Battle-lines drawn over labour reforms

The Indian economy seems to be in fairly robust shape but a negative perception about it is slowly gaining ground. In April-June this year, the rate of economic growth was 7 per cent, which was slower than expected. This has prompted misgivings that the rendra Modi government’s attempts to fast-track growth are slowly beginning to lose steam. The latest figures show that consumer spending is up by 7.4 per cent due to downward retail inflation, the manufacturing sector grew at 7.2 per cent rate to somewhat offset sluggish agricultural sector growth at 1.9 per cent, the services sector grew slower at 8.9 per cent compared to last year, and the gross fixed capital formation rate at 4.9 per cent has shown government investment as its driving force. Growth across individual sectors has been uneven, with manufacturing, construction, real estate, hotels, fincial and insurance services growing at above 7 per cent rates. According to a section of economists, a rate cut by the Reserve Bank is imminent by the end of September when it will announce its monetary policy.

Meanwhile, the debate about measuring economic growth continues with the new data as well, after the Central Statistics Office (CSO) changed its conception of growth in January this year. Growth is now measured at market prices to incorporate ‘gross value addition’ in goods and services, as well as indirect taxes. By the gross domestic product (GDP) yardstick, growth slowed to 7 per cent in April-June from 7.5 per cent in January-March — but by the new gross value added (GVA) at basic prices yardstick, the growth in fact accelerated to 7.1 per cent in April-June against 6.1 per cent in January-March this year. The GVA calculation indicates that there is a strengthening of the ‘real’ economy with consumption recovering, investments picking up and industry doing better. Chief economic advisor Arvind Subramanian has pointed to higher revenue collection and credit growth, while asserting that the country’s economy is ‘recovering’ and may actually be somewhere around 8 per cent. He has at the same time warned that inflation may have come down, but there is a real possibility of price deflation. In the deflation scerio, lower public and private investment will have a dampening effect on employment generation, thereby pushing down demand for goods, and hence their prices.

In the backdrop of global fincial turmoil, the perception of slowdown in reforms in India has prompted rating agencies like Fitch and Moody’s to lower the country’s growth forecasts in the current fiscal. The feeling has grown that unless the rendra Modi government goes ahead with promised land, labour, bank and tax reforms, it will have squandered market confidence. But the government’s lack of numbers in the Rajya Sabha has left it with little room to manoeuvre in the short term, so much so that the monsoon session this year ended without the Parliament passing a single reform legislation. The Modi government has already retreated on the land acquisition bill, leaving it open to states to make any changes in the law deemed suitable. There is little likelihood of the goods and services tax (GST) bill to be passed in the winter session, with the Congress determinedly playing hardball. And to add to all this pressure, labour unions are now upping the ante to forestall any planned labour reforms by the government. The impressive show of strength by banks, mines, factories, transport and construction workers in the countrywide strike on Wednesday — clearly indicate the new battle lines being drawn up. In its bid to attract foreign investment, the Modi government has promised to simplify labour laws which make it costly and time-consuming to set up enterprises. This has raised the hackles of labour unions, fearing easier lay-off policies, shutting down of loss-making factories and hurdles in creating unions. Demanding in turn higher minimum wages, job security and legal protection, labour unions already seem to have put the Modi government on the backfoot. It all depends how the Prime Minister puts forward his vision of economic growth by taking major sections along, apart from side-stepping confrontatiol politics altogether.