(Photo by Prakash SINGH / AFP)
(Photo by Prakash SINGH / AFP)

It is raining sops for business and industry. How effective these will prove will be known in the coming weeks and months, but let us make one thing absolutely clear. These offer no  long-term solution to the woes of the economy. In none of the measures announced thus far is there an effort to deal with the endemic structural shortcomings which are a huge drag on growth. Without undertaking basic structural reforms in labour and land markets, and making capital available at competitive rates, India can never hope to boost its exports.

We will continue to chug along at about five to seven per cent growth, if at all, and fail to emerge a $ five-trillion economy by 2022. Roll back of some of the more egregious proposals in the budget was the minimum the government could have done. It was unwise to hike personal and corporate taxes for the higher bracket individuals and companies at a time when the global economy was staring at recession.

Taking the sting out of the Corporate Social Responsibility provision was a concession to good reason. Lifting the all-enveloping fear of arbitrary taxmen blackmailing and intimidating even honest taxpayers was long overdue. Yet it remains to be seen whether tax officials actually stop harassment of taxpayers, or a faceless tax scrutiny without the intervention of a tax officer can actually become a reality. If it can, it will be a most welcome development. 

Further financialisation of banks cannot boost credit off-take unless the dark clouds over the economy are lifted and a conducive atmosphere of trust between lenders and borrowers is created. The fear of the investigating agencies even in cases of bona-fide mistakes has to be removed by the government.

As for sector-specific sops, it is unlikely it will have a major impact on boosting sales. Auto sales despite the higher depreciation may not pick up because of a slowing economy and fears of a coming recession. Even ordinary consumers feel the liquidity pinch, reluctant to go in for a new car or a two-wheeler until things clear up further.

In other words, the government has to do more to lift the economic sentiment. Nothing will be more appropriate at this stage than to strike when the iron is hot and to undertake steps to make labour markets flexible. Submitting to trade union blackmail and a false propaganda about a nation-wide ~chukka-jam~  has prevented a series of governments from freeing up the labour markets.

One reason for the lack of growth in the organised sector employment is the stifling labour laws which discourage employers from expanding their labour enrollment and instead rely on contractual labour. Nowhere does the retrograde nature of the ancient labour laws comes out as starkly as in the recent report that following slow-down Maruti-Suzuki, by far the country’s biggest automobile company, has ‘sacked’ three thousand temporary workers. Why did Maruti-Suzuki fail to put them on the regular rolls during the long period of boom? Simple. Because the labour laws inflict pain and misery on the employers and oblige the employees to stay temporary often throughout their entire working lives.

And this clever escape from the rigours of the constricted labour laws has gone on for decades. Employees will be hired for three months and then given a few days break before being re-employed, the process being repeated for decades.

Why not then inject a measure of equity between the employer and the employee, allowing efficiency and production demands to determine the payroll. As it is, even if for secular factors an industrial unit has to cut back on output, it must continue to support the labour on is rolls, hired when the unit was functioning at full capacity, with pay and all the requisite benefits such as health, pension, annual and casual leave, etc.

As we noted above, umpteenth number of research has proved that freeing up the labor markets will actually result in a higher muster roll, not lower. It is worth recalling that while unveiling economic reforms and liberalization in his maiden budget, Manmohan Singh had promised an exit policy. He held back following dire warnings from the vested interests in trade unions.

Modi is widely known not to give in to any threat or pressure. He should in the first year of his second five-year term catch this marauding bull of trade union nuisance and tame it before it is too late. After the surgical strikes, after notebandi, after the wipe-out of Article 370, injecting a level of reasonableness and equity in the employer-employee ties in order to correct the sharp tilt in favour of labour ought not to be difficult. Unless Modi himself is a throwback to the unproductive socialist era when the private sector was looked down upon with great suspicion, he would do it without any further loss of time.

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Free Press Journal