At the risk of labouring the point…

The next government must seize the opportunity provided by the economic downturn to revisit the pending reforms, especially of the labour market, says Mythili Bhusnurmath

Do big bang reforms in India happen only sporadically and that too only when we have our backs against the wall? Or do they take place hallu-hallu (slowly, slowly) as they say south of the Vindhyas, so that the incremental changes are scarcely perceived as ‘reform’ and as a result occasion much less opposition than if attempted in ‘one fell swoop’?

The answer is, a bit of both. If 1991 was big-bang reform necessitated by the dire straits the country was in, in many other areas such as currency convertibility, import tariffs, capital markets and foreign direct investment, reforms have progressed a little at a time and without much fanfare.

At the same time there are many areas, notably the labour market along with judiciary and public administration that have seen virtually no reform. Now at last, there are small signs of change, at least as far as the labour market is concerned. The recently concluded Indian Labour Conference held in the Capital against the backdrop of job losses — estimates range from half a million to many times that number — saw some welcome pragmatism from representatives of organised labour.

Fortunately, this comes at a time when the labour ministry is already engaged in framing a National Employment Policy (NEP). Yes, we’ve heard such talk in the past and nothing has changed on the ground. But what’s different this time is that both workers and trade unions now seem to acknowledge the inexorable reality of the market place. The very fact of large-scale job losses despite ‘protective’ labour laws has left them with little option.

More important, the new policy, whenever it is finalised, will be the outcome of a slow and tortuous process of consultation and dialogue with all stakeholders: trade union representatives, representatives of employers as well as government. Unlike earlier when they steadfastly opposed all talk of labour flexibility, trade unions now recognise their best interests will not be served by trying to protect job security at the cost of industrial sickness. But rather by ensuring labour is adequately compensated in case of layoffs.

This new-found pragmatism is best reflected in the maturity shown by R A Mittal, national secretary of the Hind Mazdoor Sabha, in the case of contract law. Here the bone of contention is the definition of ‘regular’ work (the present law lays down that contract labour should only be used for work that is not of a regular nature).

Speaking at a workshop organised by the labour ministry with the International Labour Organisation about court rulings on contract labour, Mittal went so far as to say: “Given the court’s stance there is no option but to accept contract labour as a reality and work towards empowering workers. If a contract labourer is made to do regular work he must be provided with benefits on par with regular workers… The law is now redundant as far as the ban on contract labour is concerned but it is still valid in the social security benefits it seeks for contract labour.”

This is a huge shift in mindset. The government must now build on it by speedily putting in place the necessary support structure: a proper social safety net, ideally some kind of unemployment insurance, funded by contributions only from employees in case of those in the higher income brackets and supplemented by contributions from government for employees in the lower income brackets.

The draft policy, put up on the labour ministry’s website speaks of “the need to modify such provisions of the law that render adjustment of workforce inflexible, and thus adversely affect efficiency of production on the one hand and employers’ willingness to employ more workers on the other, with due regard to the reasonable compensation to the affected workers.” At the same time it recognises the need to ensure a minimum measure of social security on a statutory basis to hitherto unprotected workers.

A year ago when the Indian economy was growing at close to 9%, one could still hope that the reversal in employment trends between the late 1990s (when employment grew only 0.98% during 1993-94 to 1999-2000) and the early years of this century (when employment grew 2.6% during the period to 2004-5) might allow us the political luxury of putting labour reform on the back burner.

But the situation has changed dramatically since then. The economic slowdown will throw thousands out of employment. Add the usual addition to the labour force — about 10 million a year — and we have a potentially dangerous situation on our hands, with ramifications that go well beyond livelihood concerns.

This is where the shift in focus in the NEP, from the traditional preoccupation with job ‘security’ to efforts to accelerate the growth of formal employment and improve the quality and productivity of jobs in the informal sector is particularly welcome. The policy recognises the need to look beyond organised labour (accounting for less than 10% of the country’s labour force) and calls for labour market policies to be integrated into all our macroeconomic policies.

This is not as difficult as might seem. In the present context government could provide a direct boost to employment by calibrating fiscal incentives to employment outcomes, making credit more readily available to small and micro enterprises, linking concessions to special economic zones and approvals for foreign direct investment to employment outcomes and last, but not least, laying equal emphasis on skill development so that the quality as well as quantity of employment improves.

The last time we faced a crisis of this magnitude, we went in for radical reform, dismantling the licence-permit raj. This time around we must use the crisis to push the envelope further in areas that have so far been untouched by reform. The present crisis has graphically brought home the harsh reality of job losses in a globalised environment where countries can no longer insulate themselves from boom and bust cycles, even when these have their origin elsewhere.

“You never want a serious crisis to go to waste. What I mean by that is that it’s an opportunity to do things that you think you could not do before,” said Rahm Emanuel, White House chief of staff to President Barack Obama. Will the next government rise to the challenge? It must if India is to deliver on the promise of truly inclusive growth.