Labour Law Reforms to boost manufacturing

by rawemotions Sat Oct 18, 2014 8:14 pm

http://swarajyamag.com/economy/7-labour-law-reforms-to-boost-manufacturing/

by truthbetold Sat Oct 18, 2014 8:41 pm

Raw

I think "Make in India" is a heavy lift. Indian exports have been very successful in intellectual labor (software, engineering services) or cheap labor (carpets, diamonds, mining).

Indian work ethic, product quality and productivity are still below many of the developing nations. Infrastructure improvements may a help a little but that is a really long term task.

As far as labor laws are considered, there is a lot of room for reform. Organized labor is very aggressive and could be a hindrance (ex: Maruti strike and Yanam manager murder). However, Indian labor movement have legitimate grievances. Indian capitalists are really terrible at following the law and taking care of labor and paying a decent wage. So labor will remain skeptical about a pro capitalist modi.

For India's sake, I hope modi succeeds. But my logical side says, "make in India" is not going to be modi's crowning achievement.

by rawemotions Sat Oct 18, 2014 9:08 pm

truthbetold wrote:Raw

I think "Make in India" is a heavy lift. Indian exports have been very successful in intellectual labor (software, engineering services) or cheap labor (carpets, diamonds, mining).

Indian work ethic, product quality and productivity are still below many of the developing nations. Infrastructure improvements may a help a little but that is a really long term task.

As far as labor laws are considered, there is a lot of room for reform. Organized labor is very aggressive and could be a hindrance (ex: Maruti strike and Yanam manager murder). However, Indian labor movement have legitimate grievances. Indian capitalists are really terrible at following the law and taking care of labor and paying a decent wage. So labor will remain skeptical about a pro capitalist modi.

For India's sake, I hope modi succeeds. But my logical side says, "make in India" is not going to be modi's crowning achievement.

I do not think he expects it to be his crowning achievement. He wants at the top level the contribution of Industry to the GDP to be at 33%. Right now it is lower than that.

Also, majority of the labour is engaged in an area that contributes to less than 25% of the GDP.
See the chart reproduced from the article below. (Caveat: I have not verified the veracity of this chart)

While I would agree with most of your points, I would not agree with your generalization on work ethic.

Hyundai started a plant in India with lot of doubts. However, they were very surprised to find that the quality and
productivity matched South Korean factories within a few years.

This was the main reason, they decided to make India as the main base for manufacturing and exporting Small Cars.

Productivity is a function of so many things, modern machinery, raw material. For machinery and technology we can get help from Germans.
The issues varies from industry to industry. Low productivity is also seen in agriculture, so it is not confined to industry.

India's achillles heel in my opinion (order of importance) is
a) Transportation/Customs bottlenecks/Logistics (Required for both import of Raw Material and export of finished products)
If you can ensure reliable and cost effective turn around times of transportation, half of the battle is won. At the end of the day
for smooth manufacturing getting goods to customers on time is key,
b) Availability of uninterrupted, good quality Power supply (India's power supply frequency varies a lot from 50 Hz)
c) Availability of skilled mid-level workers familiar with the latest technology and skilled blue collar workers.
India has enough managerial/ finance talent.
d) New one thanks to the Socialist Congress/UPA, Land Acquisition issues
e) Archaic Labour laws/tax policies and regulatory framework
f) Ability of State and central governments to work in tandem, and smoothen the path for investors.
(BTW it is strange that spell check has issues with the word smoothen, it wants to change it to smooth-en)
Labour Law Reforms to boost manufacturing Labour-laws-chart

Labour Law Reforms to boost manufacturing Labour-laws-chart

by truthbetold Sat Oct 18, 2014 9:39 pm

Raw

I am not opposed to India focusing on manufacturing. My contention is that past experience is that India culture/systems are not very conducive to a robust manufacturing growth.

Labor, land, weather, food habits, attitude towards quality, and trained workforce are all negative. Other Asian countries have found the formula in past several decades. It is difficult for India to beat them any time soon.

by Kris Sat Oct 18, 2014 9:51 pm

Productivity is a function of so many things, modern machinery, raw material. For machinery and technology we can get help from Germans.
The issues varies from industry to industry. Low productivity is also seen in agriculture, so it is not confined to industry.

