How to manufacture reforms: Corporate sector should discharge the greatest social responsibility by creating jobs
In a country with nearly 500 million workers, no more than 10 million are employed in larger corporations. It should concern us all.
Dear India Inc,
You represent the most productive part of the Indian economy. Sectors in which you dominate, such as auto parts, automobiles, two-wheelers, chemicals, engineering machinery, petroleum refining, telecommunications, software and finance, produce more value per rupee of resources used than any other part of the economy. Yet, one fact sticks out like a sore thumb. You employ a minuscule part of India's workforce. About half of the workforce is in agriculture and the vast majority of the rest is self-employed or toils in low-wage informal sector jobs. That less than 10 million workers should hold good private sector jobs in a country with 500 million workers is a matter of national shame.
Of course, I do not suggest for a moment that this is your fault. You are in business not to promote employment but to create wealth. You must chase revenues, not employment. I also appreciate that you must choose technology that promises the highest returns, not the one that creates most employment. Nevertheless, one source of puzzlement and, indeed, disappointment remains. After all, you too are a part of the larger society and, as the creamy layer of the business community, bear the responsibility of helping the nation solve its massive job-creation problem.
Meekly accepting the government diktat to spend two per cent of your profits on corporate social responsibility does not absolve you of the responsibility of doing genuine good to the people at large. You have flocked to the new Government for tax concessions and legislative and regulatory changes that would boost your profits, all under the guise of promoting national interest.
But missing from your self-interested and self-absorbed representations is a road map of reforms that would persuade you to commit to massive investments in sectors such as apparel, footwear and assembly activities that would employ tens of thousands of lowskilled workers. If you truly want Bharat to shine with India, the large conglomerates among you, such as the Tatas, Birlas, Reliance Industries, Reliance Group and Bharti Enterprises, and your industry associations, such as CII, Assocham and FICCI, must submit a list of reforms to the Government in exchange for which you would be willing to commit to massively invest in firms employing tens, even hundreds, of thousands of low-skilled workers. If such a list of reforms even included exemption from the current provision of having to spend two per cent of your profits on corporate social responsibility, you would have done the nation the supreme good. For, by undertaking to create productive jobs for hundred of millions of Indian workers, you would have discharged the greatest social responsibility of all.
You might ask why I am seeking the list of reforms necessary to make way for the growth of large-scale labour-intensive firms, when such a list is well known. The answer is, this is far from the reality-even economists don't agree on this list. For example, I have argued for more than a decade that labour laws, and now the land-acquisition law as well, are the key factors holding up Chinese-style growth of largescale firms in India. But other economists, such as Pranab Bardhan of University of California, Berkeley, disagree. Indeed, when World Bank researchers come around to ask you about the major hurdles you face in doing business, having mastered the art of avoiding hiring low-skilled workers, you have steadfastly ranked labour laws way down your list. So World Bank, too, has maintained for years that Indian labour laws are not the real problem. "Entrepreneurs know how to get around them," is their favourite refrain.
So you need to tell the Government precisely what you would like it to do, in return for your commitment to invest massively in sectors such as apparel, footwear and electronics assembly. Now that wages in firms such as China's Foxconn, which employs 1.3 million workers and pays them at $3 per hour, are rapidly rising, and China is exiting many labour-intensive areas, time is opportune for you to take the space so created. Tell the Government whether it is labour and land-acquisition laws, infrastructure, low literacy, lack of skills or something else that is holding you back from hiring ordinary workers. In each case, tell us precisely what changes you desire. What changes and to which labour laws you wish. Which infrastructure-roads, railways, ports or electricity-and where you want the Government to build. And what changes to worker training laws you need.
Only after you spell out your conditions can we know if the Government has the political will and space to deliver, and whether the manufacturing revolution many of us fancy is achievable or just a pipe dream.
Arvind Panagariya is professor of economics at Columbia University, US