Opinion Factories of the future

Much as one hates to compare India with China to drive home a point and wake policy-makers up,there is little choice. In India,manufacturing accounts for just 15 per cent of our economy or gross domestic product (GDP) compared to 30 per cent in China. Their machine tool industry — which cuts,grinds and shapes metals to make components for machines — is 55 times as big as ours. This industry is the backbone of manufacturing since it helps make components for all kinds of manufacturers. Of course,you could try blaming it on Indian democracy,but the Chinese have smartly adopted a region-centric approach towards reforming labour practices,and this helped companies to employ en masse. For instance,three-fourths of all factories in India employ less than 50,accounting for a fifth of total employment. In China,only 25 per cent of factories have less than 50 people,and they constitute less than 3 per cent of the workforce.

Unfortunately for manufacturing in India,nobody has raised the decibel level about its miseries because the overall economy has grown at a healthy clip over the last decade. Per capita incomes have risen and large-scale state interventions such as the NREGA have clouded thinking — even if you are without a job,there is a guarantee the government will get you one. Yes,a shining services sector has served us well. In the last eight to nine years,the BPO industry has generated almost a million jobs. Much of the employment in the years when India grew robustly was in services. In 2008,the organised sector — accounting for a mere 7 per cent of the total labour force — probably added a million jobs,almost all in services,according to Ma Foi,a leading HR firm. The manufacturing sector actually was happy cutting jobs.

Depending on whom you talk to,our demographic profile is such that over the next decade-and-a-half,about 12-14 million people will enter the job market every year. India is one of a kind: it leapfrogged the manufacturing sector,evolving from being a largely agrarian economy to a predominantly services-led economy. The services sector contributes the bulk — 60 per cent — to total output; manufacturing and agriculture chip in with less than 20 per cent each.

And while a rapidly growing services sector adds significantly to the output,it doesn’t to employment. In other words,everyone can’t become an IT employee. It is only manufacturing — correctly speaking,a robust manufacturing sector — that can create jobs in their millions. Because the labour market entrants will be of many different hues — illiterate and skilled,literate and semi-skilled,etc. They can be accommodated in bulk only in factories. Poor infrastructure (power and connectivity,specifically) is the most important prerequisite for manufacturing. India is addressing this slowly but surely now. A more recent problem is of land acquisition for building large factories.

But what could have spurred large-scale investment is the overhauling of shockingly archaic labour laws. For instance,the Factories Act can penalise you if you don’t have a “matka” in your factory premises. It doesn’t matter if you have a more hygienic water dispenser.

As manufacturing units start employing more,they are subject to more scrutiny. If a factory has over 10 employees,it comes under the Factories Act and has to comply with safety norms,overtime and women’s employment. When there are over 20 employees,companies have to provide for their provident fund; over 50 and they have to offer health cover. Over 100 and a manufacturer loses the right to fire workers or even change their work conditions. The CEO of a large manufacturer of two-wheelers told me recently that he cannot change the number of hours in a shift,even if he keeps the overall number of weekly work hours constant. For example,he can’t ask for a four-day,10-hour shift instead of an 8-hour,five-day shift,although the former will allow him to produce more.

This is perhaps the reason why much of India’s workforce is in the unorganised sector — almost 93 per cent of about 420 million. If you register your factory,your hands are tied. So a big diamond factory employing 1,000 in Gujarat will be made up of 50 small units employing 20 each,just to beat the plethora of rules and regulations to which it would otherwise be subject.

Perhaps the Central government will take for ever to change its labour laws. But it could at least make an effort to help manufacturing — perhaps by facilitating meetings between states and industry to resolve issues such as flexibility in work timings,night-shifts for women workers,and so on.