Social scientists have always, and now even the RBI governor recently, commented on the shortage of skilled labour in India. The kind of labour that can put in order plumbing, wiring, make durable furniture, sturdy buildings, roads and bridges, skilled masons, electricians, joiners, mechanics, technicians, operators, tailors, cutters, executors of designs and such like expert workers of manufacturing processes. They cannot be found in enough quantity and quality anymore. So much so that many corporates were trying to import skilled workers from China to handle complex industrial and construction jobs.
The government had to intervene to prevent that, faced as it was with the burning issue of unemployment. This remains true even today as there is a restless army of the unemployed who remain so because they are unskilled and unemployable. Where have all the skilled workers gone? Many of them who were good at their job have in fact migrated in great waves through the 1980s, 1990s and thereafter to the Middle East. The rest are waiting to get an opportunity to do so. They will go to any part of the world that will pay them better wages and ensure better working conditions compared to the ones they get in Indian factories/ construction sites. All the FDI since 1991 has not helped increase their real wages in the manufacturing sector, definitely not enough to build and hold the skilled within India.
Yet we now have before us in Parliament, the Factories Amendment Bill 2014. The original Factories Bill (1948) was introduced to regularise the terms and conditions of factory work, ensuring safety of workers, their welfare and thereby to create and retain an army of skilled workers. These would be steady partners in the growth of the manufacturing sector. The Human Resource Departments (HRD) of factories were required to fill up forms that proved their compliance to labour norms. These practices become the basis of data available with state/ central level labour ministries and departments of labour affairs. The original bill defines a factory as one in which power is used and employs 10 or more workers over the year or one which does not use power but employs more than 20 workers. The new Bill proposes to revise the definition of a factory by doubling the number of workers employed in such a unit. Henceforward the terms and conditions of work need not be maintained in the units employing a smaller number of workers. This amendment will mean that 58 percent of the factories need not maintain labour standards anymore.
What will be the short run implications of this so called reform? Labour conditions which are already bad because of pitiable administration of labour compliance norms will deteriorate further and real wages will stagnate. Even if investment in manufacturing grows it will organise itself in units of smaller employment, less than 20 or 40 each for accounting purposes, so economies of scale too will be lost. Larger firms that have to comply with labour norms will outsource work to smaller firms. Short run profits of manufacturing may even grow. The pressure will however in the medium run, drive workers to hop from unit to unit looking for elusive better terms, eventually seek foreign shores or underinvesting in their own training and skills because the returns are so poor. The hollowing out of skills will not end. Low skills are the terminuses of low roads to growth.