Hi Friends,

Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do. There is just no time to look back, no time to wonder,"Will anyone read these pages?"

With regards,
Hemen Parekh
27 June 2013

Now as I approach my 90th birthday ( 27 June 2023 ) , I invite you to visit my Digital Avatar ( www.hemenparekh.ai ) – and continue chatting with me , even when I am no more here physically

Monday, 24 August 2015

IDEAS TO CREATE JOBS


IDEAS   TO   CREATE   JOBS

Shri Arvind  Panagariya
Vice Chairman , NITI Aayog
------------------------------------

Dear Shri Panagariya ,

I refer to a Business Line ( 22 Aug 2015 ) article titled :

" India Inc should offer ideas to create jobs : Panagariya "

This article quotes you as follows :

"  They should say what the government should do so that employment increases at good wages

Where is the passion for hiring workers in the industry here ? .. You need to lobby to the government  to bring more employment
What are those conditions ( for creating more jobs ), only entrepreneurs can tell
What is keeping them from employing more workers ?  "


Dear Arvindbhai ,

This is a complex issue where many opposing interests collide
It is almost like : An irresistible force acting upon an immovable object !
But here are my suggestions :

Fear ( Dis-Incentive )

Industrialists and Entrepreneurs " fear " that , once hired , they will not be able to " lay off / retrench " workers , when there is a downturn in business.
No one knows it better than an eminent economist like you that , in the life of all businesses , occasional downturns are inevitable
Eg;
With devaluation of Chinese currency , Chinese companies will become very competitive and aggressively export their products to India
Many Indian Companies will be forced to shut down - unless they can reduce their costs , in order to match the Chinese prices ( eg: Solar PV panels ? )
Since manpower cost is a " Variable Cost " , employees will need to be laid off ( temporarily ) or retrenched ( permanently ) , with adequate compensation to the employees affected
And , to have any impact ( on the survival of the business ) , this should be allowed to happen within days ! Without seeking umpteen permissions !
As long as Employers have this assurance , they will not hesitate to hire more workers when the business picks up again

Profit ( Incentive )

To provide a positive - and a very powerful - incentive to more and more hiring , we must keep reducing incremental Corporate Income Tax , as a Company's worker-strength / manpower , keeps rising
That is :
The more no of persons ( on permanent rolls ) a Company employs , the less incremental Corporate Income Tax , it pays !
That would be Government's way of telling the Corporate World :
" You get rewarded for creating employment
   This ( incremental tax reduction ) , is our way of recognizing you as " Job Creators - the Brahmas "

#   Cost Reduction

In the large organized sector , DA ( Dearness Allowance ) is linked to monthly rise ( there is rarely , a " fall " ! ) in CPI
In almost all cases , this " Cost Neutralization " is pegged at 100 % - and in case of a few Companies , even higher !
As a result , in case of many Companies , wages ( - and consequently , salaries of Supervisors and Managerial Staff ) , have gone thru the roof !

As a consequence , following things are happening :

*   Companies are resorting to more and more " Mechanization / Automation " - thereby needing less and less manpower
Eg;
Companies in advanced countries are paying 10 times higher wages ( than in India ) , but still getting 10 times higher " Worker Productivity " - because their factories are forever getting automated !
Last week , news reports talked of a factory without a " Single Worker "  !

*  Companies are moving out of cities / towns which have become " High Wage Islands " - creating unemployment in such cities

*  Companies are hiring more " Contract Workers / Temporary Workers "

Whereas , we may not be able to totally reverse this trend , there is a way to " Slow It Down "

By reducing " CPI linked " Cost Neutralization from 100 % to 50 %  !

Important questions to be answered here , are :

>  What is our " Long Term " goal ?
    Is it to enable the existing employees to  maintain their current
    " Standard of Living " ( thru 100 % Cost Neutralization ) , or is it to create
    more jobs ( even if low-paid ) and a " Low Cost Economy " ?

>  Who ultimately benefits thru 100 % Cost Neutralization ?
    Is it the " Working Class " or is it the " Trading Community " , who raise
     the selling prices as soon as DA goes up ?

>  Can 50 % cost neutralization (in Aug ) , lead to lower manufacturing
    costs ( in Sept ) , resulting in lower Selling Prices ( in October ) ?
    Resulting in a lowering of CPI ( in December ) ?
    In this manner , is it possible to set in motion , a VIRTUOUS CIRCLE ?

