Manufacturing

The shift from agriculture to manufacturing will not be easy

make in india
One of the points that I have often made in The Daily Reckoning is about close to 50% of Indians being engaged in agriculture generating around 18% of the Indian gross domestic product (GDP). What this clearly tells us is that agriculture is a low-income earning activity.  It also tells us is that there are many more Indians employed in agriculture than there should be. And this can be made out from the fact that only 17% of Indians employed in agriculture, survive on money they make from it. The rest, have to do some other work along with working on the farm, in order to add to their meager income.

Hence, it’s a no-brainer to suggest that people need to be moved out from agriculture into other higher paying areas like industry and services. As TN Ninan writes in his new book The Turn of the Tortoise—The Challenge and the Promise of India’s Future: “Both productivity and incomes will go up substantially if more people can be moved from low-paying agriculture to higher-paying industry and services—a key transition the country has barely begun.”

The Make in India initiative of the Narendra Modi government should be seen in light of this. The programme envisages “an increase in the share of manufacturing in the country’s Gross Domestic Product from 16% to 25% by 2022” and “to create 100 million additional jobs by 2022 in manufacturing sector”.

One reason why this target at best remains a pipedream is because of the lack of education among Indians. The rate of literacy as per the 2011 Census stood at 74.04%. As this website points out: “Compared to the adult literacy rate here the youth literacy rate is about 9% higher. Though this seems like a very great accomplishment, it is still a matter of concern that still so many people in India cannot even read and write.”

The trouble with this literacy number is that it does not give you the whole picture. As per the Human Development Report 2014, the average Indian male has around 5.6 years of schooling and an average Indian female has around 3.2 years of schooling. Both Bangladesh and Pakistan are ahead of us. For Bangladesh, the numbers being 5.6 years and 4.6 years, respectively. For Pakistan, the numbers stand at 6.1 years and 3.3 years, respectively.

And this is where the plan to move people from agriculture to industry or services for that matter, starts to go haywire. As Ninan writes: “Acquiring job-related skills without the benefit of a basic education is a challenge—it is hard to be a fitter or an electrician at a construction site if you don’t know basic arithmetic and can’t read simple instructions on a product pack.”

What this means is that the Make in India plan cannot take-off beyond a point unless our primary education system starts to improve. Individuals need to spend more time in school receiving better quality education. As things stand currently not much is being learnt in schools.

In fact, surveys have pointed out that most children cannot read basic text. The Annual Status of Education Report facilitated by Pratham points out that only 48.1% of children enrolled in Class V could read standard II level text. This means more than half of children enrolled in standard V cannot read standard II level text. In fact, more than one-fourth of children enrolled in standard VIII could not read standard II level text. The report further points out: “The gap in reading levels between children enrolled in government schools and private schools seems to be growing over time.”

And this is a worrying factor. Further, moving people away from agriculture into other more productive domains is a time taking process. As Ninan writes: “Thailand, one of the most successful manufacturing countries, has those in agriculture continuing to account for 40 per cent of its workforce. China, despite its considerable success in building a factory sector, has 35 per cent of its workforce still engaged in agriculture, generating about 10 per cent of its GDP.”

The point being that “whether one likes it or not, the transition away from agriculture as the primary source of employment is going to be slow”.

So what is the way out? Ninan suggests that one way out is to increase productivity of Indian agriculture. “Paddy output per hectare [in India] at about 3.7 tonnes, is 20 per cent short of the global average and barely half of China’s. One reason is that Indian farmers are not using the latest strains of high-yield varieties (growing them is also more employment-intensive) or adopting new methods of cultivation that require less water. It’s the same with maize,” writes Ninan. If these numbers were increased India’s agricultural output would go up in the days to come, and so would the income of people dependent on agriculture for their living.

The problem here is that the size of farms over the decades has grown smaller. Take a look at the accompanying table from the annual report of Department of Agriculture and Cooperation 2013-2014.

What does the table tell us? It shows very clearly that most farms are small in size and less than two hectares in area. 85% of the farms are less than two hectares in size and 67% of the farms are less than one hectare in size. And this doesn’t help the productivity cause at all.

As Mihir Sharma writes in Restart—The Last Chance for the Indian Economy: “Indian farms are tiny. Over 80 per cent of them are smaller than 2 hectares…And they are getting even smaller. They are just over half as big today, on average, as they were in 1970. Everywhere else in the world, farms have gotten bigger in the same period…Many people have been convinced that if there was just some way to increase agriculture’s share of output, some way in which all of agriculture received ‘support’, things would be better.”

