FROM BUSINESS WORLD OF 30 SEPTEMBER 2005
Disobedient economy
There was a time long ago – in 2003/04 to be precise –
when gross domestic product (GDP) grew 8.5 per cent. What goes up generally comes down; the growth
rate came down to 6.9 per cent the following year. That did not prevent the
Bharatiya Janata Party (BJP) from claiming in last year’s election that India
was shining. Not so, said the Congress: how could the economy be shining when
farmers were committing suicide? It did not win the argument, but it won just
enough votes to come to power. Ever since it did, the Prime Minister has
ordained that the economy must grow at 7-8 per cent, and his more ebullient
ministers had to rein themselves in.
All that self-restraint, all that modesty, all that
caution was to no avail; the economy grew at 8.1 per cent in the second quarter
of 2005. This time there is no one to take credit where none is due, to drum up
sentiment, to crow and break into a victory dance; from the government emanates
silence, embarrassed or otherwise. So it is for us to do the needful.
More remarkable than the torrid growth is its composition.
The growth in 2003/04 rode on the back of agriculture, which had grown 9.6 per
cent as production recovered after an unprecedented drought. Industry had grown
slightly faster than in the previous year, services slightly slower; between
the two, the secondary and tertiary sectors showed no particular dynamism. In
other words, the high growth was a statistical phenomenon: it is a
characteristic of annual growth rates that they rise and fall alternately. And
it was fortuitous, insofar as monsoons are an act of capricious weather gods.
In the second quarter of 2005, on the other hand, the
primary sectors did particularly badly: agriculture grew only 2 per cent, and
mining only 3.2 per cent. Services did slightly better. It was manufacturing
that stole the show, as its growth rate rose from 7.9 to 11.3 per cent. For the
first time since the early 1990s, when the Prime Minister engineered the last
boom, industry is showing serious, sustained growth. It may still be too early
to shake off manufacturing pessimism, for we are still far behind China; but it
is becoming more difficult to sustain despair, that we can never become a great
manufacturing nation.
Still, it has been true through the NDA years, and it
still continues to be true, that services are growing faster than industry.
Since industrial consumption in India continues to be abysmally low, it is
reasonable to assert that the inferior performance of manufacturing is due to
man-made obstructions – to the administrative and fiscal hurdles to the setting
up and running of industrial enterprises.
Of these there are many, relating to land, labour, capital
and foreign trade. But if there is one area in which Chinese practices are
unquestionably superior, it is in respect of labour legislation. Unfortunately,
it is inconceivable that this government, propped up by the Left as it is, can
make matters better. But it is extremely important that it should not make them
worse.
In particular, its proposal to increase retrenchment
compensation from 15 to 45 days for every year of service, and at the same time
to raise the small industry ceiling from 100 to 300 workers, is ill conceived.
In a country where industrial jobs are prized and those employed in industry
constitute a labour aristocracy, it is unrealistic to expect the government to
introduce hire-and-fire. But it would be a mistake to increase retrenchment
compensation unless the government simultaneously removes all controls on
retrenchment – in particular, the obligation to get permission of the State
government in question, which is routinely refused. An industrial job is a
jagir, and a worker can expect to get a price for it if he gives it up. But it
should be a market price, voluntarily agreed between the worker and the
employer; there should be no floor of 45 days’ wages to it. And as long as the
two voluntarily agree, the government should not interfere in the agreement,
which is of mutual benefit. At most it may insist that any agreement between
the two should be reported to a state authority and that it should have a right
to satisfy itself about the bona fides. Such a provision would be an advance on
the present practice, studiously ignored by the government, wherein employers
routinely declare a lockout and starve out workers until they submit.
