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Making it easier to do business

Industry needs to respond quickly to the labour reforms announced by the Prime Minister.

comment Updated: Oct 18, 2014 11:54 IST

Prime Minister Narendra Modi on Thursday unveiled a string of measures to reform India’s labour market to correct structural rigidities, replace antiquated rules, usher in employee-unfriendly systems and reverse India’s infamous “inspector raj.” Henceforth, employees will be able to port their provident fund (PF) accounts.

This does away with the need to fill long forms to claim or transfer their PF dues each time they move jobs. Industrialists often cite India’s complex labour rules as a major hurdle that have kept away large-scale private investments. There are more than 40 central laws and over 150 state labour laws that are time-consuming, costly and archaic. The Prime Minister, therefore, announced a new computer lottery-based scheme that will pick the factories for inspection. A unified web portal will make the compliance process easier for industry through a common window and single form replacing the earlier 16 forms.

China’s manufacturing capabilities overshadow India’s and the government’s push for manufacturing comes at a time when many big companies seek an alternative to the Asian giant as costs and risks rise there. The government wants to increase the share of manufacturing in GDP from 15% to 25%, roughly the same share in economies like Brazil and Russia but less than China’s 32%. But that is easier said than done in a large democracy like ours. From energy shortages to land acquisition problems, ambiguous tax laws to Byzantine labour rules, several hurdles have kept away private investments. The lack of cooperation between the Centre and state governments also turns off investors.

The Prime Minister has also rightly noted that turning India into a manufacturing powerhouse depends on removing bureaucratic sloth and enhancing skills. India produces about 350,000 engineers and 2.5 million university graduates annually, but around five million graduates remain unemployed at any given time. A McKinsey Global Institute survey shows that multinationals find only 25% of Indian engineers employable. One way to tackle the job-readiness problem is for industries, academia and job-aspirants to work in partnership with each other. The government’s initiative to modernise India’s formal apprenticeship programme is also welcome. The labour reforms are as much an invitation to companies as a promise to rectify everything that has kept India at almost the bottom of the World Bank’s ‘ease of doing business’ index. It is now for industry to respond to these initiatives, add capacity lines, invest capital, create jobs and multiply incomes.