Only if it was as simple as that.

The column originally appeared on The Daily Reckoning on October 20, 2015

India’s Great Delay: From Son of India to Make in India

make in india

The great filmmaker Mehboob Khan’s last film release was Son of India. The movie released in 1962 and Khan died in 1964.

The movie is now more or less forgotten except for the song: “nanha munna rahi hoon desh ka sipahi hoon”. The song was a regular feature during the propaganda driven days when Doordarshan was the only TV channel in town and Chitrahaar one of the few entertaining shows that one could watch during the course of a week.

The song was shown regularly on Chitrahaar and given that, perhaps a whole generation grew up listening to it. One of the lines in the song is: “naya hai zamana nayi hai dagar, desh ko banaoonga machino ka nagar”. Loosely translated this means that “in this new world we will make India a nation of machines and factories”.

Fifty two years after the 1962 release of Son of India, Narendra Modi was elected as the prime minister of India in May 2014. Modi gave the call of Make in India in August 2014, echoing sentiments of the nanha munna rahi hoon The Make in India website when it was first launched defined it as “a major new national program designed to transform Indiainto a global manufacturing hub.” (I can’t find this line on the website anymore).

The question to ask here is what went wrong during the intervening period between 1962 and 2014? Why are we still talking about aiming to build factories and a vibrant manufacturing sector more than half a century later?

TN Ninan has an answer in his excellent new book The Turn of the Tortoise—The Challenge and Promise of India’s Future. As he writes: “Size helps preserve India as a democracy—it is too big and too complex for any person to so dominate the whole land as to render the law and institutions ineffective, or at least to do so for any length of time.”
Son_of_India_film_poster

While size has helped Indian democracy it has also led to policy errors, which shouldn’t have been made. As Ninan points out: “Successful small countries find it easy, indeed necessary, to focus on export markets because their internal markets are too small to support scale production. But India is big enough to offer the potential of a large domestic market; inevitably, that became the focus of policy.”

The countries of South East Asia also started with import substitution (or producing only for the domestic market) but quickly moved their focus towards exports.

India continued to favour import substitution for much longer and this had its repercussions. “The difference between exporting units and those with a domestic market orientation is that the former have to be competitive, the latter not necessarily so. In India’s case, the inward focus became so pronounced that the country became an economic prison, functioning behind high protective walls. It is therefore evolved into a market for mostly shoddy, usually overpriced goods that would not sell anywhere except countries that were similarly starved of quality goods, such as the Soviet Union, which at one stage was India’s largest trading partner,” writes Ninan.

This put us back in the manufacturing race. And we are still trying to get the manufacturing revolution going. In fact, one of the visions of the Make in India programme is “enhancing the global competitiveness of the Indian manufacturing sector.”

What this tells us is that India is trying to come to the manufacturing party a little too late in the day. Nevertheless, this perhaps remains the only formula for pulling out India’s poor from poverty. And this is only going to happen if the ease of doing business is improved and the inspector raj is done away with, in the days to come.

As Mihir Sharma writes in Restart—The Last Chance for the Indian Economy: “The Indian state is run for its nice, kindly Inspectors, and not for workers or entrepreneurs”. And this needs to be corrected.

The rules and regulations that any manufacturer needs to follow are simply humongous. As Ninan writes: “A policy statement issued in 2011(two full decades after 1991) recognized that the average manufacturing company has to comply with seventy laws, face multiple inspections and file as many as 100 returns in a year. Bear in mind that these returns were being filed (or not filed) by small and medium enterprises that accounted for 45 per cent of manufacturing output and 40 per cent of merchandize exports.”

This is something that the Modi government has improved on after coming to power last year, by introducing self-certification, nonetheless a lot remains to be done on this front.

To conclude, the ball is now in Modi’s court. It took India nearly 70 years to decisively vote for a non-Congress party to power. Modi has the majority to get things done. If he doesn’t, chances are the Congress might be voted back to power. And there can be no bigger tragedy than that.

