Labor Reforms....

The Prime Minister’s assault on red tape can make a real difference

The much awaited labour reforms necessary for mass manufacturing in India were initiated by Prime Minister Modi on October 15. Any efforts to rationalise labour rules, around 250 of them at the Central and State levels, is a welcome step for industry.

The two key areas of reform are ‘unified labour and industrial portal’ and ‘labour inspection scheme’. Introduction of the labour identification number (LIN) and putting inspection on a unified portal will help bring transparency in the use of labour rules.

The Prime Minister’s efforts to raise the minimum wage ceiling from ₹6,500 to ₹15,000 and to ensure EPF and the pension scheme for vulnerable groups are also laudable.

Overall it’s the first big step that’s been taken at the Central level to reform one of the most complicated issues in the post-reforms era. However, much more needs to be done to put together a system that is not biased against either employers or employees.

Further, the system should create an environment for productive employment with reasonable safety nets.

It’s been well established that China’s flexible and business friendly labour laws have ensured continued investments in Chinese manufacturing, unlike in India where restrictive labour laws have been a cause of concern for investors. Though the Indian labour force has been much more disciplined and cooperative in the post-reforms period leading to a decrease in the number of strikes, lockouts, mandays lost and so on, the large number of labour rules and the process of enforcement by inspectors scares investors, at least on paper.

Restrictive approach

India’s labour laws are restrictive in nature and hurt investments in the manufacturing sector. The Industrial Disputes Act (1947) has rigid provisions such as compulsory and prior government approval in the case of layoffs, retrenchment and closure of industrial establishments employing more than 100 workers. This clause applies even when there is a good reason to shut shop, or worker productivity is seriously low.

The Contract Labour (Regulation and Abolition) Act (1970) states that if the job content or nature of work of employees needs to be changed, 21 days’ notice must be given. The changes also require the consent of the employees, and this can be tricky.

While the right of workers to associate is important, the Trade Union Act (1926) provides for the creation of trade unions where even outsiders can be office-bearers. This hurts investor faith and restricts economic growth.

Rigid labour laws discourage firms from trying to introduce new technology, requiring some workers to be retrenched. This deters FDI because of the fear that it would not be possible to dismiss unproductive workers or to downsize during a downturn. Hence getting FDI into export-oriented labour-intensive sectors in India has not been fully achieved.

In contrast, China has succeeded in attracting FDI to export-oriented labour-intensive manufacturing, in part because of flexible labour laws such as the contract labour system implemented in 1995. Whereas in India, employers have taken to hiring workers on contract outside the institutional and legislative ambit, resulting in informalisation of the labour market. This hampers worker well-being.

Reforms initiatives

To undo the malady in India’s labour market, some changes have recently been initiated in the three acts that largely govern India’s labour market: the Factories Act (1948), the Labour Laws Act (1988) and the Apprenticeship Act (1961). Amendments to some restrictive provisions of all these acts have been cleared by the Cabinet and are set to be tabled in Parliament. Key changes proposed include dropping the punitive clause that calls for the imprisonment of company directors who fail to implement the Apprenticeship Act of 1961.

The Government is also going to do away with a proposed amendment to the Act that would mandate employers to absorb at least half of its apprentices in regular jobs.

In order to provide flexibility to managers and employers, the amendment to the Factories Act includes doubling the provision of overtime from 50 hours a quarter to 100 hours in some cases and from 75 hours to 125 hours in others involving work of public interest. This is seen by some as being anti-labour as it imposes greater working hours without ensuring their security and welfare.

However, the penalty for violating the Act has been increased so as to deter exploitation. Increasing the working hours might also have to do with low worker productivity in India.

However, even as productivity issues should be addressed in part by bringing in quality FDI, it is important that maximum-hour protection is strictly enforced so as to prevent worker exploitation.

The norms for the employment of women in certain industry segments have been relaxed. The number of days that an employee needs to work to be eligible for benefits like leave with pay has been reduced to 90 from 240.

The amendments to Labour Laws Act, 1988 meanwhile, will allow companies to hire more people without having to fulfil weighty labour law requirements as it is proposed that companies with 10-40 employees will be exempt from having to furnish and file returns on various aspects. This will help avoid procedural delays, a feature of doing business in India.

