How India can create jobs and protect workers after its recent economic failures

The government’s efforts to create jobs and protect workers have fallen short with a skills development programme that has missed targets, a welfare programme that only covers a small proportion of the unorganised sector, and an underfinanced rural jobs programme.

The government’s labour and employment policies become even more important as new government data released January 7 show that economic growth in 2019-’20 will be 5%, 1.8 percentage points lower than the growth rate in 2018-’19, creating fewer jobs and endangering India’s growth opportunity from its 688 million working population.

As growth reduces and jobs are lost, 10 central trade unions called a nationwide strike on January 8, demanding a higher budget for the rural jobs programme and agriculture, strengthening of welfare boards for informal sector workers, and that changes to existing labour laws be made only after consultations with trade unions.

Creating jobs will be key to India’s growth and worker welfare: Total employment in seven years to 2017-’18 declined by nine million to 465 million, “for the first time in India’s history”, noted an October 2019 report by Santosh Mehrotra and Jajati K Parida.

India must also encourage women’s participation in the workforce. Women accounted for no more than 25% of the labour force in 2011-’12, declining from 33% in 2005, according to a 2014 national sample survey report on employment, a rate worse than neighbouring Bangladesh, Nepal and Sri Lanka, IndiaSpend reported on May 4, 2017.

Limited impact

The trigger for the strike were the proposed labour codes, part of the government’s attempts at simplifying and codifying a plethora of existing labour laws to reduce the regulatory burden on industries, propel growth and spur job creation. Trade unions say the proposed Industrial Relations Code Bill, in particular, offers concessions to employers at the cost of workers’ welfare, as IndiaSpend reported on January 7.

“The labour reforms including the four codes is an extremely important and good move,” as there were multiple laws that organised sector employers had to comply with to run an establishment, said Santosh Mehrotra, chairperson of the Centre for Informal Sector and Labour Studies at Jawaharlal Nehru University.

But there is still a lack of clarity when it comes to labour regulations, said Sabina Dewan, president and executive director of Just Jobs Network, a research organisation. “Investors want certainty and clarity when it comes to labour regulation and the opacity in the new codes is counterproductive to this,” she said.

For instance, the social security code talks about gig workers but does not discuss exactly how such workers will be insured, she explained. “Moreover, the codes do not go far enough to protect workers in a rapidly changing economy,” Dewan said.

Even as employers have complained about the rigidity of labour laws and the restrictions on hiring workers for fixed terms, they have circumvented laws and hired workers as contract workers, said Radhicka Kapoor, senior fellow at the Indian Council for Research on International Economic Relations. As a consequence, a change in the law might not have a large impact on employment.

There are larger issues concerning the size of markets, capital formation, credit availability, infrastructure and government policies, which determine the pace and composition of industrial growth, as well as the extent of employment generation, Kapoor explained.

Ineffective skills programme

India’s unemployment challenge is partly because of a low level of education, high dropout rates, labour market asymmetries, a mismatch between the supply of skills and demand and the high aspirations of young people, KP Krishnan, former secretary of the Ministry of Skill Development and Entrepreneurship, told IndiaSpend in April, stressing the importance of skill development in getting people jobs.

The government’s flagship Pradhan Mantri Kaushal Vikas Yojana or Prime Minister’s Skill Development Programme aimed to skill more than 10 million youth over four years by 2020. But the skill development ministry had skilled only about half of the target by July 31, 2019. Of those skilled, only about a quarter – 1.3 million – were placed in jobs, according to a November 2019 Lok Sabha standing committee report.

There are many challenges confronting the current skills ecosystem, said Dewan of JJN. There is no private sector engagement to understand employers’ needs, those trained often do not get a job in the same field, skill training is not flexible to adapt to labour market changes and the sector skills councils, which analyse what skills are needed, can be improved, Dewan explained.

To be effective, the programme should be decentralised, said Sundar. “It has to be at a district level where industry can also get involved in the assessment” of the programme.