(Vivek Kaul is the writer of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on Oct 20, 2015

Jibe specialist Rahul Gandhi needs to understand why ‘Make in India’ matters

rahul gandhiVivek Kaul

In his new avatar, Rahul Gandhi, the current vice president of the Congress Party and successor to the throne that has been kept warm for him over the last ten years, has become a jibe specialist.
His latest jibe has been at the ‘Make in India’ programme. “The prime minister talks about ‘Make in India’. No one does more ‘Make in India’ than the farmers of Punjab. They have made this country stand (on food grains production),” the Gandhi family scion, who recently returned from a 57 day foreign sojourn, told the media earlier in the day today (April 29, 2015).
This potshot was uncalled for, simply because no nation has gone from being a developing country to becoming a developed country without the support and the rapid expansion of its manufacturing sector, which is what the ‘Make in India’ programme is all about.
As Cambridge University economist Ha-Joon Chang writes in Bad Samaritans—The Guilty Secrets of Rich Nations & the Threat to Global Prosperity: “History has repeatedly shown that the single most important thing that distinguishes rich countries from poor ones is basically their higher capabilities in manufacturing, where productivity is generally higher, and more importantly, where productivity tends to grow faster than agriculture and services.”
India has failed to latch on to a manufacturing revolution. The services industry was India’s big hope. But services by their very design have certain limitations. As Chang writes: “There are certainly some services that have high productivity and considerable scope for further productivity growth—banking and other financial services, management consulting, technical consulting and IT support come to mind. But most other services have low productivity and, more importantly, have little scope for productivity growth due their very nature (how much more ‘efficient’ can a hairdresser, a nurse or a call centre telephonist become without diluting the quality of their services?).”
Also, for the services sector to flourish a strong manufacturing sector is required because that is where the demand comes from. Hence, as Chang puts it: “This is why no country has become rich solely on the basis of its service sector.” This is something that Rahul needs to understand.
India needs a strong manufacturing sector which it currently lacks. The reason is simple. Only a vibrant manufacturing sector can create enough jobs for the 13 million Indians who enter the workforce every year. The ‘Make in India’ programme is a step in that direction.
In his interaction with the media Rahul further said: “When the poor do ‘Make in India’, is it not ‘Make in India’? Is it something else?” What does this statement even mean?
Rahul’s concern for agriculture may be genuine, but a simple point he needs to understand is that there way too many Indians dependent on farming. Agriculture forms around 18% of the gross domestic product and employs more than 50-60% of Indians, depending on which estimate you trust.
Only 17% of who work on farms survive only on money they make from their farm. Everyone else does some extra work. As Mihir Sharma writes in Restart—The Last Chance For the Indian Economy: “Our agriculture simply does not earn enough; and it has too many people…We no longer need to ensure that enough food is grown; for decades, we have been growing enough food. The country that invented granaries cannot build enough to store its vast stockpiles of grain; and yet we plant and harvest more.”
A major reason for this has been a rapid increase in the minimum support price(MSP) of wheat and rice, during the Congress led UPA government. The MSP is the price at which the government buys rice and wheat from the farmers, through the Food Corporation of India(FCI) and other state government agencies. Rahul told a farmers’ rally in New Delhi earlier this month: “We increased the MSP of wheat from Rs 540 to Rs 1400…The MSP has not changed, no benefit to farmers.”
But what the Gandhi family scion does not realize is that this rapid increase in MSP has led to other major problems. As Sharma writes: “It distorts the choices that farmers make—those who should be finding ways to grow vegetables, which grow more expensive every year, are instead growing wheat we no longer need.”
It has also led to a situation where a state like Punjab which is essentially a semi-desert is growing a large amount of rice through the extensive use of underground water. This has led to water table falling rapidly over the years.
Given these reasons, Rahul Gandhi needs to get his economics right. The country has suffered enough over the decades for the garibi hatao politics of the Congress party. Sadly, Rahul and Congress continue to practice the garibi hatao politics of doles. What we need now are jobs and more jobs. And those jobs can only be created through the rapid expansion of the manufacturing sector.
This bit of wisdom is nothing new. It was known nearly 300 years back as well. As Chang writes: “[Robert] Walpole [the first British prime minister] knew this nearly 300 years ago, when he asked George I[the British King at that point of time] to say in the British Parliament: ‘nothing so much contributes to promote the public well being as the exportation of manufactured goods and the importation of foreign raw material.’”
Being in the opposition, Rahul obviously needs to criticize the government. The ‘Make in India’ programme in its current form is a little more than a marketing slogan. If this slogan needs to be turned into a reality, there is a lot more that needs to be done—from improving the ease of doing business to labour sector reforms. Nothing much seems to be happening on these fronts.
Why can’t Rahul criticize this for a change? It might just turn out to be a real reinvention than the forced “angry young man” image that he seems to have adopted in the recent past.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on Apr 29, 2015

