India needs labour and business reforms: OECD

Published: Monday, September 18, 2006, 18:26 [IST]

New Delhi, Sept 18: Criticising the stringent labour and business regulations in India, the Organisation for Economic Co-operation and Development (OECD) today said the country requires timely reforms that will boost its economic growth.

''Although there has been a significant easing of business regulation in India, which the economic performance reciprocated by registering five per cent plus growth rate as compared to 1.3 per cent before reforms, more reforms are required to make the current economic upswing durable,'' OECD's Chief Economist Jean-Philippe Cotis told reporters here.

Mr Cotis suggested free hire and fire policy for employers in order to make them adopt the latest production techniques. ''This will make more people, mainly youngsters who have more technical expertise, get jobs. Those who get fired should be brought into employment through innovative channels developed by the government.'' At present, government permission needs to be taken before an employer downsizes its workforce.

Lack of job opportunities takes the potential workers to small scale sector which is informal and less productive. Only if the formal sector can be made more flexible, the economic productivity will increase, he added.

As a matter of policy, certain products have been reserved for production only in the small scale sector. Also, despite ongoing trade liberalisation, in 2003 India had one of the hightest tariff rates in the world.

Moreover, system of strict labour regulation for larger firms and tax advantages for small firms have led to an overgrown small enterprise sector.

According to OECD estimates, in India, 10 million people will join the workforce annually between 2005-2015.

''Many of the top reformers have 'bunched' their reform into packages so that the net losers from one type of reform may be the net winners from another type. By spreading the net gains from reforms more evenly across the population, such a strategy may help overcome the resistance to change,'' Mr Cotis suggested.

In addition to making the regulations less stringent, the Indian government needs to increase its investment in public infrastructure and in setting up of vocational training centres and educational institutions, he added.

India invests less than 0.5 per cent of its gross domestic product (GDP) in infrastructure development as compared to three per cent by China.

OECD also pointed out that the government also needs to make the product market competitive. ''The competition will serve two purposes of increasing the productivity and services and raising the employement potential for the vast unemployed and under-employed population.''

UNI

 

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