A rich India without Indians getting rich: Why ‘worker welfare’ is an important determinant of investment decisions

The Economic Times, March 28, 2022

By Pradeep S. Mehta and Tanya Goel

India is at the cusp of economic transformation, where it is laying the foundation for building a better and sustainable work environment. More so to have a swift recovery from the Covid pandemic, which has had a huge impact on our jobs market. Though the overall investment in productive sectors in India is rising, distribution of the gains is skewed. The connect between investment and human capital, that is, worker’s welfare and skills development is in the shadows. The need of the hour is to ensure that investors ensure better labour welfare and social equality through their investment conditionalities.

Centre for Monitoring Indian Economy has highlighted that around 403.5 million jobs were lost and the average income of almost 97 percent Indians has fallen during the pandemic. This has resulted in more inequality in the Indian economy and society. For better sustainability of the Indian economy and our society 90 million additional jobs need to be created by 2030. This is a pre-condition for reducing inequality in India. It is pertinent to observe the impact of economic upgrading across various processes on the jobs and well-being of workers.

Re-structuring Investments

According to the World Inequality Report 2022, the top 1% of the population holds 33% of the wealth, and the top 10% holds 64.6% of the wealth in India. Even if India becomes the fifth largest economy by 2025, and is lined up for a third largest by 2030, it needs to ensure prosperity for all in terms of human safety, development, and equality in job opportunities. The downside is that India may become rich without Indians getting rich.

For this to happen in a more equitable manner, realigning of better social security under the reformed Labour Codes and heightened attention to reforms like Economic, Social and Governance (ESG) parameters take centre stage for virtuous and effective growth stimulus. It is important to structure investments in order to ensure workers’ welfare as business responsibility. Welfare should not be considered a cost burden but an investment for human capital formation.

The inequality between the employed, unemployed and unemployable workforce is not just of wages but also of skills and opportunities. This is largely reflected in the huge under-employment that our society is facing. What can investors do under these circumstances to reduce inequality?

For example, investment funds like Temasek Holding work to enable transitions that encourage portfolio companies in their efforts to upskill and reskill the workforce and create a workplace foundation for resilient communities. Such investment funds through their policies encourage the Social in ESGs, by building an inclusive workplace.

Re-structure Production Linked incentive (PLI) schemes

In terms of government policies, how can they ensure better worker welfare through policy measures. One of the ways is to focus on our MSME policies. MSMEs contribute approximately 30 percent of the country’s total GDP; 40 percent of its manufacturing output; and close to 50 percent of its total exports. It gives employment to around 110 million workers.

To further this, under the Aatmanirbhar Bharat agenda, the Production Linked Incentive Scheme (PLI) was introduced. As large-scale manufacturing will require a larger pool of labour, it is expected that the scheme will help in utilising abundant human capital and enable technical education with skilling. However, the PLI schemes aim to focus on capital intensive industries, aka large industries rather than MSMEs which have the potential to generate employment and need incentives to expand.

Restructuring of the PLI scheme to turn it into Employment and Production Linked Scheme (EPLI) and asking recipients to commit to a number of direct and indirect jobs created will ensure adequate employment generation, with a special focus on performance rather than just production.

Further P in PLI should have performance-based categorisation, in terms of productivity and employment. Through this India will maintain a balance between small scale and large-scale industries. Generated employment and better jobs will be indicative of a better economy ensuring prosperity for all, and thus equality.

Product and Process Innovation

Persistent unemployment and decline in manufacturing are a result of technological change as predicated under Industry 4.0. While process innovation can be job destroying, emergence of new sectors, jobs and firms can have a favourable impact of product innovation. The introduction of new products and the consequent emergence of new markets will have job-creation effects. Different technological advances result in different families of new products, which in turn may have different effects on employment. Hence, policies should focus on product innovation to maximise job creation and minimise the direct labour-saving impact of process innovation

Climate Change

The need of the hour is to also look at labour welfare through the lens of environmental and geographical dimensions. Global warming calls for our attention to worsening hunger, starvation, migration, job loss leading to poverty and inequality all over the world, as identified in the latest Intergovernmental Panel on Climate Change. The heat waves are severely going to impact food production, exacerbated by heat-induced labour productivity losses. Further, heat mortality and morbidity will lead to malnutrition, directly affecting the labour (outdoor) productivity. The interacting impacts will reduce household incomes, increase food prices and job loss. Furthermore, it has the potential to reduce economic growth of a country in the short term.

Enhanced Value Chain Assessments

India needs to relook at the opportunity to attract more firms to set up bases in India and seize on the size of our skilled, semi-skilled and unskilled population. While the rich are becoming richer and the poor are becoming poorer, there is more than ever need to work in a more equitable manner, and realigning of better social security under the reformed labour codes and the government schemes.

For the economy to advance, India needs a value chain assessment. Look for employment generating nods in the value chain and direct the policies to them. This may be due to the opacity in financial value-chains resulting in complexities in the efficiency of investments and its linkage with worker’s welfare and skills development. Considering this as one of the tipping points in labour sector reforms it is necessary to investigate if investments, while resulting in profits, can lead to better wages, working conditions, and skills development.

Conclusion

The above four pillars as identified should be seen as an alternative economic thought that India should aim to pursue. India’s challenge is to keep creating good and better jobs amidst the negative externalities of job losses, demographic dividend and climate change affecting the demographics of a country through migration or less productivity. It needs to identify alternate, inclusive and sustainable models of economic growth wherein profits and worker’s welfare can be concurrently pursued.

(The writers work for CUTS International, a global public policy research & advocacy group)

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