There are several reasons for the stunted nature of Indian manufacturing, including 40 years of socialist planning during which the government dictated down to the nut-bolt what and how much each factory could produce. New Delhi has largely eliminated the licensing of production in the last 20 years, but many things continue to keep India’s factories from generating the jobs that the country needs.
Many economists and business executives argue some of the biggest impediments to job creation are India’s strict labor laws, which, among other things, make it virtually impossible for firms to lay off workers if they employ more than 100 people. So, managers automate their production lines and hire more contract workers, who can be more easily dismissed. Partly as a result, less than 10 percent of the Indian labor force works in the formal part of the economy. Businesses “prefer to employ contract workers, temporary workers and not make them regular as much as they can,” R.C. Bhargava, the chairman of the automobile company Maruti Suzuki, told me in an interview at his home in Noida. “The reason is that they feel they can escape the labor laws and they feel that they can pay lower wages.” Maruti Suzuki recently was hit by an acrimonious strike at its factory in Manesar, south of New Delhi. While much of that dispute was about the formation of a new union, workers also complained that the company was using too many contract workers and treated them poorly – a contention Mr. Bhargava denied. Left-leaning lawmakers and union leaders reject the assertion that labor laws are responsible for weak job creation. They argue that the laws are too poorly implemented and enforced to have any meaningful impact on companies – the proliferation of contract workers is one glaring example of how labor laws are easily circumvented, they say. Rather than loosening those laws, they advocate better enforcement of existing laws. “We need inclusive growth in a much more traditional sense,” said Mani Shankar Aiyar, a member of the governing Congress party and vocal labor-rights advocate. “For the labor force, that means protecting labor, not making their lives more difficult.”
In the meantime in Bangalore, away from New Delhi’s ideological battles, Mr. Sriramaih has found something to do since I last saw him in May. He has become an apprentice at Bharat Earth Movers, a government-owned company that has a rail coach factory in Bangalore. The eight-month program comes with a stipend of 3,500 rupees ($71) a month. (He gets 4,500 rupees if he doesn’t miss too many work days.) But the company has already told him that it will not lead to a permanent job.