The latest International Monetary Fund report has warned of a global slowdown of economic growth to 3.1 per cent, even though countries such as India and China have been projected as doing relatively better when compared to other advanced economies. Given this global context, International Labour Organisation’s Deputy Director General (Policy) Sandra Polaski told The Hindu that increasing wages through state intervention will be the way forward for India to protect its workers and also shield its economy from the ripple effects of slow growth globally.
She was visiting India this week to hold discussions with the Union government regarding ILO’s Decent Work programme, which focuses on promoting jobs, guaranteeing rights at work, extending social protection and promoting social dialogue.
“If you look at a number of successful economies, like China, their mantra for growth during the last 15 years has been to raise wages under government control, and extend social protection systems, such as pensions, health care and insurance, but in India that has not been the case and wages have in fact been falling,” she noted. Referring to China’s wisdom in not banking of export-led growth and boosting domestic demand by raising wages at home, Ms. Polaski suggested that India must do the same.
“Especially since the global financial crisis, export-led growth has become unsustainable as demand for goods is falling in rich countries,” she noted. Therefore, the best way for India to grow is by raising the incomes of its 63.4 per cent working population at home, is the best way to boost demand at home, given that India is also the second biggest market in the world. She warned that in the absence of such measures, India’s growth prospects could slowdown in the long run.
Labour reforms
Referring to the labour reform policies of the Narendra Modi government, where measures are being taken to make it easy to hire and fire workers, with an eye on foreign investors likely to invest in the country under the ‘Make in India’ programme, Ms. Polaski said that such measures alone cannot guarantee better Foreign Direct Investment (FDI). More and more investors from the West are finding that ‘portfolio investment’ - where bonds and stocks are purchased in the short-term and then sold for a profit - provides a higher rate of return, and are opting for it, she said. Therefore, a balance of domestic demand and increase in export demands is the way forward for countries like India to improve economic growth at home. “Export-dependent countries such as Vietnam, Cambodia and even Myanmar have recently seen a spike in minimum wages, but India has not seen such changes,” she observed.
Ms. Polaski was also highly appreciative of the Mahatma Gandhi National Rural Employment Guarantee programme and said that it is an excellent policy breakthrough that has also helped to push wages upwards in the rural areas. She said that countries such as Ethiopia and Afghanistan were now seeking to emulate the Indian example to implement such programmes at home.
Female labour force participation
According to a recent report by the McKinsey Global Institute, India could add 60 per cent to its 2025 GDP by bridging gender gap at work. At present India seriously lags behind in female labour force participation (FLP), having missed its Millennium Development Goal target in this area. To this, Ms. Polaski said that relatively strong economic growth and implementation of NREGA has perhaps pushed female labour participation downwards from 34 per cent earlier to 28 per cent.
The positive side of this development is that there is greater income security at home keeping them at home, but pushing FLP is beneficial for the economy overall. “For this, not all businesses ought to be created in metro areas. Put them in rural areas as well and provide safe transport, to enable women to go out and work,” she suggested.
With the garment export industry suffering due to reduced demand globally, and India’s inability to compete with cheaper labour provided by countries like Bangladesh, she said that tapping into the domestic market was a better way to sustain these industries and also ensure that women, who dominate such industries, get to keep their jobs. She also recommended that the state make child care and elder care available at affordable costs, so women get the time and opportunity to participate in the economy.
While agreeing that market forces globally were driving a race to the bottom to keep the prices of goods low, she cited the examples of countries such as Cambodia that were able to defy this pressure and also ensure better business practices that helped retain buyers. With the ILO’s Better Factories programme in Cambodia, bad factories where labour rights are not observed, have been disadvantaged when it comes to attracting business, she said. She said that the ILO plans to expand its Better Factories programme to Bangladesh and might soon come to India too.
