Towards Progressive Labour Policy to Promote Investment, Growth & Employment

Special address by Ms Dagmar Walter, Director, ILO Country Office for India and Decent Work Team for South Asia at the All India Organisation of Employers’ (AIOE) Annual General Meeting.

Statement | New Delhi | 31 July 2019
Namaskar and Good Evening!
  • Esteemed Mr Rohit Relan, President, All India Organisation of Employers (AIOE);
  • Members of the Dias; Valued members of AIOE; Government Officials and Trade Union representatives;
  • Colleagues and friends;
A very warm welcome to all of you. I am very pleased to be part of the 85th AGM of AIOE!  As one of our oldest employer constituents in India, AIOE is leading the promotion of decent work in the business community in sync with the International labour Organization’s labour standards, since 1932. I thank you for this opportunity to address you on the very topical issue of ‘labour policy for investment, growth and employment’, especially at a time when the world of work is going through transformative change.

The primary mandate of the ILO is to support its member States in achieving full and productive employment and decent work for all, including women and young people, a goal embedded in the ILO Declaration 2008 on Social Justice for a Fair Globalization, and which has now been widely adopted by the international community within Agenda 2030 and the Sustainable Development Goals, especially SDG 8, which reads ‘Promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all’, on which ILO leads. The Decent Work Agenda comprises four interrelated pillars: Respect for fundamental worker’s rights and international labour standards, employment promotion, social protection and social dialogue. In India, the Decent Work Country Programme 2018-22, is the 5-year strategy for tripartite constituents to promote decent work in India.

The ILO Centenary Declaration adopted at the International Labour Conference this June, underscores the need to invest in people through a human-centred approach in order to move forward and create the perspectives for a just and sustainable future of work.

The Centenary Declaration and SDG 8 have much in common. Both recognize that work is essential for sustainable development that leaves no one behind, and can put an end to poverty. Both call for a rights-based approach and just transition to the new economic and employment realities that are being forged by technological, demographic and climate change. The Centenary Declaration offers a roadmap for the future of work we want. One that puts people first. And its enthusiastic adoption by 187 ILO member States including India, shows that the political will is also there.

India has been one of the bright spots in the global economy, growing by 8.0 per cent in fiscal year (FY) 2016 (Apr 2015-Mar 2016), the fastest pace since 2011-12. However, since FY 17 the GDP growth rate is showing a declining trend mostly on account of deceleration in the agriculture and allied industries, manufacturing and construction sectors, while investment remains low in an environment of low credit growth. At the same time, the Periodic Labour Force Survey (PLFS) data for 2017-18 indicates that male youth unemployment rose to 18.7% from 8.1% in 2011-12, while for females it rose to 27.2% from 13.1% in 2011-12. 36.9% in the age group of 15-29 years are neither in employment, education nor training. The rising unemployment rate despite falling labour force participation for the youth is rather worrying. It confirms the trend on rise in joblessness with increase in education level.

Is it then that India is showing early signs of slipping into a “middle-income trap", a risk that most emerging economies are said to be vulnerable to? Wealth inequality and the hierarchical distribution of income in developing countries has long been identified as a growth barrier. Sustaining growth requires the mass mobilization of financial, as well as human resources, and if inequality is acute, the latter tend to come up short. This phenomenon is exemplified by Brazil and South Africa, among others, along with India. Working towards social justice, that is, more jobs, less poverty and inequality, is therefore essential. Decent work is central to this effort, to which labour policies and more equitable economic development are essential. Therefore, against this backdrop, the recent creation of two Cabinet committees in India on investment & growth and employment & skill development, is very timely and underscores the country’s commitment to address these challenges.

