The divide on labour

Published : Sep 29, 2001 00:00 IST

NDA convener George Fernandes' attack on the Task Force's recommendations on labour reforms shows that the anti-labour proposals will face stiff opposition from within the ruling alliance itself.

GEORGE FERNANDES, the head of the panel appointed to formulate a code of conduct for the constituents of the National Democratic Alliance (NDA) and also the convener of the alliance, surprised everyone when he slammed the Bharatiya Janata Party-led government's labour reforms programme, at a seminar organised by the Swadeshi Jagran Manch (SJM) in New Delhi on September 5. The recommendations on labour reforms form part of the report of the Task Force on Employment Opportunities set up under the chairmanship of Planning Commission member Montek Singh Ahluwalia. The report, submitted on July 2, provides a blueprint for labour reforms, including the dilution of job security requirements and their substitution with higher retrenchment compensation. The 13-member Task Force was set up to suggest strategies for employment generation in order to achieve the target of providing employment opportunities to 10 crore people over the next 10 years.

In his attack on the government, Fernandes joined hands with the SJM, an affiliate of the Rashtriya Swayamsevak Sangh (RSS), to warn of "serious consequences" and "social unrest" if the problem of unemployment was not tackled immediately. Fernandes confined his criticism to the portions of the report that deal with labour reforms. Indeed, much of the criticism against the report that has been levelled on political platforms has remained confined to labour reforms. The deficiencies in the rest of the report remain unaddressed, except in academic circles.

The Task Force report can be criticised on at least four obvious counts. First, the report fails to indicate why economic reforms implemented over the past decade did not lead to employment growth. It fails to explain the deceleration in employment growth rates between 1983-84 and 1999-2000. Neither does it indicate why employment, at both aggregate and sectoral levels, did not pick up in the reform years. Compared to an overall average of 2.04 per cent before the reforms (that is, in 1983-84) the annual growth rate of labour was a mere 0.98 per cent in 1994-2000. Further, the sectors of agriculture, mining, quarrying and power have all shown negative growth rates. Growth has been low also in manufacturing, financial services and community, social and personal services when compared to the pre-reform years.

There is no explanation in the report for what could have led to such a situation. It merely states: "The low employment elasticity in the 1990s reflects the fact that employment growth decelerated in this period while GDP (Gross Domestic Product) growth accelerated." In this respect, the report was as disappointing as the Economic Survey 2000-01, which had bypassed a discussion on the trends in employment by stating: "Higher economic growth in the recent past, if it has been more capital-intensive, may have resulted in lower employment intensity. However, there is a reason to believe this may be more than compensated by new and expanded opportunities in the service sector, much of which would also be in unreported unorganised sector."

Secondly, the Task Force report states that new jobs will be possible in the services and manufacturing sectors. In services, the report stresses on job creation in travel and tourism, information technology, housing, real estate development and construction, besides social sectors such as health and education. However, in doing so, it sidesteps the issue of how the unemployed would be facilitated with a minimum level of education and training to get into specialised sectors such as IT.

Similarly, most of the rural poor would not be able to get into the services sectors except in areas such as construction and trading. In this context, it needs to be impressed upon the government that unless an increase in government investment takes place in infrastructure, construction-related jobs will dry up. The saturation of jobs would be a less-than-ideal scenario for the rural labour force, given the fact that in future the farm sector will move towards mechanisation for the sake of better productivity and this would lead to a gradual decrease in employment opportunities in rural areas. The Task Force has rightly recognised the need for a long-term strategy that will concentrate on absorbing the rural labour force in the non-agricultural sector. The government therefore needs to stress on creating adequate rural infrastructure.

Third, the Task Force has emphasised the need to generate jobs in the manufacturing sector. The report works on the assumption that employment in the manufacturing sector will rise from the current 48 million jobs to 53.6 million in 2007 when the GDP growth will be 6.5 per cent.

In other words, with a growth rate of 6.5 per cent, the report assumes that output and investment in manufacturing will grow accordingly. This is questionable. Investment has been slowing down with the capital stock in manufacturing plunging to 7 per cent in 1999-2000 from its earlier average rate of 14 per cent, which was apparent in the period from 1994-95 to 1998-99. Place this figure against the trend of rising labour productivity and higher capital intensity evident in the post-reform period, and the predictions fall flat.

Lastly, the report works on the assumption that employment cannot grow in the absence of economic growth. So, faster economic growth is necessary for faster labour growth and job generation. The larger part of the study is therefore confined to all that needs to be done to accelerate the annual GDP growth rate to the target of 8-9 per cent. In this context, the Task Force report does not read very different from the approach paper to the 10th Five-Year Plan.

IT can therefore be concluded that the government is clueless as to how to deal with the unemployment situation. However, it is in the area of labour reforms that the recommendations of the Task Force have met with maximum opposition. Fernandes condemned the recommendations as an extension of the World Bank's approach to employment.

With reference to the labour sector, the report aims to change three laws: the Industrial Disputes Act (1947), the Trade Unions Act (1926) and the Contract Labour (Abolition and Regulation) Act, 1970. Says the report: "Our assessment is that the existing labour laws and in particular the way they have been administered and implemented have this unintended effect of discouraging employers from investing and expanding in labour-intensive areas. This has made us uncompetitive in these areas in export markets, denying us the possibility of large expansion in organised sector employment."

In coming to this conclusion, the report has taken into account the inescapable reality that unlike in the late 1960s, when the public sector stepped in to absorb workers, from now on employment growth will be in the private sector. To facilitate this, the cost of labour needs to be made as low as possible. The organised sector of Indian industry pays a higher-than-warranted price for labour when it cannot adjust its labour force in response to varying market conditions.

Where the report has gone overboard is in making layoffs easy. It has simplified the procedure for this. It observes: "Section 11 A of the Industrial Disputes Act, which allows labour courts, industrial tribunals to interpose the state in matters that are best left to established internal processes."

In the matter of retrenchment, it goes even further than what Finance Minister Yashwant Sinha proposed in the last Budget. In the first instance, he had proposed an amendment to the Industrial Disputes Act to make Chapter V-B applicable only to units that employed more than 1,000 persons. The Task Force, however, goes one step further and says: "We would recommend a more radical step of deleting Chapter V-B from the Industrial Disputes Act completely and restoring the position prior to 1976."

Similarly, on the issue of severance package, while Yashwant Sinha spoke of a 45-day package for each year of service, the Task Force prescribes: "One month at least and possibly higher."

On strikes, the report observes that it would be desirable to introduce a system of "strike ballot" whereby strikes can be called only if it is supported by a qualifying majority of workers. A limitation period of three years is also suggested for filing disputes under the Industrial Disputes Act in order to discourage the piling up of old disputes, leading to delays in courts. The report also has a proposal to change trade union laws and check the "multiplicity of unions", which makes collective bargaining difficult and helps managements to pursue the divide-and-rule policy. The suggestion here is that the Act could be modified to specify that at least 10 per cent of the workers of an enterprise or 100 employees, whichever is fewer, are needed to form and register a union.

Given the scope of these labour-unfriendly contents, it was not surprising that the reform proposal brought unions with conflicting ideologies together in protest. Fernandes' outburst has its significance also in that it showed that the NDA allies did not endorse the BJP's perspective on labour issues. With the Left parties certain to organise full-scale opposition to defeat the proposed reforms, it is apparent that the NDA government will increasingly come under pressure regarding the recommendations of the Task Force report.

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