Rajasthan shows the way

With the finance minister encouraging States to bring in appropriate labour reforms, Rajasthan has gone the Chinese way. Henceforth, it will be easier for firms there to adopt hire and fire policies. The Rajasthan government’s labour reforms are manifold. For one, industrial establishments employing up to 300 workers are now allowed to retrench employees without seeking the prior permission of the Government.

In addition, the threshold of the number of employees required for the purpose of applicability of the Factories Act has been increased from 10 to 20 (in electricity-powered factories) and from 20 to 40 (in factories without power). This is expected to reduce bureaucratic delays.

Finally, membership of 30 per cent of the total workforce needs to be recorded for a union to obtain recognition, up from 15 per cent, a move that will halt productivity losses out of politically motivated petty strikes.

The reality is that manufacturing has to grow to absorb millions of semi-skilled young Indians, a difficult task without rationalising labour reforms. Overall, it seems Modi is on the right track.

Source: BusinessLine

Solarizing the nation is the only way forward

This article is in continuation to my blog on policy making. Here I am listing a few goodreads about how the government is going ahead on solar policy. As I had mentioned earlier, India has the potential of about 400-700GW of solar energy. But a decent target of 50GW over 10 years can make wonders in this sector. On the one hand it is good idea to augment the solar capacity in India, but we need to keep in mind that most of the solar panels are imported, thereby adding to our import bill and a soaring CAD. India needs to substantially invest in R&D as far as solar energy is concerned, because this does not include any natural resource constraint. A lot of research is going on in the world on solar energy and India should take lead here in providing latest technologies and not just be a the receiving end. Its is my firm belief that a solarizing revolution can take us on the path of energy security in years to come. Below are a few reads which should convince us that the government is serious about it and is taking some steps.

Welcome push to solar

Small rooftop solar plants to create 3.25 lakh jobs in 10 years

Ministry targets 1 lakh MW from renewables in 5 years

Sun shines on solar stocks as Govt promises PSU order

Structural imbalance in Indian economy

         As per a newspaper report, India is poised to become a $2 trillion economy by FY15 even if it grows at 5%. The growth rate for Q1 FY15 has been 5.7% and the RBI estimated growth rate for FY15 is 5.5%. So we can be sure of crossing this milestone by March 2015. Psychologically, it is an important milestone to cross. However, if your dive into the numbers then you will find that the per capita income has not increased drastically. If you look at the chart below, several imbalances can be found in our economy. 

Although 50% of our population depends on agriculture, the share of agriculture is a meagre 18%. Services contribute a lot to our GDP, a whopping 50%. When Modi was the CM of Gujarat, he had trifurcated the economic structure on 3 pillars namely, Agriculture(33%), Services(33%) and Manufacturing(33%). The same model needs to be replicated at national level. Given the kind of human capital we have, liberalising the labour reforms, land acquisition and environment laws together can help the government raise the GDP by 2% in 3 years. All of these coupled with financial sector reforms, GST, augmented infrastructure capacity in terms in roads,freight corridors and ports can further help the government raise the GDP by 2%. The point I am trying to make is, focusing on the sectors which involve heavy manufacturing activities can help the government spread the base of the economy. For eg. there are about 15 cities where Metro rail projects are in several phases of execution. Currently, the tracts, via ducts, pre cast cement blocks, signalling system equipments and finally the trains, all are imported. Why can't we set a standard for all the trains, signalling system, pre cast ducts and indigenously produce them in our country? This will help in saving our import bill and simultaneously increase the manufacturing activity. Every job created in manufacturing sector creates 5 more direct and indirect jobs.Service sector is such a sector which can be sandwiched between Agriculture and Manufacturing, for both these sectors required IT support, marketing,advertisement and other allied activities. In next 3 years, the government needs to focus on labour liberalization and execution of those liberalized reforms coupled with financial sector reforms. This process will be excruciatingly painful and give a lot of labour pains, but in the end it will deliver a beautiful baby... 

Image Source: Livemint

Your mate probably doesn't go to work with you, but his or her influence does.

This article exactly summarizes my thought process. No matter how intelligent you are, or how hardworking you are; your success will depend upon how your life partner is. You might buy an expensive car, a big house with all modern amenities, but your happiness will only depend on how your partner is.....  I just wonder why this guy had to do a Ph.D to do this analysis.. :P

Nevertheless, a good read to share:

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          “Your husband, wife, or sweetheart probably doesn’t come to work with you every day,” says Brittany Solomon. “But his or her influence clearly does.”