In India, nearly 2% of the population between 15 to 59 years had received formal vocational training, including 1.2% in rural areas and 3.7% in urban areas, noted the government’s 2017-’18 labour survey. “This percentage rises to 8% if we include those with any kind of informal training. This is very low,” said Dewan.

Another major problem is the quality of education, experts said. “The [skills] scheme is foundationally flawed,” said Mehrotra of JNU. “Most of the youth who get trained have probably received a poor quality school education making their foundational skills weak...It [the skills programme] provides training for three months which is insufficient to train anyone other than for basic tasks.” Employers will not be willing to pay a premium for these skilled youth, he said.

Rural jobs programme

More than 10 million workers between the ages of 18 and 30 years were employed under the Mahatma Gandhi National Rural Employment Guarantee Act – the world’s largest rural jobs programme – in 2013-’14. This fell to 5.9 million in 2017-’18 and rose to seven million in 2018-’19, The Indian Express reported on October 22.

The increase in demand between 2017-’18 and 2018-’19 highlights the lack of jobs and the state of the economy, experts told IndiaSpend.

With slowing rural consumption and low agricultural sector growth, MGNREGA becomes even more important in increasing rural purchasing power, said Dewan of JJN. Public works projects should be approved for MGNREGA and workers should be paid on time, Dewan said.

The government could think of an urban jobs programme which can help investment in infrastructure and create jobs, said Mehrotra. This will pull people away from rural agriculture, tighten the labour market and raise open market wages in rural areas which had helped in reducing poverty between 2004 and 2012, she explained.

Unorganised sector

Even though data show a rise in formal employment, which accounted for 35.8% of all jobs in 2017-’18 – particularly in urban, non-farm sectors – informal sector workers make up the bulk of India’s workforce.

About half of India’s gross domestic product comes from its 420 million informal workers, such as street vendors, rickshaw pullers and construction and agricultural workers, said then Finance Minister Piyush Goyal during the interim budget in February 2019.

As unorganised sector workers, gig workers and other kinds of workers need different laws, it would be difficult to cover all under a single code, said K R Shyam Sundar, professor at the Xavier School of Management. Many of the existing labour laws do not pertain to the unorganised sector, said Mehrotra.

The government is trying to provide social security to informal sector workers. Nearly 3.1 million workers have enrolled in the government’s Pradhan Mantri Shram Yogi Maandhan, a voluntary and contributory pension scheme for unorganised sector workers, aged 18-40 years, with a monthly income of up to Rs 15,000. The scheme was launched in March 2019.

But such a voluntary welfare scheme will have limited use, experts said. “Social security for unorganised workers should be provided for by law and not a scheme,” said Mehrotra. “It cannot be voluntary and the state must be able to pay premium for poor unorganised workers.”

“This scheme is a step in the right direction, but like many schemes, it suffers from problems with implementation,” noted Dewan. For instance, the benefit amount must be reassessed based on inflation. Otherwise, it will not be worth much to the beneficiary in the future.

The scheme allows only spouses to accrue benefits, not widows or widowers, for example, said Sundar. “And even they only get about minimal savings interest [4%]. The worker would be better off spending now than receiving a small amount later.”

“Given the age limit [of 18 to 40 years], it is probably leaving out nearly 40% of the unorganised workers,” Sundar said.

At median entry age of 29 years, a beneficiary is required to contribute Rs 100 per month, according to the scheme. But this premium is unfair as its not based on wages. “Women’s wages are lower than men’s,” for instance, said Dewan.

To get enrolled in this scheme, workers have to visit a common service centre but not many know of these centers and enrolling might need digital literacy, Dewan said. Common service centres, privately-run, internet-enabled outlets meant to provide government-to-consumer services across rural India, are failing to deliver in Jharkhand, IndiaSpend reported on November 25, 2019.

This article first appeared on IndiaSpend, a data-driven and public-interest journalism non-profit.