Wherever you go, you see huge lot of people mostly young without any useful engagement. Perhaps this is the biggest visible difference one finds between India and the developed countries. India’s burgeoning labour force is already over 400 million and expected to rise above 650 million by 2020. So the importance of growth with maximum possible employment is obvious…and critical.

In last six to eight years, most of the big and medium size companies of the country have not increased its employment rather for increasing its productivity to competitive level, it has downsized or right sized whatever you may like to call. “Between 1995-96 and 2002-03, about one million jobs were lost in organised manufacturing (shown by employment data of Annual Survey of Industries, CSO). In the next three years, despite rapid industrial growth, employment did not increase. In fact, there was a marginal fall in employment by about one per cent.”

Other clear indicators of lack of employment growth are also there. In many industries, growth of sales in recent years never showed a significant increase in wages and salaries, indicating thereby that employment has not grown. Sales of tyres and tubes companies increased by 28 per cent between 2001-02 and 2004-05, but wages and salaries grew by only 9 per cent in this period. A similar pattern is observed for ball bearings, cement, polymers, dyes and pigments, and synthetic yarn, to name a few. In prime movers sector, for example, sales grew from Rs 10,044 crore in 2000-01 to Rs 17,537 crore in 2004-05, while the payment of wages and salaries came down from Rs 2,465 crore to Rs 2,060 crore in this period.

In a recent interview published in India Management Magazine, Ratan Tata confessed: ‘Tata steel brought down its manpower from 78,000 to 48,000, while Tata Motors could bring it down from 40,000 to 19,000.’ Even Maruti Motors cut down strength. With automation, productivity, and incentive, the production level increased. With the present labour laws, any company is very much scared to add manpower. Instead it goes for outsourcing many of the activities or employ casual or contract labour, or even invest in automation.

How can the company put in more manpower if needed without fear? With certain amount of flexibility in labor laws, it will be possible. Globally, trend today is for employing temporary workers. Even many in the younger generation workers in IT sector prefer to work as ‘temp’ and enjoy it better than a single employer. However, with huge number of unemployed mass in India, the system may not still be popular.
As the union representatives present, the changes in labour laws are not only for institutionalize ‘hire and fire’. Every workman must have certain rights particularly the right to present his justified grievances and get that sorted out, but the same workman can’t stand protected all the time for all the misdemeanours causing losses to the company on very unreasonable pretexts of the labour laws.

The irrational labour laws suit in “protecting” the 7 per cent of workers in the organised sector (including government), and this group gets the patronization of all sorts, particularly of politicians and trade unionists. They are hell bent for not allowing any reform in labour laws with the support of left parties and unionists. Perhaps Indian industry can’t create sufficient employment without the necessary changes in labour laws. It will try to solve this problem only through smaller but globally uneconomical units. SEZs may be a solution but who knows with increasing clout of leftists whether it will be possible to make labour laws flexible in these zones.

The new rural employment guarantee programme may be the voters’ scheme, but it can’t create sustainable employment and solve the unemployment in the country effectively. As Mr. Acharya, the economist, says, “The new rural employment guarantee programme is only a “make work” scheme (not real job creation), which suffers from serious design flaws. It’s better suited for conferring political patronage (and corruption) than job creation.”

Manufacturing must expand significantly to create jobs in villages, towns, suburb of metros, and SEZs. Manufacturing must go beyond handicrafts to cover all sectors that can be independently carried out by the entrepreneurial families with electricity, road, and telecommunication facilities easily available to all including those in rural areas.

Our industrial houses must take the lead in developing more and more entrepreneurial families. With big business houses such as Tata, Birla, and Reliance joining the retail sector in big way, can we hope that instead of following the easier way of importing all the cheaply manufactured goods from China and other countries on pattern of Wal-Mart, these houses will try to develop local manufacturing sources that can create a huge employment?

While the potential of increasing business in IT, ITeS, BPO, R&D can provide employment to properly educated categories on sustainable basis, if India can maintain its competitive advantages, it can be only the unprecedented growth in manufacturing and agriculture that can help creating the employment critical for the alleviation of poverty significantly.

PS Read A leftist’s views: Real or virtual reality? by Sitaram Yechury