Solomon, a Ph.D. candidate in psychology at Washington University in St. Louis, recently led a study analyzing the careers and personalities of about 5,000 married people, aged 19 to 89, over a five-year period. About 75% were in two-career couples.

The conclusion: Employees of both sexes who scored highest on three measures of occupational success—salary increases, promotions, and job satisfaction—all went home at night to mates with the personality type known as “conscientious.” These are people who are reliable, consistent, detail-oriented, and organized. The study, “The Long Reach of One’s Spouse: Spousal Personality Influences Occupational Success,” will be published in a forthcoming issue of the journal Psychological Science.

Note to singles: If you’re aiming high at work, you might want to settle down with someone conscientious. Psychologists often categorize people according to four other broad measures: openness, extraversion, agreeableness, and neuroticism. Although previous studies show that “people tend to look for a potential mate with a high degree of agreeableness and low neuroticism, our findings suggest that anyone with ambitious career goals would be better off looking for a supportive partner with a highly conscientious personality,” Solomon notes.

          A mate’s conscientiousness boosts career success in three ways, the study found. First is what the researchers call “outsourcing,” which means it’s a lot easier to concentrate on your next brilliant idea at work if someone else can be counted on to make sure the dog has all his shots, the car gets inspected on time, and the kids are fed. Also, the ability to depend on a significant other cuts down on overall stress and makes work-life balance easier to manage, for men and women alike.But beyond the day-to-day practicalities, a conscientious partner exerts a subtler, more pervasive influence. “Conscientious people tend to be resilient in the face of setbacks, and they’re thorough. They finish what they start,” says Solomon. “Over time, those traits can rub off on a spouse. People often unconsciously emulate those they live with—and the qualities we associate with ‘conscientious’ types are the same ones that lead to success in a career.”

Source: Entrepeneur

LIC Jeevan Rekha T.No.52

         One of the common topics related to the investment in 80C is LIC policies. There are various investment options available like PPF, NSC bonds, EPS and other govt securities. But insurance is an instrument which provides you and your family a contingency cover. My dad enrolled my for a LIC policy namely LIC Jeevan Rekha T No 52 in the year 2006. Since last 4 years I am paying the premiums and I used to crib upon paying a lot of premium on insurance policies. Recently I tried to understand what my policy is all about and is it really worth it investing so much in it.

In case of Jeevan Rekha, the minimum age of entry for this policy is 13 years completed while the maximum age is 65 years. The single premium paying terms available are 5,10,15,20 and 25 years and premiums payable for life.

The minimum sum assured is Rs 2 lakh and thereafter in multiples of Rs 10,000.The survival benefits equivalent to 10% of the basic sum assured are paid out to the life assured on survival after every five years from the date of commencement of the policy. For a 20-year term, 20%, 20%, 20% and 40% of the sum assured are paid out in the fifth , 10th, 15th and 20th year respectively. The policy matures on the death of the policy holder whereby the sum assured along with vested bonuses are payable, irrespective of survival benefits paid already. Also, if the policyholder survives till 85 years of age(which I would certainly looking at the lifeline on my palm), he would receive 100% of the assured sum - with bonus. Hence, if the policyholder lives till 85 years of age, he effectively receives 200% of the assured sum including the money paid back during the premium term.

Now my sum assured is Rs 10,00,000. The policy term is 15 years. I pay a premium of 46,700 every year. Every 5 years I would get Rs 1,00,000.The LIC India website public disclosure says that a bonus of 44Rs/1000/year has been declared on an average for this policy. Which means the vested bonus for last 8 years should be around Rs 3,52,000. Assuming the same blended average for next 7 years, the bonus amount on maturity should be Rs 6,60,000. So at the time of maturity I should be getting Rs 10,00,000 (Sum Assured) + Rs 6,60,000 + loyalty bonus if it is declared at that time = Rs 16,60,000(+ 3,00,000 which I had already received every 5th consecutive year). And thereafter maturity I will receive 1,00,000 every 5 years till the age of 85. So I am waiting for 2021, to get a big fat cheque which I would have never received otherwise.. :P

So the highlight of these policies is that they offer you both regular returns all through the term along with a lifelong cover. Thus, they not only provide for your financial needs at every stage of your life, but also ensure the security of the family in case of death.

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P.S: This policy is no longer available for sale, so do not take it as an endorsement or advertisement initiative. This is just an analysis I did for myself and thought of publishing it on my blog.