Monday, September 29, 2014

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Labor - Key Ingredient of Manufacturing - Make in India : Part 2


Skilled and cost-effective manpower is an essential component of success in the manufacturing industry as this is a labor intensive sector. Shortage of the same can prevent India from gaining a competitive edge in global markets. Measures to build a strong pool of workers equipped to meet the diverse needs of the upcoming sectors and new technologies in manufacturing must be taken. Huge labor pool which is skilled in technical skills relevant to the industry and is available in plenty is a baseline requirement for success of Make in India campaign. Development of human capital is a dynamic process and can have a gestation period of up to a generation. This development should also be supported by apt regulatory framework, which balances the need to protecting the rights of working class with the flexibility required for the businesses. Here are few particular recommendations that should be looked at for providing the right human resource environment for those ready to set up factories in India.

Forecasting Human Resource Requirement
The first step must be to forecast the road that manufacturing will take. Which sectors would it expand into and which technologies would be important in the future. The question to ask would be how India can leverage its strengths and resources to achieve a competitive edge in these areas. Moreover, what weaknesses need to be dealt with and what kind of skills will be required. An estimate of the number of jobs to be created and the skill requirement for each job profile can help direct the course of a human development strategy.

Some indicators of the future of manufacturing needs are available. The manufacturing sector is estimated to have a US$ 180-billion investment opportunity over the next five years, according to the Investment Commission of India. Meanwhile, the Indian manufacturing sector is estimated to command a market capitalization of $520 billion by 2014-15. Sectors that could experience tremendous growth include machine tools, automobile components, pharmaceuticals and the textile sector, which alone have potential to create between nine and 10 million new jobs over the next four years.

To effectively channelize resources, the future of the manufacturing industry must be looked into. The right kind of training must be imparted to match employment needs of the industry and the availability of skilled workforce. However the primary requirement for this is to first quantify the requirements of this workforce. This would require extensive market research, study of trends in the manufacturing sector and consultation with industry experts.

Creating Skill Base
Industrial training programs, introduction of vocational training and other courses at Polytechnics and development of a large number of educational and training institutions should be prioritized. Moreover, to further develop a competitive edge in manufacture of cheap consumer goods such as alarm clocks, decorative items, etc. – currently the niche of Chinese manufacturing – would require the availability of a large amount of cheap labor with basic school education and some level of skills. A push towards expanding literacy at all levels along with basic vocational training would be of immense help. Public-private initiatives in this direction would help speed up the process.

Bettering Labor Law Regime
One of the key challenges for manufacturers in India has been the complex labor laws of the country. In India, labor laws are highly fragmented and inconsistent. There are separate schedules for different workers and different definitions of the same. Thus, they create confusion and there is scope for misinterpretation etc. There are a number of laws that are a source of contention between employers and trade unions. As compared to other countries, anti- market labor laws have significantly increased the cost of production, making indigenous businesses uncompetitive in global context.

Though the role of trade unions is to protect labor rights and be the face of the worker to the management, often it has misused its position to black mail owners and hinder the smooth functioning of business. The most potent weapon it uses it is strikes and lockouts. Though this trend has decreased over the years, still, the annual loss of worker days is second highest in the world. The rigid labor laws make entry/exiting a business difficult. To fire employees, you need approval of labor commission. Also, in order to change job profile there are many regulatory hurdles to pass.

Thus, any action to be taken must consider all stakeholders- employers, workers, trade unions and MNC’s. The government should first of all unify all definitions that are present in court literature to form a uniform labor code. This will eliminate the possibility of confusion and incorrect interpretation. The government should relax the provisions of Chapter V of Industrial Disputes Act by allowing up to 100 people outside its purview from present number of 100. Also, the government should modify Industrial Employment Act to ease job transfers and fixed term employment. The government should consider amending the Contract Labour Act, for example excluding certain industries e.g. textiles industry, provided they give employment for a fixed tenure of 150 days as well as other benefits like health, safety etc.

The government should work towards the formation of a social benefit schemes for both organized and unorganized sector. This will eliminate the possibility of exploitation in the unorganized sector. Moreover, the benefits available in the organized sector should be managed properly to benefit larger employee base.

Labor is critical resource for any manufacturing activity and these are some of the areas that the government should consider at the earliest to ensure that the human resource availability and related regulatory framework are conducive to setting up industry. These are important in promoting manufacturing sector in India. There is one more article in this series that takes up the infrastructural requirements to support the Make in India initiative. Any comments and feedback to the views are welcome, as always.

This is second article in this series. Please visit the first article at Lion's Step Forward - Make in India : Part 1. The third article would soon be available and referenced here.

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