TCA Srinivasa-Raghavan: The tsunami of unemployment

OKONOMOS

Chapter 5B of the Industrial Disputes Act is fine, and it is hard to argue for changing it without admitting that one is for hire-and-fire at will.

India's population is over one billion now. Of this, on a conservative estimate, the number of people offering to be employed is around 400 million.

Actual employment, however, if you stretch it a bit, as ordinarily understood, is perhaps about a quarter of that or 100 million. Chances are that a lot fewer people are employed on a full-time basis. The rest just eke it out doing this and that.

So employment is a huge problem and, no matter what we do, it is going become huger. In a recent lecture* at the V V Giri Institute, C Rangarajan talked about the problem.

As befits a chairman of the prime minister's economic advisory council, he was cautious not to mention any absolute figures. But even so, his conclusion is grim. "The growth rate of employment has lagged behind the growth rate of labour force."

What can we do? Everyone thought that reforms "" meaning getting the government out of business "" would help because the more efficient private sector investment would create more jobs.

But that has not happened. In fact, as Rangarajan affirms, "the rate of growth of employment has declined in the 1990s."

The Communists blame this on reforms. But there are others who think this was because India has reformed too slowly. Yet others think that now that many things that affect investment have been sorted out and investment is increasing once again, more jobs will be created.

Rangarajan belongs to the latter category. "The most potent force," he says, "is growth. Estimates show that with a sustained growth of 9 per cent per annum, by 2012, unemployment will be totally eliminated."

I am not sure. Nine per cent growth between now and 2012 is an awful lot of growth. I don't think our politics will permit the sort of reforms that would result in such high growth.

For instance, labour reforms. These will have to be done in homeopathic doses and that surely means longer than the six years between now and 2012.

Not just that. Although Rangarajan was bold enough to mention labour reforms at the Giri Institute, he did not specify what sort of reforms except to mention the Contract Labour Act and Chapter 5B of the Industrial Disputes Act.

I don't know anything about the Contract Labour Act, except that it tries to be fair, and in the process, some honest employers get penalised. But I do know that Chapter 5B is pretty much all right, and further that it is going to be very hard to argue for changing it without admitting that you are for hire-and-fire at will.

In any case as Rangarajan himself points out, "it must be noted that the labour rigidity effect of this Chapter has implications for only 2.5 per cent of the work force and 10 per cent of the industrial establishments." What's the fuss then?

But Rangarajan, along with almost everyone else who talks about this aspect, is wrong when he says that the chapter does not allow firms to close down without prior permission. This part has been amended, and if the permission is not forthcoming within 60 days, the firm is free to shut shop. I quote the relevant provision of the Industrial Disputes Act below so that this confusion can end for good.

"25(O) (3) Where an application has been made under sub-section (1) and the appropriate government does not communicate the order granting or refusing to grant permission to the employer within a period of sixty days from the date on which such application is made, the permission applied for shall be deemed to have been granted on the expiration of the said period of sixty days."

Rangarajan has done well, however, to focus on the supply side as well. We may have lots of people wanting to be employed but do they have the skills needed?

"There must be constant efforts to identify gaps in skills and to provide training to make available the skills that are in short supply."

Or, and we had better look out, they will all end up either in government or Parliament.

*Employment and growth, Dr C Rangarajan, V V Giri Memorial Lecture