Many argue that rigidities in labour markets are bottlenecks to doing business in India since it makes smooth adjustments difficult in the face of exogenous economic shocks, such as those associated with new technologies, oil price, uncertain markets and others. We often hear businesses say that for prices and competition to play both a balancing and incentivizing role, the supply and demand sides of the market must be independent of each other. Though this may hold true at the microeconomic level, this is not necessarily true at the macroeconomic level. For instance, cutting wages can make sense to the individual firm, looking to minimize the costs of making its particular product. However, if all firms adopt a similar approach, the overall demand that each firm faces for its output will be reduced along with creation of net employment and distribution of the gains from productivity growth. ILO studies and interventions in various countries show that unsatisfactory labour market outcomes are more likely to be due to insufficient investment in real productive capacity and inadequate wage growth, which in turn is greatly influenced by policy choices, than due to insufficient flexibility in labour markets and the replacement of labour by capital.

The above therefore underscores effective designing and monitoring of macroeconomic policies and development strategies, along with policy coherence and inter-ministerial and center-state coordination, these are essential pillars for the labour market to function as desired. Balancing trade and technology fall out on the labour market, barriers to gender equality, just transition to environmental sustainability, fair and informed labour migration, transition to formal economy are necessary considerations to curtail underutilized labour and high or rising unemployment.

Policy measures need to form the basis of a medium-term employment strategy that aims at quality job creation and avoids a race to the bottom in terms of wages and working conditions.

Firstly, not any investments but those that create jobs are important.

India’s efforts in recent years to improve access of people to basic amenities is laudable. GoI’s flagship initiatives, drawing huge public investments especially in infrastructure development, can dramatically improve living standards and has a direct impact on employment generation. Use of local labour and resources to build much needed infrastructure and by involving communities in the planning, more jobs are created, costs are reduced and local industry is supported. The ILO in collaboration with Ministry of Rural Development demonstrated this in 22 States under GoI’s flagship programmes, PMGSY and MGNREGA. The experience also underscored the need for strengthened capacity of State Governments to embed employment objectives in State programmes and in their monitoring ability. Drawing from ILO’s experience in Odisha, Rajasthan and UP, it is essential to support local institutions to develop investment plans that focus on sectors which are closer to the traditional core competency of the local community, promotes transition to formality, and are environment friendly. This has the potential to accelerate growth in the shorter time span, requiring limited upskilling of local workforce.

This brings to me to second point.

Strengthening local institutions to improve efficiency is critical for policies and programmes to yield results.

In a globalized and competitive world, labour markets work best when the institutions that govern them create an environment where income, social and labour protection are ensured for workers, while enterprises are given the room they need to prosper. Well-functioning labour markets need solid policy frameworks and institutions. Ensuring that small enterprises benefit directly from projects and indirectly through credit guarantee schemes and improved access to credit in general, is also crucial to its success. Decisions on budgetary allocations and investments keeping unemployment levels into consideration, has the potential to yield the best and most equitable job gains. Complementary support to skill development especially to minimise job losses due to technology disruption and just transition to greener economy, such as switch from combustion to electric vehicles, coal fired to renewable power plants, etc., can further lead to additional net positive gains.

Finally, balanced, sustainable and credible solutions are best achieved in a tripartite setting, and coordination. Social dialogue providing platforms for the real players in the economy, that is, workers and the employers, to participate in planning, implementation and review of policies and programmes, both at State and Central level can leverage a stronger economic impact. This is articulated in ILO’s Employment Policy Convention, 1964 (No. 122), and in the Global Employment Agenda.

True that we are facing a situation where it is getting difficult to ensure employment generation and security. But solutions are with us, and in our hurry to address the challenges to sustain and accelerate growth, to compromise on tripartite dialogue processes can prove to be short-lived and counterproductive.

The ILO came about in 1919, after World War I, with already India as a founding member. Today the ILO is 187 member State strong. It is a testament to the fact that indeed the world needs the ILO as much as ILO needs the world to make decent work a reality. Your role as employers is absolutely critical. In 100 years we have done a lot, and in the next 100 years we can do even better. Let me leave you with these thoughts.

To conclude, I wish to already congratulate the recipient of the AIOE Industrial Relations award. It is an achievement to cherish and inspire others!