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

Indo-Japan Relationship

Even before Narendra Modi became prime minister, he has had 2 visits to Japan in his capacity as Chief Minister. Of all its investments in India, Japan has highest investment in Gujarat. The new smart city plan in Dholera, Gujarat is going to be a home for all Japanese investments in the state. I remember having a very casual discussion with one of my managers at Oracle in early 2014, about what would be diplomatic ramifications of Narendra Modi as prime minister; and I had then told that the biggest beneficiary of his foreign policy would be Japan. Having said that, his recent trip to Japan has been a phenomenal success which even his staunchest critics have had to agree. If he gets the same momentum going, then I think India shall rise and the LION will gain enough strength to stand up to the DRAGON. 

Below is one of the article which I recently read on The Diplomat, on Indo Japan relations and its ramifications on Indo-Sino relations and how he needs to do a balancing act, keeping "MindPeace" ..... :)

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If photo-ops are considered to be vital part of conveying messages in diplomacy then the image of India’s Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe hugging each other last week should go down as a defining moment in India-Japan relations. Traditionally, the Japanese are not known to be demonstrative or even to encourage physical contact but if the enthusiastic reception accorded to Modi during his five-day trip to Japan – his first bilateral trip outside the Indian sub-continent – is any indication, New Delhi and Tokyo are all set to transform geo-politics in Asia.

The two prime ministers, also close personal friends, not only discussed a wide range of bilateral issues during an unusually long trip but also worked towards building a counterweight to an increasingly assertive China. Although the only reference – and an oblique one at that – to China came from Modi, the joint statement was dominated by plans to cooperate on security issues that will have far-reaching implications in Asia. “Everywhere around us, we see an 18th-century expansionist mind-set: encroaching on another country, intruding in others’ waters, invading other countries and capturing territory,” Modi told his Japanese audience without mentioning China.

Even the joint statement by the two countries spoke about regional tensions and steps that they intend to take to control the situation. It said, in parts: “The two Prime Ministers affirmed their shared belief that at a time of growing turmoil, tensions and transitions in the world, a closer and stronger strategic partnership between India and Japan is indispensable for a prosperous future for their two countries and for advancing peace, stability and prosperity in the world, in particular, in the inter-connected Asia, Pacific and Indian Ocean Regions. Prime Minister Abe briefed Prime Minister Modi on Japan’s policy of ‘Proactive Contribution to Peace’ and Japan’s Cabinet Decision on development of seamless security legislation. Prime Minister Modi supported Japan’s initiative to contribute to peace and stability of the region and the world.”

The joint statement was labeled “Tokyo Declaration for India – Japan Special Strategic and Global Partnership,” a fact that would not have gone unnoticed in Beijing. While the fine print of various agreements will be known in due course, the larger message of Modi’s visit is loud and clear: For the first time India is willing to throw its lot in with Japan, a known U.S. ally. So far, New Delhi has refrained from an overt alliance with the U.S. but it has accepted a need to have closer defense cooperation with both Tokyo and Washington. One early manifestation of this was the recent trilateral naval cooperation Exercise Malabar held off the Japan coast in June. This was a significant departure from the recent past. Since 2007, Japan had kept away from Exercise Malabar after Beijing had protested in the wake of a five-nation exercise in the Indian Ocean. But under Abe’s leadership, Japan is turning many of its defensive policies on their head. The easing of Japan’s defense exports rules will allow Japanese defense firms to participate in India’s huge weapons market. An amphibious military aircraft is likely to be one of the first exports to India. A civil nuclear deal is also progressing well, although much against Modi’s wishes it could not be clinched during his visit. However, Japan’s commitment to invest around $34 billion in India’s key infrastructure projects over the next five years will boost the India-Japan partnership further.

Officially, there was no reaction by China but Modi’s breakthrough visit was certainly keenly watched in Chinese official media, where it drew some pointed comment. Global Times, the hardline voice of the Chinese establishment in China had two strident back-to-back editorials on the Modi-Abe tango. In the first, the paper commented: “The increasing intimacy between Tokyo and New Delhi will bring at most psychological comfort to the two countries. What is involved in China-India relations denotes much more than the display of the blossoming personal friendship between Modi and Abe. After all, Japan is located far from India. Abe’s harangue on the Indo-Pacific concept makes Indians comfortable. It is South Asia where New Delhi has to make its presence felt. However, China is a neighbour it can’t move away from. Sino-Indian ties can in no way be counterbalanced by the Japan-India friendship.” The second one attacked Japan directly in an editorial titled, ‘Tokyo lost the war, and must accept defeat,’ threatening Japan openly: “What we need is a rational Japan that behaves itself and stops serving as a pawn of the US to sabotage China’s strategic interests. We need to crush Japan’s will to constrain a rising Beijing and only in this way can Sino-Japanese friendship garner a fresh, solid foundation.”

It is instructive to note that Chinese criticism so far is muted as far as India is concerned. The reason is clear. In less than a fortnight after Modi ended his successful Japan trip, Chinese President Xi Jingping is expected in India. Xi has an ambitious agenda for his visit. China wants to take full advantage of a pro-business regime under the new prime minister and raise bilateral trade beyond 100 billion dollars. Economic partnerships apart, China would want to keep its negotiations on the contentious border issue going, if only to keep India interested since India is now being wooed by the world. The U.S. has already sent three of its cabinet secretaries to India, all before Modi has even visited America. That visit is due in late September, where he will hold a summit meeting with President Barack Obama. Clearly, Washington wants to reboot ties with New Delhi after a downslide in relationship over the past four years. Australian Prime Minister Tony Abbott has left for Mumbai and New Delhi, and is expecting to sign a deal to supply uranium to India. Canberra has already indicated it wants much closer defense cooperation with India.

Modi’s foreign minister Sushma Swaraj has toured Vietnam – one of several of China’s neighbors that have territorial disputes with Beijing – and Bangladesh to re-establish India’s primacy in the region. The prime minister has himself decided to reach out to smaller but important nations in the Indian sub-continent by visiting Bhutan and Nepal, the two Himalayan countries wedged between India and China. His decision to call off talks with Pakistan also shows he is prepared to make a departure from conventional practice. Clearly, Modi is the international flavor of the season. His challenge will, however, be to balance competing interests between the U.S., Japan and China even as he pursues an independent Indian foreign policy based on national interest.

Disruptive Potential of Solar Power, a McKinsey Report

I have been a big proponent of harnessing India's solar potential. It is believed that India's solar energy potential varies from 300GW to 700GW. India's current electricity capacity stands around 200GW. Even if we set a target of achieving 50GW of Solar power generation in next 10 years, it can make wonders for our country thereby protecting environment and also giving a boost to Modiji's energy security dream.

Here's a report by McKinsey which describes the potential of solar energy and how the world is responding to it...

Disruptive Potential of Solar

And I hope, even if half of the above target is achieved before 2019 polls, Modiji would have a new slogan "We have SOLARIZED the nation", a slap on the face of the people who accuse him of polarizing.. :)