Shri Arvind Panagariya
Vice Chairman , NITI Aayog
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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
hcp@RecruitGuru.com
www.hemenparekh.in
Mumbai
(M) 0 - 98,67,55,08,08
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