ECONOMIC HIGHLIGHTS

New Delhi, 2 February 2006   

Change Old Mind-Set

Establish Social Security Net

By Dr. Vinod Mehta

A well-known economist and votary of free trade, Professor Jagdish Bhagwati recently stated in an interview to a national daily that Indian politicians need to strike a balance between full-fledged liberalization and social and economic security. “You cannot expect people to walk out on a high-wire unless there is a safety net below,” observed Bhagwati in this context. It is therefore not surprising that a large number of employees and workers of the Airport Authority of India are opposing privatization of Delhi and Mumbai airports.

More than a decade and a half after initiating the process of economic reforms we have not yet succeeded in convincing the workers and a large section of white-collar workers about the need for such reforms in the changing global context. The way the UPA partners belonging to left parties are opposing FDI, reduction in EPF interest rate, opposition to contract labour etc, goes to show that they have some reservations about the economic reforms even today. It should then be obvious to everyone that without the support of workers, especially the organized, one cannot reap the benefits of economic reforms to the fullest extent.

After 15 year of economic reforms, we still seem to be clinging to the old mind-set wherein workers are viewed as opponents of economic reforms and not as partners in economic reforms.  It is equally true that the workers and their trade unions have also strengthened this mind-set by blindly opposing all the reforms.  However, it is still not too late in the day to take along the workers as partners in the process of economic reforms.   

It is not enough to talk about the freedom of enterprises to hire and fire workers at their own will.  This is what the enterprises have been harping all along for the past one decade.  As far as the unorganized sector is concerned, hire and fire is the order of the day.  But the organized worker is opposed to it from the very beginning and for good reasons. 

When one talks of hire and fire of workers in developed countries one is talking of it in the context of social security net.  Along with the freedom to hire and fire of workers goes the social concern of the society to assure the workers and their families a minimum wage in the form of unemployment benefits so long as they are not able to find the next job.  Simultaneously the workers who lose jobs because of technological changes or closing down of the firm because of continuous losses, the workers are helped to acquire new skills through retraining to make them fit to take up another job.

In India, there is no social security net, no unemployment benefit and there are no institutions to retrain the workers in newer skills.  In the early years of the economic reforms, the then Finance Minister, Manmohan Singh, had talked about the setting up of social security net.  However, none of the successive Governments has come out with any social security net. 

Therefore, unless the social security net is in place we should not expect the workers to be partners in the economic reforms.  Employment in country like India is simply not an economic problem to be thought of in terms of hiring and firing of workers, but is a human problem where it is essential for the livelihood and existence of a large number of people and their dependents.  Thus, a social security net addresses the human aspect of economic problem of hire and fire. 

There are a large number of sick enterprises both in the public and private sectors where the management is being forced to pay the workers for doing no work, as they cannot close down the enterprise in the absence of the policy of hiring and firing of workers.  But if we take a second look at them we will find that we only have a social security net in the reverse; that is, the workers have not been dismissed, they do not do any work and yet they are being paid for doing no work.  At the same time, as per the existing legislation these enterprises cannot be revived, they cannot be sold off to other companies that can at least think of reviving them.  Therefore, all the money that is being spent on these sick units is social and economic waste. 

It is in this context that it is very important to set up the social security net first and then make changes in the labour legislation to allow hire and fire of workers and take-over of loss making companies by profit making companies.  Once the social security net is in place, the workers are assured that their regular earnings will not be disturbed because of the hire and fire policy of the enterprises; the workers would not be then opposed to the process of economic reforms.  The money that is being spent on sick units can be easily diverted to set up the social security net. 

Apart from making workers as partners in economic reforms, it is also essential that the economy grows at a much faster rate so that whosoever enters the job market is assured of a job.  This will make the policy of hire and fire redundant because the economy would be absorbing more and more people into lucrative jobs.   The enterprises would then be resorting to hire and fire of labour mainly for technical reasons.  Therefore for the economy to grow at a faster rate it is also important to do something about the infrastructure and the agriculture. 

The under-developed infrastructure is one of the weakest links that is holding up our economic growth.  It is shameful that after 50 years of development we have not been able to ensure uninterrupted supply of power to our citizens and to our industry and yet we feel happy to call ourselves as an emerging economic power.  The roads are in bad shape, there are hardly any expressways; the local as well as intercity transport is in shambles, even the organized private transport system is backward by world standards.  The airports and the harbours are acting as a brake in the large potential movement of passengers and cargo.  The telecommunication infrastructure is also in a bad shape.

The Rakesh Mohan Committee Report on infrastructure has been gathering dust for the last six years.  Many recommendations of the Committee have not been seriously taken up by the Government.  How then can we expect our remote villages and towns to grow in economic terms unless they are linked with proper roads and the communication system?  The growth of infrastructure will create immense job opportunities in villages and small towns and lessen the pressure on social security net.

In the past one-decade of economic reforms we have also failed to come out with a sensible and sound agricultural policy in spite of loud noises.  No attempt has been made to replace subsidies as a system of incentives to farmers to goad them to grow more.  The system of procurement prices is artificially keeping the production costs very high.  As a result the subsidies have to be provided to keep the price of grain low for the consumers. 

It is high time that we come out with an agricultural policy which is not only encourages farmers to grow more and that too cost effectively, but also a policy which enables us to have surplus of almost all the agricultural products and make a major player in the international agricultural market.  It will put more purchasing power in the hands of the rural population, which in turn will keep the demand for industrial goods high and consequently will have a salutary effect on the employment situation.

In sum, the Government should take the workers into confidence, establish the social security net and improve the infrastructure and agricultural sectors, so that we can move towards achieving 9 to 10 per cent growth rate.  The success of labour sector reforms hinges to a very large extent on the setting up of a strong social security net as was promised by Manmohan Singh in his first budget in 1992. Hope Chidambram would do the needful in the budget for the next financial year!---INFA

(Copyright, India News and Feature Alliance)