Indian Economy (Industry 4.0 And Labour) by Sourabh Mishra

Model Answer

Question #1. What do you understand by the term Industry 4.0? How is it going to impact the employment generation in India? Suggest possible steps that can be taken to avoid any adverse effects on employment generation from Industries 4.0.

Approach:

• Introduce with defining Industry 4.0
• Explain the impact of Industry 4.0 on job sector
• Suggest measures to prevent adverse impacts of Industry 4.0 on jobs
• Conclude with the way forward

Hints:

Industry 4.0 is the current trend of automation and data exchange in manufacturing technologies. It includes cyber-physical systems, the Internet of things and cloud computing. Industry 4.0 creates what has been called a “smart factory”.

Industry 4.0 is going to impact employment generation in India several ways:

• A recent study released by McKinsey Global Institute reports that roughly one-fifth of the global workforce will be impacted by the adoption of AI and automation, with the most significant impact in developed nations like the UK, German and US. By 2022, 50% of companies believe that automation will decrease their numbers of full-time staff and by 2030, robots will replace 800 million workers across the world.
• India’s auto industry, projected to create 65 million jobs by 2030, may suffer automation-related job destruction.
• Increasing productivity and efficiencies leading to improved customer experience has encouraged industry to push for technological innovation and find solutions through robotics, automation, cloud computing, 3D printing, Internet of Things, machine to machine and human to machine learning.
• Some sources expect disruptive improvements in terms of quality, productivity and customer orientation; others are concerned with job losses, high costs for investments and data security.
• It is anticipated that most job losses will occur due to computerization of routine jobs and introduction of robots on the shop floor. Simple, mundane tasks are rapidly being replaced by machines due to the standardization they bring in.
• A FICCI study, in collaboration with Rolland Berger on ‘Skill Development for Industry 4.0’ in BRICS countries outlines the present job scenario and pre-empts future trends. The study highlights “job polarisation” with decline in the mid-level repetitive jobs and increase in demand for creative, design oriented high tech skills.
• As more jobs are automated, this trend seems likely to continue and is a cause of worry especially in the Indian context where the official figures state that less than 5 % of our population is vocationally skilled.
• Threat of Indian companies losing out to foreign companies and products as happened during 1stindustrial revolution persists. As automation substitutes for labor across the entire economy, the net displacement of workers by machines will increase.
• With this revolution, it is also possible that in the future, talent, more than capital, will represent the critical factor of production. This will give rise to a job market increasingly segregated into “low-skill/low-pay” and “high-skill/high-pay” segments, which in turn will lead to an increase in social tensions.
• In addition to being a key economic concern, inequality represents the greatest societal concern associated with the Fourth Industrial Revolution. The largest beneficiaries of innovation tend to be the providers of intellectual and physical capital—the innovators, shareholders, and investors. This will further erode the capacity of vulnerable section to equip themselves with required skill sets.
• Skill sets of Indian human capital are low on employability at present level. Their employability in Indsutries4.0 will be questioned if significant improvement is not made.

What should be done?

• Innovation ecosystem must be created so that latest technologies and their applications are developed in India. This will allow Indian companies to compete with the best in the world and does not lose jobs to foreign companies. This requires EDB (Ease of Doing Business), Funding support etc.
• In the name of protecting jobs we should not keep old machines and human labour. It will impact Indian economy, competitiveness of Indian companies, innovation & entrepreneurial ecosystem in long term. So, we should welcome Industries 4.0 at the same time focus on social security measures, re-skilling etc. to alleviate the problems of those who lose their jobs.
• To meet labour market needs, potential skill gaps must be closed through the NEP and comprehensive training infrastructure. Universal access to lifelong learning, for skilling, reskilling and upskilling, and establishment of a skills bank will generate large-scale, quality jobs.
• A human-centred and equity-based approach in future labour market policies and standards is needed. National and international systems for the governance of digital labour platforms, regulation of data use and algorithmic accountability must be evolved. Local and rural production, care and green economies and social and health services must be fostered as job generators.

The prime vehicle for Industry 4.0 implementation in India is the Samarth Udyog Bharat 4.0 (Smart Advanced Manufacturing and Rapid Transformation Hubs) under the Department of Heavy Industries. Underpinning this programme is the National Manufacturing Policy (NMP), which aims at enhancing the share of manufacturing in GDP to 25%, to achieve which “Industry 4.0 is the only way ahead”. The Fourth Industrial Revolution is imminent, and this means that everything is poised for change. Businesses are going to have to adapt, or risk becoming redundant. Taking a proactive approach to this changing business environment will serve organisations well in ensuring they are able to keep pace with change and safeguard the job scenario that will in turn help in reaping the demographic dividend.

