Few issues are as polarizing as Labour law reforms in India. Passions run high with people on either side of the spectrum evenly split on the impact of labour law changes. Several states have recently announced changes to their labour laws. Proponents were quick to hail this as a progressive move and that it would lead to economic growth while the critics slammed it as being exploitative.
Numerous researches carried out on the MSME sector coupled with the reams of data available in the public domain clearly suggest that labour law is not really the biggest constraint holding back growth and investments. According to a World Bank survey (www.enterprisesurveys.org) covering 9281 firms across India across all sectors a minuscule 5% of thereabouts of the firms identified labour law as the primary obstacle to their operations. Factors such as access to capital, corruption and tax rates were cited as bigger problems. Back home Industry surveys carried out under the aegis of Niti Aayog and other financial bodies also corroborate the fact that labour laws do not seem to be the biggest issue restricting growth and investments. In the Enterprise surveys conducted across states labour law does not come up as even one of the top issues. Most states cite access to capital, availability of electricity, skilled manpower and tax rates as the key issues.
As per a Global competitiveness survey from World Bank, the key issue cited by MNCs wanting to invest in developing countries are domestic market size, 72% of the MNCs cite availability of skilled workforce and a prevalence of a robust legal and regulatory framework which is wider than just the labour laws.
This seems to be understandable considering that access to raw materials and inputs, skilled workforce is more crucial rather than just flexible labour laws which can at best help get you the access to markets and haulage points.
The sector focus clearly needs to be on creating growth and not just jobs. Most of the policy outreach in the planning era has been towards creating jobs considering the on-ground realities, thereby missing the larger issue of productivity and growth. There needs to be a concerted effort and policy push in tandem with initiatives like ‘MakeinIndia’ to adopt new age technology and productivity tools. This will significantly enhance growth and productivity as this would ensure larger number of jobs maybe most of it in the newer and emerging areas, this takes care of the quantitative as well as the qualitative aspects, as we remain contemporary and competitive.
Productivity and optimal utilization of resources are key success factors and cannot be over-emphasized. Consider this, we have almost 50% of the population engaged in Agriculture which contributes around 15-17% to the GDP, in the MSME sector just about 20,000 firms out of a staggering 6crs+ have a paid up capital which is greater than INR 10crs and speaking of productivity our bottom quartile of engineers end up earning as much as the top quartile from the ITIs! Clearly a severe mismatch and sub optimal utilization of the resources, we ought to do better than this.
A large push on formalization of the workforce and a huge amount of premium on innovation and productivity in the planning process is a must. These are more urgently required rather than picking up regulation in isolation…
What ails the MSMEs: Regulation or Productivity?