India's achillles heel in my opinion (order of importance) is
a) Transportation/Customs bottlenecks/Logistics (Required for both import of Raw Material and export of finished products)
If you can ensure reliable and cost effective turn around times of transportation, half of the battle is won. At the end of the day
for smooth manufacturing getting goods to customers on time is key,
b) Availability of uninterrupted, good quality Power supply (India's power supply frequency varies a lot from 50 Hz)

>>>Agree with you on productivity. Regarding (a) above, I would add the local infrastructure as well. I am assuming part of the enticement to get people to set up shop in india would be the local market. If they are not able to move their goods within the country, that is a big damper presumably.

by rawemotions Sat Oct 18, 2014 11:24 pm

truthbetold wrote:Raw

I am not opposed to India focusing on manufacturing. My contention is that past experience is that India culture/systems are not very conducive to a robust manufacturing growth.

Labor, land, weather, food habits, attitude towards quality, and trained workforce are all negative. Other Asian countries have found the formula in past several decades. It is difficult for India to beat them any time soon.

Even if 1/10th get out of Agriculture into manufacturing it is still a big achievement.

Even if there are relative disadvantages, it makes sense for India to try. There is simply no other alternative. Services are already at 50% and saturated.
Agriculture has limitations on water resources/labour costs and limitations on agrarian land. It needs its own productivity improvements.

On the Market Access
There are still areas India can get into.
We have to use Geography to our advantage here. We cannot for example hope to export to the Phillipines.
It is right near Shangai and it is probably cheaper and faster to get stuff from China. However India has some advantages
if we consider Middle East/Southern Africa or Even Myanmar / Thailand and even South America.

That is the reason China desperately wants Pok->Gwadar Rail/Road corridor. That route is a direct threat to Indian advantages.
The trick would be to somehow Convince China, that given the fragility and unreliability of political situation in Pakistan,
it is better for the Chinese to manufacture in India (at least in those areas where labour cost has gone up in China),
and in some sense even undercut Pak by offering a route through India for certain Chinese products, in which
the Chinese do not directly compete with India (Green Tea for example).

Then Kris made a point on local market and local infrastructure.
In some sense Modi was echoing the same when he said that, 900 Million phones are bought
by Indians, but only a small portion is manufactured in India. So he says atleast for internal market , let us manufacture here.
He also has stressed on Quality. and has even added Green manufacturing (zero cost to environment). although I have my doubts on whether it
will be cost-effective. This is not very different than the US, which is now stressing on local manufacturing.

Good Local transportation to ports are also Key here.

On your other points of weaknesses,
a) Treating entire labour as negative is too pessimistic and not warranted.
Bharat Forge is world class, and so are many other industries in some niche areas (pharmaceuticals for example, notwithstanding needling by the FDA,
or Tata steel)

b) I do not think weather is an issue. Weather in Shangai is not exceptionally better.
c) Attitude towards quality is something Modi also has stressed, to bring about a cultural change.
It can also be managed by efficient processes and good managerial talent and top quality machinery
and well vetted raw materials.

d) I do not really get how food habits come into the picture here.
e) On Trained workforce Modi has stressed on skilled development.
But I wish I see the industry minister/bureaucracy/FICCI/CII talking about all these, other than Modi himself.
In addition skill development has to be standardized, otherwise each state will start their own program, and
pretty much everything will be fragmented. So some thought
has to be put into skill development institutes. We do not want just another set of Industrial Training Institutes
(but something more contemporary)

The devil is in the details. I think his policy framework and goals are correct. I do agree though that India is late to the party, but India
has no choice but to try every single avenue to generate employment in large numbers. There are about 20 Million new folks looking for employment
each year.

Modi has not taken up a sexy issue. But it offers hope to somebody who is a high school or even college graduate, in the hinterland
who finds no route for employment today, does not want to leave the village, and does not want to become
a NREGA bridge groom/bride. NREGA dependents have issues in getting married, because they are socially looked down upon

I agree he is attempting something ambitious and fraught with bottlenecks, but given the precarious circumstances no option for employment
generation should be ruled out. In fact he should have multiple ministers overseeing each of these areas contributing to Job Growth.

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