Code red

India may have become the most populous country in the world, but the rate of population growth is slowing down. It is 0.8% now. This is, of course, an estimate. Census 2021 has been delayed. That may partly explain why this slowing down has not registered.

Many people still seem to think that rate of population growth is 1.5%, if not higher. That delayed recognition is also responsible for perceptions about how many jobs India needs to create every year. When one encounters figures like 10 million or 12 million, one often doesn’t realise these are dated figures, such as from the former Planning Commission, circa 2003-04. That is when working groups and task forces were set up to target such employment generation.

Twenty years after, the musketeers may change, but perceptions have a longer shelf-life. This is a point Surjit Bhalla has made repeatedly, in several columns.

Also read: Pivoting jobs outlook

How many jobs need to be created annually? The answer depends on time-line, assumptions about future fertility and takes on work participation rates. A rough range might be 5-8 million. How many jobs are actually created every year? Data problems get in the way of a coherent answer. If the economy grows at 6.5%, unless labour productivity increases at 6.5% (and no one will believe that), there must be employment growth.

Having granted that, there are legitimate concerns about (1) not enough jobs; (2) quality of jobs being created, rather than quantity; and (3) voluntary opting out of the labour force (both males and females, and not entirely explained by higher enrolment rates in higher education).

Having granted that employment is inadequately measured in an informal economy, employment elasticity of growth ought to be higher. With India’s vaunted demographic dividend, why isn’t employment elasticity higher? Of course, composition of growth matters and employment elasticity varies across sectors. Logically, it will be considerably higher in construction than in manufacturing. Modern manufacturing can be technology- and capital-intensive, though indirect employment generation through manufacturing is several multiples of direct employment generation.)

There are several reasons behind undesirably high capital intensity of production (leaving aside agriculture). Stated simply, to the extent capital and labour are substitutes (they are never perfect substitutes), the choice depends on relative prices. In a relatively labour-surplus economy, labour costs should be lower and labour costs do not mean wage costs alone. (There are also skill and productivity issues too.)

The argument about rigid labour laws in the organised sector driving up labour costs isn’t a new one. It has been articulated and debated ad nauseam and costs mean much more than a limited Chapter of Industrial Disputes Act (IDA), pertaining to lay-offs, retrenchment and closure. For instance, a plethora of labour laws created an inspector raj that got in the way of easing costs of doing business.

To that end, “The Central Government has taken historical step of codifying 29 laws into 4 Codes, so that workers can get security along with respect, health and other welfare measures with ease.” This is a quote from a booklet by ministry of labour and employment. The Codes (2019, 2020) in question are on Wages, Social Security, Occupational Safety, Health and Working Conditions and Industrial Relations. They certainly don’t cover every statute on labour and employment, only those administered by the ministry, unlike labour law reforms in a country like Bangladesh.

In essence, this standardisation and simplification breaks down (at least partly) the unorganised versus organised divide, strengthening protection for the unorganised and making organised labour markets more flexible.

Such reforms are desirable as an end in itself. Do they stimulate employment? Even before these Codes, and sometimes roughly at the same time as those Codes, some states have experimented with making labour markets more flexible. The investment and employment-inducing effects of such changes are conditional and qualified. (Timelines are not long enough for proper empirical work.) Taken in isolation, these changes have minimal effect. But they matter at the margin, and combined with other reforms, they do lead to job growth.

In the Constituent Assembly Debates in August 1949, Shibban Lal Saksena argued, “From my experience of labour work, I can say that labour legislation is almost in a chaotic condition all over the country and in the various provinces…Therefore labour Legislation should come into the Central List. I do not want them in the Provincial List.”

This was not to be. Since labour conditions vary across states, labour, under the Constitution, is in the concurrent list, not in the Union list or state list. Hence, after those Codes, one needs states to publish rules. And all states haven’t done that, nullifying intent behind the Codes.

On the face of it, you would expect states to be prompt in announcing rules on wages, social security and safety (those are protective) and be a bit more reticent about industrial relations (those adversely affect interests of organised labour and unions supposedly representing them).

Also read: India’s skilling challenge

If one goes by the numbers, most states have published rules under wages, a few under industrial relations and social security, and least under occupational safety. If one reads something into this, the numbers are against a priori expectations.

Non-transparent rules on occupational safety, health and working conditions facilitate corruption and the inspector raj, in the functioning stage of an enterprise.

Is one seeking to protect those vested interests, under the guise of protecting labour? Codes have made the inspectors see red.

The writer is chairman, EAC-PM

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