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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