Missing Brics

BS OPINION

While many would agree with the Goldman Sachs analysis of the world's economic future belonging to Brazil, Russia, India and China (BRIC) "" in the sense that GDP in these countries would be larger than that of the G-6 countries in the next 40 years "" one of the missing components in the analysis as far as India is concerned, is the near absence of labour reforms.

Central to the BRIC analysis, indeed any analysis, is the likely growth of the organised manufacturing sector """" apart from being an engine of growth in itself, the manufacturing sector is capable of absorbing the large pools of semi-literates that characterises the Indian labour force.

And it is only when such job creation takes place that consumption levels can grow to the extent required for anything near 7 per cent annual GDP growth.

Yet, no matter which definition one takes of unemployment, the results show there has been very little change over the past few decades "" according to NSS data, the total share of manufacturing sector (both factory as well as non-factory sector) in total employment increased very modestly indeed in the last three decades, from 9.0 in 1972-73 to 11.1 in 1999-00.

And, within this, the share of employment in the factory segment has remained virtually constant at 17 per cent of total manufacturing employment.

It is, of course, true that there has been some improvement in the factory sector in the second half of the '90s, but this has taken place only with a slowing down of increases in real wage rates in comparison with the '80s.

Despite this, as Professor T.N. Srinivasan has pointed out, if you apply the observed elasticities of employment to the industrial growth numbers, employment growth in both the '80s and the '90s was way below the potential.

Combine this with the results of a World Bank-CII survey of individual units that found, last year, that the average Indian firm employs 17 per cent more people than it needs.

Organised industry is simply going to try and avoid hiring more people if there is no change in policy that allows the functioning of a flexible labour market.

It is precisely to deal with this reality that the government aired various reform proposals. A few years ago, Yashwant Sinha announced in the Budget that units which had fewer than 1,000 workers would be free to retrench them and if necessary shut down without the government's permission.

This was then watered down, and a new proposal spoke of the limit being units that hired 300 workers. A few weeks ago, various changes were proposed to the contract labour Act as well.

All this, however, has now come to nought, and a fresh group of ministers is reportedly being planned to study the matter.

With elections in the offing, and the sensitivity of organised labour being what it is, it's unlikely the group will meet with the same frequency as the group of ministers that deliberated on telecom, and that would be a pity.

Getting the country's labour policy right is in fact more important than getting the telecom one correct.