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The growth of manufacturing sector in the country would be possible with the combined work of several factors together, including the changes in the labour rules, said Subir Gokarn, director of research for Brookings India and former Deputy Governor of the Reserve Bank of India.
Delivering a speech in conference on manufacturing organised by the Madras Institute of Development Studies and The British Northern Universities India Forum, he said, "There is no one thing we can do which suddenly move us from 16 cent manufacturing to 25 per cent manufacturing. A whole bunch of things has to come together."
He said that one of the factors which have influence on the overall manufacturing sector is the existing labour rules, especially with relation to the safety net of workers.
As per the existing Industrial Disputes Act, the employer has to bear the cost of unemployment insurance, by requiring which the employer continues to keep the worker on his roles even though the business condition may not warrant. It is not a viable safety net if the government does not allow the industry to fire the worker even though there is a business case for it.
"A viable safety net is that you have three contributors to the safety net. You have the employer contribution, the employee contribution through provident fund and the government contribution. We have to move from safety net funded by the employer to the safety net funded by a combination of the three," he said.
Some amendments of the various Acts by the Rajasthan government is in this direction, though it does not solve the problem. The Rajasthan amendments take the onus away from the employer by allowing them to fire workers when business conditions so warrant. "But we aren't seeing yet an attempt to bring a viable safety net into the picture. Once that is in place, it would help to bring down the labour costs considerably," he said.
He added that the best example for growth through allowing manufacturing to grow could be seen in the use of Special Economic Zones in Malaysia and China. By putting them into the SEZs, these countries insulated the manufacturers from the issues the industry has to face in other parts of the country, he said.
He added that in order to sustainable manage the effective exchange rate, it is better to keep the inflation rate as low as possible, and than keeping the exchange rate undervalued, which will have an impact on the micro economic side including higher inflation.
"My view is that the best way to sustainably manage your effective exchange rate in a competitive environment is to keep our inflation rate as low as possible," he said.
He added that another major issue to address would be the skilling problem. More than skilling, the challenge in future would be on re-skilling. Obsolescence is a fundamental factor in manufacturing and the emergence of new technologies demand continuous re-skilling of workers, he said.
