Deregulating Labour Law Restrictions Can Create More Jobs: Economic Survey

The MSME sector, which is called out as the engine of growth in India caught full attention in the economic survey. With full dedicated chapter titled, Nourishing Dwarfs to Become Giants: 03 Reorienting Policies for MSME Growth. The economic survey talked about this sector at length and also suggested a slew of policy changes and suggestion in order to create more jobs through this sector.

In this chapter, this time there are certain adjectives used to differentiate between micro small and medium enterprise. The enterprise that is employing less than 100 employees and is more than 10 years old are labelled as dwarfs. 

Skimming through the economic survey one can for sure make you aware about how grave the problem of job creation is. And thus to lend credence to the fact, in economic survey, it is mentioned that keeping in mind the current labour force participation rate for next two years which is at 60%. It’s incumbent on the part of the government to generate at least 55-60 lakh jobs annually.

Here the importance of MSME come in as the MSMEs are not only profitable for their promoters but also contribute to job creation and productivity in the economy. In the economy one pattern that has been drawn out is that how the dwarf enterprise, those who are employing less than 100 people dominates the Indian economy and holds back job creation in the economy. Another reason they are labelled as dwarfs is due to their stunted growth because they are both small and older than ten years and have continued with their stunted growth despite surviving for more than 10 years.

As mentioned in economic survey, according to the data from Annual Survey of these industries, these dwarfs accounts for half of all the firms in organised and manufacturing by number but their contribution in job creation is 14.1%.  However, their net value added is just 7.6%.

In suggesting policy changes to foster the job growth across MSME in economic survey it is mentioned that our policies are fairly protecting and favouring dwarfs. But need is to favour and protect infants. Infants here are the enterprises that are small and young while dwarfs are enterprises that are small but old. But the catch here is that, while infant firms can grow to become large firms that are not only more productive and generate significant employment, dwarfs remain small and contribute neither to productivity nor jobs.

Policies create a perverse incentive for firms to remain small this is one of the most important point raised in the economic survey. And adding on to this it is also mentioned that there are a few legislations in India such as Industrial Disputes Act (IDA), 1947, Trade Union Act, 2001-Registration of trade unions, Factories Act, 1948 exempts smaller firms from complying with these legislations. So according to economic survey, size-based incentives that are provided irrespective of firm age and inflexible labour regulation, which contain size-based limitations, contribute to this predicament.

Thus, there is need to deregulate labour law restrictions, which can create significantly more jobs, as witnessed by the recent changes in Rajasthan as compared to the other states.