Originally Published 2018-12-24 08:44:40 Published on Dec 24, 2018
NITI Aayog's strategy document: Status quo on land, labour laws won’t help

If NITI Aayog’s new strategy paper is any indication of the economic direction this government would take if it returns to power in 2019, the portents are mixed. From economic growth and doubling farmers’ incomes to reforms in labour and infrastructure, the ‘Strategy for New India @ 75’ is mostly in tune with such reports of the past and addresses troubling issues.

But barring agriculture --- to which it devotes three chapters (modernising agriculture, policy and governance, and value chain and rural infrastructure) --- it fails to see ground realities or offer fresh solutions. In fact, in this report, these three chapters are the best conceived and focus on real issues of increasing productivity, pushing marketing reforms, amending the Essential Commodities Act, encouraging land aggregation, and strengthening logistics and value chains. And yet, the burning issue of farm loan waivers is missing.

Beyond the farm, this Strategy will be yet another well-thought, well-crafted document that will lie buried in some dark corner of India’s policy crypt. It is one thing to put together a group of experts together and create a vision, a direction, or in this case a strategy; it is quite another to see it come to life. This Strategy shies away from making hard recommendations.

It visualises India as a $4 trillion economy by 2022-23 from $2.7 trillion in 2017-18. That presumes a compounded annual growth rate of 8.2 percent per annum. This number is almost 1 percentage point higher than India’s current growth expectations, and depends on conditions that are internal (reforms) as well as external (global headwinds as economics get nationalistic and close doors) to India’s actions. This number is almost within reach --- but not without future-ready big changes.

For instance, over the next five years, while the Strategy aspires to increase the investment rate to 36 percent from 29 percent, exports to $800 billion from $478 billion, and share of manufacturing to 25 percent from 15 percent, the underlying policies that can enable and catalyse these numbers are missing. In particular, reduction of inspector Raj at the factory level and policy uncertainties such as retrospective taxation in general, and labour and land reforms --- the focus of this essay --- in particular.

Labour laws

The big Strategy sounds impressive: “Encourage increased formalisation of the labour force by reforming labour laws, easing of industrial relations and ensuring of fair wages, working conditions and social security through significant productivity improvements in the economy.” But again, well-articulated is rarely well-executed --- and we see no big reform recommendations.

But when it comes to ‘reforms’, they are conspicuous by their absence. Going granular, the Strategy gives three directions on labour. First, it suggests simplifying and modifying labour laws applicable to the formal sector to introduce an optimum combination of flexibility for employers and security for employees. This is an old argument that has been unable to jump over the political barrier. Repeating it makes no sense.

Second, it aims to push compliance of the labour laws. This is like putting bad execution chasing bad laws and will deliver an additional administrative burden for manufacturers that are already reeling under and exhausted by the unusually-heavy compliance burden of the goods and services tax (GST). Above all, it will give greater power to rent-seekers wearing the garb of public servants. It is destined to slow, not speed up, growth.

And three, it aims to bring a National Policy for Domestic Workers to recognise their rights and promote better working conditions. Whether the State has adequate capacity to deliver on this law remains an open question and the proposal will remain a grand political narrative with no power or capacity to implement it.

Further, it seeks to overhaul the labour dispute resolution system to resolve disputes quickly, efficiently, fairly and at low cost and proposes to strengthen labour courts and tribunals for timely dispute resolution. It also pushes to make compliance with the national floor level minimum wage mandatory and suggests the expansion of the Minimum Wages Act, 1948, to cover all jobs.

In trying to remain politically-correct and labour-sensitive, it misses the big picture altogether. It does not take into account the fact that the world’s fastest-growing large economy can no longer run on 20th-century laws. It needs a different legal architecture to face the 21st-century challenges. Mere incrementalism will not do.

