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G. Srinivasan

`Adopt segmented approach to make exports more labour-intensive'

New Delhi , Oct. 20

Even as the labour law reforms in the country continue to be a contentious issue, the Planning Commission has put forth a labour law reform plan that might be acceptable to existing organised sector workers.

In its revised Approach Paper discussed at the internal meeting held under the Chairmanship of the Prime Minister, Dr Manmohan Singh, here on Wednesday, the Plan panel contends that even as the need for greater flexibility in labour laws is advocated by the industry, the fact is that there is more flexibility in practice than is commonly understood.

"This is also evident from the fact that many companies in the organised sectors have been able to shed excess labour through voluntary retirement schemes." But these reductions are costly and relatively easy presumably for capital-intensive industry, it said.

Stating that the Government was not keen on extreme versions of labour flexibility such as `hire and fire', it said that there are areas of flexibility short of hire and fire, which need consideration. The case for more flexible labour laws is stronger and more compelling in export-oriented enclaves such as SEZs and apparel parks.

But since women workers are the majority in many enclaves, this should be tempered by including some gender concerns not well addressed now. Similar considerations could also be included in proposals to amend laws such as the Contract Labour (Regulation and Abolition) Act as applied in the domestic tariff area (DTA). In other words, the Plan panel plumps for "a differentiated approach to labour law reform which may be more acceptable to existing organised sector workers".

Fiscal fillips

It further calls for reviewing the role of fiscal fillips in promoting employment objectives. It said that there are several fiscal incentives for corporate investment, all of which encourage more capital use and none relates to labour use.

"These are in fact a major part of the problem that has fostered capital-intensity over labour-intensive industry," the Plan panel argued, adding that fresh thinking is called for and "We must consider eliminating all these distorting incentives or failing this, to balance these by a restructuring that includes at least one simple employment-related incentive." An instance is a corporate tax deduction at a flat rate per worker based on number of workers on permanent payroll. This should not increase the total fiscal burden nor tilt the playing field against the unorganised sectors.

Facilitating growth

As far as the organised private sector goes, there is little that Plan expenditure per se could do besides facilitating growth mainly through infrastructure and human resources development, the Plan panel said. But employment outcomes could be improved by removing policy distortions, it said. For this, "We must eliminate biases in incentives that favour capital intensity, make graduation easier from unorganised to organised sectors and adopt a segmented approach to labour laws to make exports more labour-intensive without undue threat to existing jobs in either organised or unorganised sectors," the Plan panel noted.

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