 

Best growth in 9 quarters: Election effect or real recovery?

iip

The GDP growth for the period April to June 2014 has come in at 5.7%. This is the fastest economic growth that India has seen in the last nine quarters. During the period of three months ending in March 2014, the GDP had grown by 4.6%. Between April to June 2013, the GDP had grown by 4.7%.
This growth was on back of ‘electricity, gas & water supply’ which grew by 10.2 per cent , ‘financing, insurance, real estate and business services’ which grew by 10.4 per cent and ‘community, social and personal services’ which grew by 9.1 per cent.
Manufacturing which is one of the bigger components of the GDP grew by 3.5% during the quarter. It had contracted by 1.1% between April and June 2013. Manufacturing has grown even on a quarter to quarter basis. During the period January to March 2014, it had contracted by 0.7%.
Trade, hotels, transport & communication which forms the biggest component of the GDP at a little over 25%, also did well relatively better and grew by 2.8% during the period. Between April and June 2013, it had grown by 1.6%. The agriculture sector grew by 3.8% during the period, in comparison to 4% last year and 4.7% between January and March 2013.
All in all most sectors have done better than they had in comparison to last year. What are the reasons for the same? Supporters of Narendra Modi are likely to suggest that this is a clear impact of Modi taking over. But Modi took over as the Prime Minister of the country only on May 26, 2014, and by that nearly two-thirds of the three month period under consideration was already over. So his impact cannot be really great.
Nevertheless at the start of April 2014 it was clear that the Modi led National Democratic Alliance would dislodge the Congress led United Progressive Alliance from power. Hence that could have played some role in the increased activity in the manufacturing sector. Most business houses before the Lok Sabha elections had become pro-Modi. There was a belief that after Modi was elected to power the business and economic environment in the country would improve and that could have led to increased activity in the manufacturing sector. At the consumer level one important reason for the growth in the manufacturing sector could be improving car sales. Take the case of Maruti Suzuki, India’s largest car maker. For the period April to June 2014, the car sales for the company stood at 270,643 units, up 10.3 percent from April-June 2013. This after car sales had more or less stagnated for close to one year.
Car sales are a reasonably good economic indicator. Floyd Norris writing in The New York Times explains it best: “New-car sales can be a particularly sensitive economic indicator because few people really need to buy a new car, and thus tend not to do so when they feel uncertain about their economic prospects. Even if a car purchase can no longer be delayed, a used car is an alternative.”
Postponing the purchase of a car obviously has an impact on the car company. But it also has an impact on a host of other companies. As T N Ninan wrote in a column in Business Standard in January 2013 “The car industry is a key economic marker, because of its unmatched backward linkages – to component manufacturers, tyre companies, steel producers, battery makers, glass manufacturers, paint companies, and so on – and forward linkages to energy demand, sales and servicing outlets, et al.” And car sales growth leads to a growth of a lot of other sectors as well, and ultimately shows up in manufacturing growth as well.
While car sales growth is a very good economic indicator in developed countries, the same cannot be said totally about a developing country like India. There are other important factors at play when it comes to economic growth.
Another important factor which led to better economic growth in April-June 2014 was the fact that the sixteenth Lok Sabha elections were conducted during the period. One estimate suggested that the total expenditure on the elections would come to close to Rs 30,000 crore, including the Rs 7,000-8,000 crore spent by the government to carry out the elections.
A sudden increase in spending gets the multiplier effect into play. Money spent ultimately lands up as income in the hands of someone. He or she then spends that money again and that in turn lands up as income in the hands of someone else. This is how the multiplier effect comes into play and leads to faster economic growth. It is interesting to see that the services part of the economy grew significantly faster during this period, in comparison to the same period last year. This could clearly be because of all the money that was pumped into the economy by the government, political parties and candidates, during the course of the Lok Sabha elections.
This is an important factor that needs to be kept in mind while analysing these GDP numbers and the best economic growth in nine quarters. The GDP numbers for the period to July to September 2014, will clearly tell us whether economic growth has really revived to some extent or was the 5.7% growth a blip due to the Lok Sabha elections?
Also, the Monsoon this year hasn’t been normal. Data from the India Meteorological Department shows that Monsoon this year has been 18% below normal. If you look at the data in a little more detail, Monsoon in the North West region (basically Punjab, Haryana and Rajasthan) has been 34% below normal. Even though large parts of land in Punjab and Haryana is irrigated, there is bound to be some impact on agricultural growth.
Further, Central India which produces pulses and oil-seeds has seen a Monsoon deficiency of 17%. This part of the country is largely unirrigated and depends on rainfall for agricultural produce. A deficient Monsoon is bound to have an impact on agricultural in this region. And that will translate into lower spending and thus have an impact on other sectors as well.
To cut a long story short
, Indian economic growth hasn’t come out of the woods as yet. And the GDP data for the period July to September 2014 should give us a clearer picture.