To meet the challenges of disruptions going on, particularly through artificial intelligence and robotics, India needs to change in the way it approaches the lawmaking process, such that laws enable rather than block entrepreneurs, and encourage them to use labour rather than machines. For instance, using technology to enhance the “labour inspection system” is good, to expect manufacturers to get attracted to this inspection, invest money and create jobs rather than use robots is being ostrich-like.

Two questions. First, why should capital flow into manufacturing at all, given the huge mesh of laws, rules and regulations that raise barriers to productivity at every step the entrepreneur takes? And second, if manufacturing is an attractive and profitable proposition but labour policies remain unchanged or are burdened by greater compliance, why shouldn’t a manufacturer use robots? They remain unanswered.

Land acquisition

On the other troubling hurdle before not merely manufacturing but infrastructure as well --- land acquisition --- the Strategy has two solutions. First, make Bhumi Rashi, a web-based portal to bring transparency in land acquisition for road projects, functional by March 2019. And second, sensitise stakeholders with details like how to determine the market rate, decide compensation and disbursement.

Both are good ideas, and do take us two steps forward from where we stand. But this is not a ‘strategy’ to fix the land problem, it is only an expression and capture of information around it. The real issue around land acquisition is an underlying suspicion of the state, which the report glosses over.

This suspicion has definite justification in the collective consciousness of those losing their lands --- there is the problem of force, of compensation, of resettlement, of rehabilitation and most important, of not getting the money in banks.

Between 1947 and 2004, for instance, 60 million people have been displaced by the acquisition of 25 million hectares of land, according to erstwhile Planning Commission estimates, based on a study by Walter Fernandes. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation & Resettlement (RFCTLARR) Act, 2013 attempted to fix some of these anomalies but has perhaps pulled the policy lever to the other side, resulting in a stalemate.

At a time when the cost of land has quadrupled over the past five years, the Strategy fails to present fresh thinking on land acquisition. It is unable to see that land is a marketable factor of production, whose value rises with development, or even an expected development. It continues to view land from the perspective of poverty, inequality, justice, even as returns from land can transform economic lives forever.

New ideas such as land value capture, a tool that allows governments to use the expected gains from property values due to planned infrastructure that help create it, as two models in Japan and South Korea have shown, are invisible. Of course, India has its own political economy and will need to find its own way to addresses the concerns of all stakeholders --- land owners, labour that gets a livelihood from that land, and the government and industry that hope to acquire it --- to deliver products, GDP and jobs.

Perhaps we are being too naïve in expecting a Strategy for growth to be real, grounded or practical. With general elections four months away and losses in five states behind it, the government is unlikely to risk talking about sensitive issues. So, when the Strategy talks about the government getting out of non-strategic public sector enterprises, it seems blind to the travails of Air India, a sublime example of policy failure, across governments, before a tiny group of entrenched, entitled unions, and leaves the exchequer burdened.

It is this capture by the few of the entire policy-making fraternity that kills this report. For instance, while it suggests amendments to seven key laws --- Essential Commodities Act, 1955; Motor Vehicles (Amendment) Bill, 2016; Airports Authority of India Act, 1994; University Grants Commission Act, 1956; Maintenance and Welfare of Parents and Older Persons Act, 2007; Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015; and Arbitration and Conciliation Act, 1996 --- it leaves reformist amendments to both land and labour laws out of legislative domains.

At a time when policymaking is lagging a world under disruption, India needs to think big and deliver innovative policy solutions that are in tune with the changes, are flexible to adapt and support, rather than stall, business activity upon which rests the success or failure of a bigger political issue --- jobs. It needs to unshackle itself get out of the intellectual arguments of the past. Those solutions will not serve us any longer because the policy status quo is in conflict with the new world.

This commentary originally appeared in First Post.

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Gautam Chikermane

Gautam Chikermane

Gautam Chikermane is Vice President at Observer Research Foundation, New Delhi. His areas of research are grand strategy, economics, and foreign policy. He speaks to ...

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Guillermina French

Guillermina French

Guillermina French Fundacin Ambiente y Recursos Naturales (FARN)

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