Labour reforms in India have been a contentious subject with the Unions and the corporates always at the loggerheads. As the new government takes guard, there are many who would hope for a

India’s labour markets have been stuck for the last 20 years. India has not only had jobless growth, but, 100 per cent of the net job creation since 1991 has taken place in the informal sector.

The BJP-led government at the Centre has promised to create 10 million jobs in the manufacturing sector, which has been one of the laggards for the Indian economy. We caught up with Rituparna Chakraborty, President, Indian Staffing Federation who talked to us about five major causes that the new government should take up. Here is what she had to say:

1. Regulatory Cholesterol: This distrust of the private sector is pervasive in India and manifests itself in thousands of vague, contradictory and unnecessary regulations that smother enterprises. The most toxic is our labour law regime that makes employment contracts like marriage without divorce, i.e. biased against employers. Without a radical overhaul of our labour law regime—by recognising fixed term contracts, making labour a state subject, reversing over-regulation and under-supervision—we will not reverse the 90 per cent informality.
2. Employee Benefits Regime: In a cost-to-company world, benefits are not over and above salary but come out of it. Today the law requires employers to deduct 48 per cent of salary towards mandatory benefits for wage levels up to Rs 6,500 per month. Since most employees at low wages cannot live on half their salary, they prefer informal employment. This demand for informality is amplified further by the perception of poor value for two of the biggest benefits: Provident Fund (it is the world’s most expensive government securities mutual fund and its pension scheme has an unfunded hole of Rs 50,000 crore) and ESIC (it is the world’s only health insurance plan with a claim ratio of less than 50 per cent).
3. Sins of Omission: Economic reforms since 1991 have fixed the sins of commission but not the sins of omission. Entrepreneurs have to substitute for the Indian state by generating their own power, providing their own transport, digging for their own water, arranging their own security and manufacturing their own employees. This not only raises the difficulty level for young people becoming entrepreneurs but ensures that most Indian companies end up being dwarfs rather than babies. The average size of an Indian company is three employees and the policy focus for the Ministry of Micro, Small and Medium Enterprises, unfortunately, continues to be small companies rather than new ones.
4. Urbanization: The geography of work greatly influences job creation. India has six lakh villages but two lakh of these have less than 200 people. We only have 50 cities with more than a million people—China has 300. Job creation tends to cluster and the perennial policy dream of taking jobs to people must give way to the urgent reality of taking people to jobs. Consider that unlike the Chinese New Year when 300 million people get on a train to go home, India does not have mass migration at Diwali, Chhath, Christmas or Eid. Urbanisation is a policy orphan in India even though we need 100 new clusters like Gachibowli, Gurgaon, Mohali, Magarpatta and Bangalore that intermingle low rent but high quality residential and commercial spaces.
5. Foreign Investment Regime: More than 50 per cent of China’s exports and 90 per cent of its high technology exports come from multinational factories. The biggest value these multinationals have brought to China is not capital but market connectivity, technology and management. Of course, Indian companies should be world beaters but removing all restrictions on foreign investments will greatly accelerate formal sector job creation. Not to mention the huge demonstration and alumni effect of multinationals that will ignite more domestic entrepreneurship of the baby rather than dwarf-kind.