undertaken the task of simplifying, rationalising and amalgamating the existing 29 labour laws into four Codes — the Code on Wages, 2019; the Code on Industrial Relations, 2020; the Code on Occupational Safety, Health and Working Conditions, 2020 and the Code on Social Security, 2020 — after extensive consultations with all stakeholders and social partners.
The related rules have also been published and circulated to the States to undertake a similar exercise. Implementation of the labour codes and rules has the potential to accelerate India’s journey to lead the world’s strongest economies. It promises to provide the new and old workers of India a safe, secure and enabling work environment.
The writer is Union Minister for Labour & Employment; and Environment, Forest and Climate Change
India’s manufacturing dream gets a second life link
The global manufacturing shifted from West to East in the early 1990s. India was just about beginning to liberalise its economy and was not ready to take advantage of the shift. China, on the other hand, had opened up its economy earlier and was well primed to grab this opportunity.
It did so in the best possible manner and in less than a decade, it became the manufacturing hub for the world. In 2019, per UN Statistical Division data, it accounted for as much as 28.7 per cent of the total manufacturing output globally (in value terms $4 trillion). India was ranked fifth behind the US, Japan and Germany with a 3.1 per cent share. As India embraced reforms in 1991 and opened up its economy progressively, its industry became efficient and gained competitiveness. Exports of manufactured goods increased gradually and by turn of the century, the ambition of India becoming a manufacturing power house was rekindled. The ground reality, however, was not conducive.
China’s dominance
By then China, through its massive scale, low labour costs, robust supply chain and far superior infrastructure, was delivering goods at a cost that was unimaginable for Indian manufacturers to match. Toys, for instance, are a good example. The landed cost of toys from China was lower than the raw material cost that goes into producing them in India. The idea of India becoming the next China remained on paper and a section of policy-makers could never really overcome the fact that the country missed the manufacturing bus in the 1990s.
Two recent developments have given India’s manufacturing aspiration a leg up or ‘a second life’, if you will. First is the changing profile of the US-China relationship from ‘co-operating rivals’ to ‘competing rivals’. This triggered a trade war and exposed the excessive dependence of American companies on China for their manufacturing needs. The need to de-risk became real and urgent for them. This gave birth to what is now called ‘China+1’ strategy. Global brands are scouting for alternative locations to manufacture their goods and reduce their dependence on China.
The second development is the Russia-Ukraine war and the ensuing geopolitics that is causing a new global economic order to emerge. Experts predict at least two distinct trade blocs — one comprising Russia and China, and the other with the US, Europe and like-minded nations.
Growing bilateralism
Globalisation, as it existed a few years ago, appears dead. The World Trade Organisation, despite the recent agreement at the 12th Ministerial, is weak and it is a season for bilateral trade deals. This means that Western companies may not be able to access the most cost-effective goods and will have to settle for those produced in friendly countries that value human rights, nature and dignity of labour. Both developments present India with a great opportunity in manufacturing. Should the nation go for it? The answer is not an unequivocal yes.
The global economy has evolved a lot in the last 30 years. Today, the per capita spend on manufactured goods is declining, especially in the rich world. People there are spending more on services. Experts say that as countries get richer it is normal for consumers to spend more on services than manufactured products. This is also the reason why many companies pivot from manufacturing just products to offering services as a package along with the product. The choice before India is whether to cater to middle-income countries’ demand for manufactured products or go along with the wave and offer services to richer nations.
When the eastern neighbour started its manufacturing journey, it built huge factories (that delivered massive economies of scale) coupled with large ports, airports and road network (which lowered logistics costs and accelerated the evacuation of manufactured goods) without having to worry about issues of land acquisition, public hearing, political and other opposition. Its autocratic one-party rule made all this possible and more. Labour availability was taken care through its unique ‘Hokou System’ and in the 1990s, there were no minimum wages and law against child labour. Poor safety norms and lack of compliance lowered the cost of labour significantly. Pollution norms were lax, large-scale government subsidies supported local industries and exports were kept competitive through currency practices that depressed the value of Yuan. None of these would be possible in India today.
China also used the time to build a very strong supply chain that makes available raw materials, intermediate goods and finished goods at globally competitive rates locally.
India’s priority
Also, India’s economic philosophy should be in line with what it wants to achieve. Its immediate priority is to create jobs for millions of youngsters who are coming out of colleges. If that is the case, a services-led growth will be preferable as it will create far more jobs than manufacturing which is increasingly embracing automation. With Industry 4.0, pace of automation will rise further and need for jobs will fall.
That apart, it is a fallacy to assume that the world will completely move away from China. Consider this: it accounts for almost 60 per cent of US companies’ needs. To re-create that capacity elsewhere will require huge capital. Through China+1, Western companies can at best look for incremental capacities in other countries. What can also not be ignored is China’s huge cost advantage. As a result, many say that West can never fully dis-engage from China.
That does not mean that India should give up its focus on manufacturing. Its domestic market is huge and will continue to grow strongly for another three decades or more. Its attempt to develop self-sufficiency through ‘productivity-linked incentive schemes’ is the right step forward. It can also be a global manufacturing base in select sectors such as auto components, textiles and leather where it has a strong domestic market, access to complete value chain and a good export presence. Thus, a nuanced strategy with respect to manufacturing will work better than a wholesale approach.
