{"id":5659,"date":"2017-10-03T19:28:37","date_gmt":"2017-10-03T13:58:37","guid":{"rendered":"https:\/\/teekhapan.wordpress.com\/?p=5659"},"modified":"2017-10-03T19:28:37","modified_gmt":"2017-10-03T13:58:37","slug":"robots-dont-take-toilet-breaks","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2017\/10\/03\/robots-dont-take-toilet-breaks\/","title":{"rendered":"Robots Don’t Take Toilet Breaks"},"content":{"rendered":"

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\nOne of the points I often make is about one million Indians entering the workforce every month. That makes it 12 million or 1.2 crore youth entering the workforce every year.<\/p>\n

That is our ‘so called’ demographic dividend.<\/p>\n

And that is half the population of Australia.<\/p>\n

And that is more than 2.5 times the population of New Zealand.<\/p>\n

The question is where are the jobs for these youth?<\/p>\n

The former RBI governor Raghuram Rajan made a similar point recently, when he said:\u00a0“Remember that we have what we call the population dividend. A million new people entering the labour force every month… If we don’t provide these jobs that are required, you have a million dissatisfied entrants. And that could create a lot of social mischief.”<\/em><\/p>\n

The government’s response to this issue seems to be, that we have done what we could, now it is the industry’s turn to do its bit. As Arvind Panagariya\u00a0recently said<\/a>:\u00a0“The major impediment in job creation is that our entrepreneurs simply do not invest in labour intensive activities.” Pangariya said this on August 25, 2017. He was the vice-chairman of the Niti Aayog at that point of time. His term came to an end on August 31, 2017.<\/em><\/p>\n

Recently, the Labour Secretary M Sathiyavathy also made\u00a0a similar point<\/a>, which was that eight states had amended the Industrial Disputes Act. This gave firms more flexibility to hire and fire workers. But despite this the corporates were not investing in labour intensive industries in these states.<\/p>\n

The question is why are firms not investing in labour intensive industries. First and foremost, the Industrial Disputes Act is not the only labour law going around which needs to be amended, if corporates are to invest in more labour-intensive industries.<\/p>\n

As Jagdish Bhagwati and Arvind Panagariya (the same Arvind Panagariya quoted earlier, and this makes me wonder why did he say what he did) write in\u00a0India’s Tryst with Destiny: “The costs due to labour legislations rise progressively in discrete steps at seven, ten, twenty, fifty and 100 workers. As the firm size rises from six regular workers towards 100, at no point between the two thresholds is the saving in manufacturing costs sufficiently large to pay for the extra costs of satisfying these laws.”<\/em>\u00a0Hence, India needs better labour laws. The work that has already been done on this front is clearly not enough.<\/p>\n

We will get back to labour laws later in the Letter. Recently, I came across a very interesting research report by Nikhil Gupta and Madhurima Chowdhury of Motillal Oswal, who have a very interesting data driven take on why Indian corporates prefer to use capital rather than labour.<\/p>\n

The analysts use data up to 2014-2015 from the Annual Survey of Industries and based on it conclude that over a period of 35 years up to 2014-2015, the rate of employment in the Indian industry has increased at 1.9 per cent per year on an average. At the same time, the gross value added has increased at the rate of 8 per cent per year on an average.<\/p>\n

One method of measuring the gross domestic product (GDP) is by calculating the value added by the different industries during the period the GDP is being measured. This value added is referred to as gross value added (GVA). The GDP is defined as GVA plus indirect taxes minus subsidies.<\/p>\n

What the Motilal Oswal analysts are essentially saying is that while the gross value added has grown at a rate of 8 per cent per year, labour employment in the industrial sector has grown at just 1.9 per cent. Factories covered by the Annual Survey of Industry covered around 1.4 crore individuals in 2014-2015. This basically reflects labour employment in the formal sector and forms around 20 per cent of the total employment in the Indian manufacturing sector.<\/p>\n

So, what is happening here? Why has GVA grown at 8 per cent per year and the employment at just 1.9 per cent per year? The companies have expanded using capital (i.e. money to buy machinery and equipment). Gupta and Chowdhury point out that employment has grown at an average of 1.9 per cent per year, over a period of 35 years. In comparison, the capital employed by industry has grown at the rate of 14 per cent per year.<\/p>\n

Clearly, capital has won the race hands down. Or if I were to put it in simple words, when it comes to Indian industry, machine has won over man for a while now.<\/p>\n

The total number of employees per factory has come down from 80 in the early 1980s to around 60 in 2014-2015. Hence, the average Indian factory now employs one fourth fewer people than it did earlier. At the same time, the total capital employed in a factory has jumped from less than Rs 50 lakh to more than Rs 10 crore, during the same period.<\/p>\n

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There are multiple things that we can conclude from these numbers:<\/p>\n<\/div>\n