Narendra Modi’s monumental task to untangle knots in India’s labour market

Ravi Kumar, 42, has never been formally employed by a company. He tries to find odd jobs, including labouring and cleaning work, to scrape together 200 to 300 rupees (Dh11 to 17) a day. There are many days when he finds no work at all. This has been his way of life since he moved to Mumbai from the northern Indian state of Uttar Pradesh 25 years ago. With little education to speak and few opportunities in organised employment in the city of more than 20 million inhabitants, he thinks he is unlikely to ever have a regular job.

Mr Kumar is one of hundreds of millions Indians who make up the country’s vast so-called unorganised labour market.

About 92 per cent of India’s workforce is in informal labour, according to a report on labour and employment in India by the Institute for Human Development. The organised sector consists of government and private sector jobs. India has a population of more than 1.2 billion, more than half of which is under the age of 25. Twelve million Indians are entering the labour market every year, which is increasingly putting pressure on India to grow its economy and create more jobs.

“An overwhelmingly large percentage of workers are engaged in informal employment and a large majority of them have low earnings with limited or no social protection,” according to the Institute of Human Development report. “This is true for a substantial proportion of workers in the organised sector as well. Over half the workers are self-employed, largely with a poor asset base, and about 30 per cent are casual labourers seeking employment on a daily basis.”

Experts say that there have been moves by Narendra Modi’s government geared towards boosting private-sector employment, including a national skills mission announced in the union budget this year. New Delhi has also proposed amendments to the apprentices act. At the state level, Mr Modi’s Bharatiya Janata Party in Rajasthan has amended its labour laws to allow companies to lay off 300 workers without having to seek government permission, compared to 100 workers previously.

The federal government this month revealed plans to reduce India’s number of labour laws from 44 to five. Archaic labour laws for companies in India have been widely blamed for stifling the organised sector.

“The new initiative on national skill development will bring more and more people from unorganised sector to organised sector,” says Satish Modh, the director of the Vivekanand Education Society Institute of Management Studies and Research. “There is a huge potential available for businesses to hire employees in India. Many of these unorganised labourers are getting hired in the micro-, small- and medium-scale industry sectors. Many of the contract jobs for private sectors are done by the unorganised sector.”

The Make in India initiative announced by the government last year, which aims to boost the country’s manufacturing industry, could also be a fillip for the creation of more private sector jobs.

“If Make in India succeeds there will be huge growth in the private-sector employment in India. India is pursuing a policy of foreign direct investment in India, particularly in infrastructure and manufacturing,” says Mr Modh. “There are still some policy matters that need fine-tuning but the new government is very aggressively inviting private-sector investment. Certainly this will benefit the economy, and in turn the young population of the country. A vibrant small and medium enterprise sector can create wonders for the Indian economy. This sector needs skilled workers and easy access to funds.”

There are a number of other factors that have held back the growth of India’s job market.

“Interest rates are the biggest hindrance to the growth of the Indian economy,” says Mr Modh. “Too much emphasis on inflation control has blunted the growth potential. Similarly, the tax avoidance and generation of black money has been one of the biggest roadblocks to organised growth of the Indian economy.”

“Stressed investment in the private sector in past couple of years” has been another hindrance, he adds. This has led to many workers seeking opportunities abroad, including in the Arabian Gulf.

But if the regulatory framework, infrastructure and finances in the private sector start to improve in the coming years, the flow of Indians travelling abroad to seek work could slow, he says.

Crisil Research, which is majority owned by Standard & Poor’s, says that “reforms proposed have been moderate and there is little progress after announcements”.

Labour efficiency needs to improve in India to boost the economy, and labour reforms are still at a nascent stage, it says.

“The Make in India programme will take a long while to make a difference to India’s manufacturing sector,” analysts at Crisil wrote on Tuesday. “But improving growth in the sector is crucial because one million Indians are entering the workforce every month, and to boot there is also labour spillover from farms. The agriculture sector, employing close to 50 per cent of the workforce, faces low productivity and a raft of other inefficiencies. Damage because of unseasonal pre-summer rains after a subnormal monsoon last fiscal has aggravated farm distress.”

Although half of India’s workers are in the agriculture sector, it only contributes 14 per cent of the country’s GDP, according to the Institute for Human Development. Much of this work is seasonal in nature.

Those who do manage to secure regular work in India often have little job security. Bishwajit Das, 32, from West Bengal, works as a chef for an upmarket bar and restaurant in Mumbai – but he has no formal contract and is paid 22,000 rupees in cash each month.

The Indian government’s latest economic survey recognises the challenges the country will have to deal with over the coming years with its labour market and the need for action.

“Low levels of education and skill deficit are responsible for low income levels of a large majority of the labour force, thereby perpetuating inequality,” it states.

“Consequently, the government’s thrust on skill development as well as Make in India aims at improving employability and generating employment avenues. Since demographic predictions warn that the promise of the demographic dividend will not last long, in any case not beyond 2050, India needs to take advantage of this demographic window in the next couple of decades. The challenge for the country now is in planning and acting towards converting its demographic ‘burden’ into enhanced opportunities for growth by dovetailing the quality of manpower to the requirements of employers, both domestic and international.”

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