The article originally appeared on www.Firstbiz.com on August 29, 2014

(Vivek Kaul is the writer of the Easy Money trilogy. He tweets @kaul_vivek)

Labour reforms: What Modi’s ‘Make in India’ call can learn from the Bolsheviks

narendra_modiVivek Kaul

I was just joking to a friend during the course of a discussion in early August that soon we will start talking about the Rajasthan model of development. And that seems to have happened sooner than I had estimated.
The Business Standard in an editorial titled The Rajasthan Model today (August 19,2014) writes that Vasundra Raje, the chief minister of Rajasthan “is single-handedly creating a “Rajasthan model” of development.” This model, the paper goes on to write, differs from other models like the “Bihar model” and the “Gujarat model” in putting “liberal economic reform at the centre of the development strategy”.
Labour reforms are a key part of what seems to be emerging as the “Rajasthan model”. It is well worth mentioning here that the size of the organised work force in India is only around 15.8% of the total workforce (Source: What’s Holding Back India’s Labour Market Environment? Part 1, Morgan Stanley, August 12, 2014). And this work force which is highly unionised and tends to punch over its weight, has held back the growth of the Indian manufacturing sector.
Before we go any further let’s go back a little in history. Nicholas II, the last Tsar of Russia abdicated(i.e. relinquished) his throne in early 1917, after a massive revolt broke out. As Alan Beattie writes in False Economy—A Surprising Economic History of the World “Undermined by Russia’s dismal military failure on the Eastern Front of the First World War, the Tsar abdicated in February 1917 after a massive rolling revolt grew in Petrograd [known as St Petersburg till 1914, changed to Leningrad in 1924 and back to St Petersburg in 1991]…Starting with industrial workers, the rebellion then progressed to thousands of mutinying soldiers. This was a popular uprising but not a communist uprising.”
In fact, the communists were caught napping around the time of the popular uprising. “The ‘Bolshevik’ political grouping led by Vladimir Lenin and Leon Trotsky, which would eight months later take control of the country and become the Communist Party of the Soviet Union, was taken by surprise. Many of its key members were not even in Russia at the time, giving rise to the faintly comic spectacle of a bunch of revolutionaries hurrying home to catch up with a revolution,” writes Beattie.
Over and above that the Bolsheviks did not have support of people across the length and breadth of Russia. The Socialist Revolutionaries had that support. Nevertheless the Bolsheviks still managed to seize power. What worked in favour of the Bolsheviks was their “increasing control over Petrograd’s ‘soviet’, or workers’ organization, through the months that followed.”
As Beattie writes “They [i.e. the Bolsheviks] watched their rivals punch themselves out and exhaust local popular support by trying to run a provisional government after the February revolution. Amid mounting discontent with the [First World] war, which was still continuing, the Bolsheviks’ October revolution was a special forces assassination of a tottering government, not a pitched battle against the commanding heights of a functioning state.”
In fact, more people were accidentally killed when director Sergei Eisenstein was making a movie on the October revolution than were killed “during the event itself”. The Bolsheviks managed to punch way above their weight because their support was concentrated around Petrograd where the seat of power was, in comparison, the support of the Socialist Revolutionaries was spread across Russia’s vast interior. And given this, as Beattie writes “The Bolsheviks found it amazingly easy simply to dismiss the Constituent Assembly which was supposed to take power and in which the Socialist Revolutionaries had a clear majority, and take control themselves.”
The Indian labour market is similarly placed. The organised labour tends to punch above its weight like the Bolsheviks, primarily because labour laws are rigged in its favour. It is also unionised and the unions ensure that any prospect of labour reform which is beneficial to the overall labour force and not to organised labour, is vociferously opposed.