#   Productivity

    Can an increase in productivity lead to increase in employment  ?
      On the face of it , reverse seems to be the case !
      Workers are opposed to increase productivity by working harder , if that
      would mean , need for less workmen !
      Which labour union would agree that its members would increase
      productivity, if that would lead to " sacking " of some workers rendered
      " surplus " due to increased productivity ?
      Hence , the very first thing that Employers need to do is to promise :
     "  No worker will get laid-off / retrenched , if Union / Workers promise to
      increase absolute productivity ( at CONSTANT PRICES ) by 5% per year"
      Result ?
      Increased productivity will result into lower manufacturing costs
      Lower manufacturing costs will make products more competitive
      Keeping same selling price or even lowering it , will increase demand /
      market-share of a given Company
      That would lead to more hiring !
      With such a " PRODUCTIVITY / NO LAY OFF "agreement , workers will
      not resist introduction of mechanization / automation !
     

#    Prosperity Sharing

    Whereas sharing of a Company's prosperity with its employees is highly
      desirable , it seems , we have gone about it in such a way that it inhibits
      more hiring !
      Thru " Payment of Bonus Act " , we have mandated that the Employers
      share the Company's profits thru a complex formula , which totally
      ignores various external factors which also play an important role in
      determining a Company's year-end profit
      And , employee productivity increase / decrease ( at constant prices ) ,
      is not even a factor in this formula !
      As a result , when the upper limit of 20 % bonus got reached , workers
      started telling the Management :
      " 20 % is what the Government gave us . What are YOU giving ? "
      Today , many employers are forced into paying a hefty " Ex Gratia " , on
      top of that 20 %  !
     This acts as a deterrent to more hiring !
     I am aware that Government's efforts to introduce a" Productivity-linked" 
     bonus formula , some 30 years back, was vehemently resisted by Unions
     But times have changed .
     Any resistance ( whether on part of Workmen / Unions or Managements )
     which comes in the way of increasing employment , must be overcome
     thru continuing dialogue


#   Imparting Skills

    Time and again , employers have complained :

      " New recruits , don't have the necessary skills to do their jobs well  "

      Apparently , this comes in the way of hiring more persons and vacancies
      remain unfilled
      Recognizing this , Central / State Governments / Other Agencies , have
      launched a massive program to train some 500 million youth by 2020
      In this effort , the lead role will be played by some 11,500 ITI
      ( Industrial Training Institutes ) , which offer a large number of Craft /
      Trade related courses , approved by NCTVT
      Most of these are 2/3 year courses
      These ITI trained youth are supposed to be given further " On the Job "
      training in factories and offices , in the ratio of 1:7 ( ie: one such trainee
     to be employed for each 7 permanent employees of same trade )
     Under the Apprentice Act , this is mandatory for employers , unless they
     have their own " In-house " training schemes approved by Govt

     My suggestions :

    >   Change ratio from 1:7  to  1:2
    >   Ratio not to apply " Trade-wise " but to the total no of
          permanent employees
    >   Increase in-house training period from 1 year to 3 years
    >   Reduce monthly stipend to " Statutory Minimum Wages "
    >   No compulsion for absorbing such trainees at the end of
         the  training period

As a result of the suggested changes , following will happen :

>    Millions acquiring skills under NCSD , will get stipendiary jobs at once
>    Some 57 million MSME will each take , 1 to 2 such trainees
>    Even if not absorbed by the Company , they will be ready to become
      self employed
>    They will become eligible for Start-Up loans ( from MUDRA support )
>    Manpower costs of training companies will come down drastically ,
      since stipends will be quite low as compared to regular wages
      This will make companies ( especially , MSME ) , competitive
>    In future , Companies will get a ready supply of skilled workers
>   There will be increased demand for such " Company - trained " workers
      in Gulf Countries

Dear Arvindbhai ,

I have no doubt that Industry Associations ( ASSOCHAM / FICCI / CII etc )
and various Chambers of Commerce , will send to you their own suggestions
 in this matter
But , I feel , we need to build a broader consensus on this vital issue
We need to involve millions of ordinary citizens in arriving at a solution
This is not only possible but simple as well
I suggest , NITI Aayog , frame an objective / multiple-choice / Yes - No ,
 type of questionnaire , incorporating ( wherever considered , relevant )
suggestions made by me above

Such a questionnaire may be sent to :

>   All Industry Associations / Trade Bodies
>   All Chambers of Commerce
>   All Professional Associations
>   All MPs / MLAs
>   All Indian Companies ( including 57 million MSMEs )

Apart from that , the Questionnaire may be uploaded on as many
 Government Web Sites as possible , for online " Voting " by ordinary
 citizens

You may even consider use of Social Media web sites and use of Mobile App

I will be happy to contribute with design of such a Questionnaire , if desired

with regards ,

hemen  parekh

Mumbai
(M) 0 - 98,67,55,08,08



    
        
  








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