Question #2. What are the emerging issues related to labour laws in India? How recent reform in labour laws will facilitate employment growth and attract foreign capital in India?

Approach:

• The question requires analysis of labour laws in India in light of emerging issues and recent labour reform
• Contextually introduce with labour laws in India
• Explain the emerging issues related to labour laws in India
• Discuss the ways in which recent reforms will facilitate employment growth and attract foreign capital
• Conclude with the gist of your answer

Hints:

Labour laws, also known as employment laws, are the body of laws, administrative rulings, and precedents that address the legal rights and restrictions of working people and their organisations. Labour laws attempt to regulate the relationships between an employer or group of employers and their employees. In 2020, the Central Government has promulgated around 44 labour-related statutes, 29 of which have been consolidated into four new labour codes. 

Emerging issues related to labour laws in India:

• Informalization of labor: A significant trend in India's labor market is the increasing informalization of labor. More than 90 percent of the total workforce has been engaged in the informal economy. It shows that a large portion of the workforce is employed in the informal sector, where labor laws are not always enforced, and workers do not have access to social security benefits such as health insurance and retirement savings.
• Gender pay gap: Despite several laws aimed at promoting gender equality in the workplace, the gender pay gap in India remains significant. Women continue to earn less than men for the same work, and there is a need to address this issue through better implementation of existing laws and policies. According to World Inequality Report 2022, men in India capture 82% of labour income, while women earn just 18%.
• Digitalization of work: With the growth of the gig economy and remote work, there is a need to adapt labor laws to the new realities of digital work. There is also a need to address issues such as job insecurity, low pay, and lack of benefits for workers in the gig economy.
• Changes in labour laws: In 2020, the Indian government introduced significant changes to the country's labour laws, aimed at simplifying and rationalizing them. These changes have been criticized by some experts and labor unions, who argue that they may lead to the erosion of workers' rights and job security.
• Social security for workers: Many workers in India, especially those in the informal sector, do not have proper access to social security benefits such as health insurance, pension, and disability benefits. There is a need to extend these benefits to all workers, including those in the informal sector, to provide them with a safety net.

Ways in which recent reforms will facilitate employment growth and attract foreign capital:

1. Boost to local economy: Reverse migration of labour from industrialized states back to their homelands is expected to create a glut of labour. As fears around mounting unemployment rise, it is imperative for the government to create a large number of new jobs. Relaxing labour laws is expected to encourage local industry to hire more. Thus, the reforms make rural economy an attractive place for investment while channelizing the government move of Vocal for Local.

• Ease of doing business: The recent labor law reforms are aimed at simplifying and rationalizing the existing labor laws in India, making it easier for businesses to operate in the country. The reforms will reduce compliance costs for businesses, making it easier for them to hire workers and expand their operations, which in turn is expected to facilitate employment growth.
• Increased flexibility: The recent labor law reforms have introduced more flexibility in labor laws, allowing businesses to hire workers on a contract basis and make changes to the terms of employment. This increased flexibility is expected to attract foreign capital, as businesses will have more options to structure their operations in a way that suits their needs.
• Promoting formalization of labor: The labor law reforms are also aimed at promoting formalization of labor in the country. The informal sector in India is a significant contributor to employment, but it is largely unregulated, leading to issues such as low pay and job insecurity. Formalizing the labor sector is expected to attract foreign capital, as it will provide a more stable and predictable environment for businesses to operate in.
• Relieve from cumbersome regulatory compliances: The recent reforms will relieve the whole system from cumbersome regulatory compliances as the complex India’s labour laws rarely serve the purpose of protecting workers, but rather act as an instrument to harass businesses. The consolidation of these reforms will simplify the whole process which inturn will ease the regulatory mechanism and redressal making India and attractive foreign capital destination.
• Reducing litigation: The labor law reforms are aimed at reducing litigation related to labor laws, which has been a significant challenge for businesses operating in India. The reduction in litigation is expected to provide a more predictable and stable environment for businesses, making it more attractive for foreign capital to invest in the country.

Thus, the recent labor law reforms in India are expected to facilitate employment growth and attract foreign capital by making it easier for businesses to operate in the country, providing more flexibility, promoting formalization of labor, strengthening compliance, and reducing litigation. However, it remains to be seen how effectively these reforms will be implemented and how they will impact the overall labor market in India.