Labour Day 2019: Not just vanishing private investments, high cost of labour too is killing India's job market

  • The unwillingness of politicians to focus on real issues that are paving roadblocks to job creation will prove costly in India

  • The unemployment levels are rising with more number of people in India’s workforce not getting job opportunities

  • In the first three weeks of April, the unemployment rate showed a sharply increasing trend, coming at an average 8.1 percent

Editor's Note: This story was first published on 30 April, 2019. It is being republished to mark International Workers' Day. The theme of Labour Day 2019 is 'Uniting Workers for Social and Economic Advancement.'

Is the absence of private investments the only major hurdle for job creation in India? No, it is not. In a recent research note, JP Morgan has offered some interesting findings on India’s job problem. According to this note, it is not only lack of private investments but also the high effective cost of labour in relation to the capital that is playing a villain when it comes to job creation.

“Unsurprisingly, India’s growth has been very capital intensive. Back in 2000, two-thirds of India’s export basket comprised labour-intensive exports (agricultural products, textiles, gems and jewellery, and leather). Today 50 percent comprise capital-intensive auto parts, pharmaceuticals, and capital goods,” the note said.

So what is to be done? “Policy urgently needs to reduce the “effective” cost of labour by easing labour laws, lengthening “job contracts” to incentivise on-the-job skills acquisition, both reforming and investing more heavily in health and education, and avoiding fiscal subsidies to capital (like accelerated depreciation) that further discriminate against labour. Only then will India create enough jobs to pull people out of agriculture, as China did,” the JP Morgan note said.

In short, the point here is reforming labour laws is highly critical at this point to revive the lost momentum in job creation. Are our politicians serious about it? Sadly, very little has been done to reform labour laws not just in the last five years of Narendra Modi-government but even during the UPA years. There is no major mention of labour reforms in the BJP manifesto, even the Congress manifesto which speaks GST reforms and job creation has paid no significant attention to labour law reforms.

Instead, what are the major national political parties--the BJP and the Congress--intend to do if they come to power? Congress wants to offer an assured minimum income of Rs 72,000 to poorest 20 percent of the population. The party has easy solutions on how will it find the resources---tax the rich, spare the middle class, roll in other subsidies-easier said than done. Only in 2016, India scrapped a wealth tax finding it less rewarding to the exchequer.

 Labour Day 2019: Not just vanishing private investments, high cost of labour too is killing Indias job market

Representational image. Reuters

There are about 950 centrally sponsored schemes targeting the needy in specific areas. There is no reliable, updated income data to identify the bottom 20 percent in the income graph. On the other hand, the BJP too is not far behind in competitive populism. It wants to give interest-free loans to farmers, extend Rs 6,000 Kisan yojana to all farmers and offer pensions to all small farmers and shop owners. All these have nothing to do with job creation, at best these can be some sort of consumption drivers.

In both these manifestos, the common factor is a fading focus on land, labour reforms and skill development. The Modi-government began its tenure with a host of schemes on skill development and manufacturing to change India into a global manufacturing hub. But, at the end of this five-year-term, even BJP's political rallies are silent about these schemes.

The unwillingness of politicians to focus on real issues that are roadblocks to job creation will prove costly in Asia’s third-largest economy. The unemployment levels are rising with more number of people in India’s workforce not getting job opportunities. In the first three weeks of April, the unemployment rate in the country showed a sharply increasing trend, coming at an average 8.1 percent, compared with an average 6.7 percent in the month of March and 7.2 percent in the month of February, according to data from Centre for Monitoring Indian Economy (CMIE).

In the first week of April, the rate was recorded at 7.9 percent, in the second week at 8.1 percent and in the third at 8.4 percent, the economy watchdog said citing the findings of its household survey. In February this year, a Business Standard report had said that the National Sample Survey Office (NSSO) which conducts household surveys on employment situation wasn’t given permission to release job data that showed the country's unemployment rate at a 45-year-high of 6.1 percent in 2017-18.

Explaining the job problem, JP Morgan researchers noted that labour intensity in organised manufacturing in India has fallen by a factor of five in the last three decades, which explains the strong-growth but weak-jobs disconnect, it said, adding India’s effective cost of labour remains inordinately high both because of strict labour laws (on the demand side) and educational/health/skill constraints (on the supply side).

To sum up, the JP Morgan note clearly spells out the big challenge for the next government, if it is serious about tackling the unemployment problem--work on reviving the long-missing private investments and simultaneously work on labour law reforms. But, will there will be takers for these real solutions for job problem amid the mad race of competitive populism?

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Updated Date: May 01, 2019 11:07:56 IST