Accelerating urban development and increasing labour flexibility are key to creating jobs in more productive activities
World Bank chief economist Kaushik Basu, on Monday, strongly pitched for relaxation of labour laws as rigid regulations were hurting India's growth.
“India's labour market is over-regulated. India's rigid labour laws are hurting India's growth ... Flexible labour laws will help organised and unorganised sectors,” Dr. Basu said here at a World Bank event to release the ‘World Development Report 2013: Jobs’.
Pointing to the need for flexibility in the labour market even within the existing regulatory framework, Dr. Basu, who served as Chief Economic Advisor (CEA) in the Ministry of Finance earlier, said: “If we will create legal environment, there would be much demand for these workers...so we need regulatory framework but we need greater flexibility in the labour market. But we don't want completely free labour market…”
Dr. Basu’s prescription is in line with the Word Development Report (WDR), which noted that accelerating urban development and increasing labour flexibility are key to creating jobs in more productive activities and, thus, sustaining growth and reducing poverty in India, especially when the working age population is increasing by seven million each year.
According to the report, part-time work is on the rise in India. Significantly, the number of temporary workers in the country grew more than 10 per cent in 2009 and 18 per cent in 2010. More unusual is the increase in its number of informal workers in the organised sector. “Medium-size businesses are not growing, and the share of informal workers in organised firms is up from 32 per cent in 2000 to 68 per cent in 2010,” it said. While underscoring the need for a strong urbanisation policy for creating better jobs, the report also emphasised that India should stay within the efficiency ‘plateau’ of labour laws where labour policies are not too stringent and allow the creation of more wage employment, especially in cities and in activities connected to global markets.
“When workers move from low-to-high-productivity jobs, output increases and the economy becomes more efficient. Stringent regulations that obstruct such labour reallocation do not sit on the efficiency plateau and affect economic efficiency. There are dimensions over which the country is not close to the cliff and the regulation does not have a detrimental effect on development, but on some other dimensions India is close to the edge, if not beyond it,” Dr. Basu said.
The report pointed out that while a majority of firms are born small, in India they also tend to stay small. “In the United States, if a company lasts 35 years, it becomes on average 10 times as productive and employs 10 times as many people. In India, the productivity of a 35 year-old firm merely doubles and its headcount actually falls by a fourth,” it said.
According to World Bank Country Director (India) Onno Ruhl, India's working age population is on the rise and will continue to do so for another two decades. “India can take advantage of this demographic dividend by creating an environment more conducive to job creation. Jobs can serve as a cornerstone for development, contributing to growth, prosperity and social cohesion,” he said.
WDR Director Martin Rama pointed out that with rapid urbanisation, more than half the population in developing countries is expected to be living in cities and towns before 2020.