How to end poverty in India

     Print Edition: May 3, 2009

India’s population in poverty declined from 55 per cent to 27.5 per cent between 1974 and 2004. Yet, the number of poor has remained at 300-320 million for 45 years because population grew steadily. Most Indians are unable to escape their financial, geographic or social disadvantages (or Ovarian Lottery: a term used by Warren Buffett to describe advantage by birth) because of non-inclusive labour markets. Reducing poverty needs four labour transitions: from farm to non-farm, from rural to urban, unorganised to organised and subsistence self-employment to decent wage employment.

To allow these transitions, three sets of reforms are needed—involving Employment, Employability and Education. An important aspect of the proposed reforms is that there need not be a trade-off between protecting the rights of the employees and ensuring that employers have the flexibility to change with changing circumstances.

Employment reforms
The task of employment reforms concerns connecting supply to demand and can lead to the most instantaneous and perceptible impact on employment conditions. Why do we need employment reforms?
The sector is ruled by a minority, organised labour, which accounts for just 7 per cent of the total. The organised sector values job preservation over job creation, and discriminates against labour market outsiders— the less skilled, the less educated, the people from small towns as well as women. Add to this, a poor legal regime that increases transaction costs, promotes corruption and creates incentives for government functionaries to exploit. The Way Forward: Reforms can begin at employment exchanges, which can be converted into career centres via public-private partnerships that offer assessment, counselling, jobs and certifications.

The other institutions crying for reform are the Employees Provident Fund Organisation (EPFO) and the Employees’ State Insurance (ESI), whose poor service levels encourage evasion and breed unorganised employment.

One way to reform them would be to separate their regulatory and delivery roles. After the institutions, the framework. The government should review the philosophy and plumbing of labour laws that encourage the substitution of labour by capital, and increase the skill intensity of employment.

By plumbing we mean the need to harmonise definitions, reduce the number of statutes (there are over 45 statutes directly associated with labour) and write them down in simple language. At the policy level, labour should be removed from the Concurrent list and handed over to the states, clearing the political logjam that is holding up labour reforms at the Centre.

Employability reforms
This is the second-most important reform, given the complete absence of linkages between education/ training and the requirements of the job market. The biggest impact will be felt among those already in lowproductivity jobs or students who have completed their education but are unable to get a job.

Training should have three values—a learning value, a signalling value, and a job value. Today, the system fails on all the three counts as there is no linkage of financing to outcomes, no separation of delivery from financing, no effective assessment entry gates, and no credible exit gates for certification, either. Then, there is a misalignment between assessment, curriculum, certification and jobs, among others.

The Way Forward: Begin by enforcing the operating principles adopted by the National Skill Council for all government operated or funded skill programmes.

Review the Apprentice Act of 1961 to ensure “learning by doing” and “learning by earning”. At the next stage, the government must provide incentives for setting up of state skill missions, since all delivery systems are in the hands of states. Concurrently, the government has to create a national framework and infrastructure for skill development that aligns occupation codes, entry gate assessment and exit gate certification. Immediate gains could be had by activating the National Skill Corporation to create project funding for corporate and individual ventures in skill development.

Education reforms
After the two short-term steps comes the most important one— preparing supply for demand, or reform of the education system. While India has bred a series of higher-education institutions that are among the world’s best, the elementary education system is in a mess. Instead of letting the poor fend for themselves at poorlyequipped and -run state schools, the government should create a voucherbased approach that enables parents to use government funding to pay for schools of their choice.

Within the elementary education system, incentives and answerability are two critical requirements. Once this is in place, the curriculum has to be oriented towards “learning for earning”, with a better vocational content and stress on English language fluency. The Way Forward: The focus here has to be on outcomes—there has to be a performance management system for government-paid teachers with rewards and punishments for showing up and learning outcomes.

The most urgent institutional change required is the need to create an Education Regulatory Authority for Higher Education that will substitute the current ones like the AICTE and the UGC. At the certification level, the government should create a National Qualification Framework that will allow two-way fungibility between vocational, college and school education with appropriate transfer of credits.

— Excerpted from India Labour Report 2008

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