If genuine labour reform has to happen, it is this ability of the organised labour force to punch above its weight, that needs to be controlled. Let’s take the case of the Industrial Disputes Act 1947. According to this Act any factory employing more than 100 workers needs the permission of the state government, if it decides to lay off a worker. The permission to lay off employees if the situation demands so is difficult to get.
This has led to a situation where firms continue to remain small even when they have an opportunity to grow. It also explains why a country like Bangaldesh manages to export more apparel than India. Economist Arvind Panagariya in an open letter to Rahul Gandhi in November 2013 wrote that “India exported less apparel than much smaller Bangaldesh and less than one-tenth that by China.” Most Indian apparel firms start small and continue to remain small.
This leads to a situation where they cannot benefit from the economies of scale and hence, cannot compete in the export market. In their book India’s Tryst with Destiny, Jagdish Bhagwati and Panagariya point out that 92.4% of the workers in this sector work with small firms which have forty-nine or less workers. Now compare this to China where large and medium firms make up around 87.7% of the emplo
yment in the apparel sector.
Given this, the smallness of the Indian apparel sector, the economies of scale never come into play. As Panagariya wrote in the Business Standard recently “It is astonishing that Indian laws view a factory of 100 workers as a large, corporate firm. In the United States, any firm with fewer than 250 workers is classified as “small”, while a firm with 250 to 500 workers is classified as “medium”. Even the World Bank, a development institution, defines a firm with 50 to 300 workers as being of medium size, and not large.” This ensures that a firm that starts small, continues to remain small. And this ultimately has an impact on job creation. As Chetan Ahya and Upasana Chachra of Morgan Stanley point out in a research note titled What’s Holding Back India’s Labour Market Environment? Part 1 “All of these ultimately lead to lower job growth. Indeed, the manufacturing sector accounts for only 12.9% of GDP in India (2013) vs. 31.8% in China (as of 2011), 23.7% in Indonesia, 20.5% in the Philippines, and 14.8% in Brazil.”
History tells us that the creation of a strong and robust manufacturing sector is very important for robust economic growth. But in India’s case the system as it stands is rigged in favour of the incumbent large firms and organised labour.
The Industrial Disputes Act also requires the firm to take consent from the workers before modifying an existing job description. “This creates additional rigidities in the use of labour in response to changing market conditions,” write Ahya and Chachra.
Another tricky point is the fact that only 10% of the workforce is required to start a trade union. As the Trade Unions (Amendment) Act, 2001 points out “No trade union of workmen shall be registered unless at least 10% or 100, whichever is less, subject to a minimum of 7 workmen engaged or employed in the establishment or industry.”
This leads to a situation where there is “scope for multiple trade unions in a single factory”. As Ahya and Chachra point out in a note titled What’s Holding Back India’s Labour Market Environment? Part II dated August 18, 2014, “A company with 700 workers can have 70 trade unions. In most other countries, the requirements for minimum membership for trade unions to be recognized are higher than those in India, reducing the scope for multiplicity of unions.”
In Pakistan at least 20% of the workmen are required for the trade union to be registered. In Bangaldesh the number stands at 30%. Sri Lanka requires a minimum of seven employees for a trade union, but collective bargaining is only allowed if the trade union represents a minimum of 40% of the total employees.
Then there are multiplicity of laws to cope up with. This is primarily because labour law is a concurrent subject and both the central and state governments can legislate on it. As Ahya and Chachra point out “This has resulted in multiplicity of laws, at times with overlapping jurisdictions. Currently there are 44 central laws and about 160 state laws on the subject (ILO, 2013).” It is not rocket science to conclude that it is very difficult for any entrepreneur to follow all these laws. As Reuters columnist Andy Mukherjee wrote in a recent column “As a textile businessman recently tweeted, if small and mid-sized companies in India followed all existing rules, “your underwear will cost what your jeans cost today”.”
The Rajasthan government has begun chipping away at these laws. One of the changes proposed is that a firm needs to approach the state government when laying off workers only if it employes three hundred or more workers. These are state level changes being made to central government regulation, and hence, they need the assent of the president.
But Rajasthan is just a small part of the overall puzzle. Labour market reforms are needed at the central government level especially if Narendra Modi’s recent “Make in India” call needs to be taken seriously.
Currently, China accounts for 17.5% of the total global manufacturing exports. India in comparison stands only at 1.6%. Labour markets reforms at the central government level are needed if that number has to go up.

The article originally appeared on www.Firstbiz.com on August 20, 2014
(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)