PSD Blog - The World Bank Group

Experimenting with labor reforms in India

In a previous post I discussed how the current global financial crisis seems to have forced policy makers in India to take another look at existing labor laws in the country. The Economic Survey (2008-09) of India released by the Ministry of Finance in early July this year clearly noted the imperative need to facilitate the growth of labor intensive industries, "especially by reviewing labor laws and labor market regulations."

Labor market reform is a contentious and politically sensitive issue in India and its mere mention in the Economic Survey suggests that we might see some action this time around. A few weeks ago, the government exempted the IT and software establishments from the Industrial Employment (Standing Orders) Act 1946 (Central Act 20 of 1946). These laws are strict in the way they classify workers, their working hours and shifts, and the wages payable, besides other archaic rules on leave and attendance.

China vs. India: Which is better for doing business?

Editor's Note: Peter Kusek is an Investment Policy Officer with the Investment Climate Advisory Services of the World Bank Group.

Doing Business has just published its seventh annual report for 2010.  As in the past, it includes its flagship Ease of Doing Business rank, which is once again led by high-income economies such as Singapore, New Zealand, Hong Kong (China) and the United States.  That’s not a surprise. 

What some of us might however not expect is to find countries such as Georgia, Saudi Arabia or Mauritius among the top 20.  Does this mean that these countries are amongst the world’s 20 most desirable and attractive business destinations?  Well, yes and no, depending on how you define attractiveness.  Let’s do the following quick business exercise together:

Mobile phones for development: don’t forget about the voice!

Mobile phones heated up once again the development 2.0 summer debate: from the NYT on the uses of mobile phones for safe water distribution, to the upcoming World Bank study on mobile phones for education; from CTA’s overview of the uses of mobile phones for agricultural development to Chris’ foray into sensors and micro-voluntarism. And if you are interested in mobile banking for the unbanked, don’t miss Jim’s summer round-up.

In the midst of all this flurry—mostly focused on advanced features—my personal favourite, however, has to be an article from SocialBrite that brings us back to basics: namely, voice-based services. As the author notes:

The greatest unexploited resource

When I was growing up I heard a lot of stories about my grandfather. He died when I was a child so my recollection of him is a little hazy, but one thing sticks out very clearly in my mind: he believed in educating his daughters.

Not a stunning revelation perhaps, but it certainly made him unique for his place and time. He was a Pakistani Muslim born early last century, with two wives, 10 children, and very little money. And he believed it was more important for his six daughters to gain an education than his four sons. His sons, he felt, would eventually find their way in the world, but his girls might need a little extra help to level the playing field.

Business Associations: Good for businesses, bad for taxpayers and consumers?

In The Rise and Decline of Nations, Mancur Olson argued that interest groups like business associations (BAs) always pursue distributive objectives, seeking unproductive rents rather than benefitting the public. Subsequent work on collective action culminating in the New Institutional Economics continued to adopt this negative view of BAs.

Nevertheless, examples of BAs working toward more productive goals keep showing up in various studies. For example, Doner and Schneider (2000) point out that the Kuwait Chamber of Commerce and Industry played a key role in pushing for customs reforms during the 1980s; inter-industry associations in the state of Punjab, Pakistan, forced the state government to improve power supply and the Colombian Coffee association, Federacafe, helped provide better transportation infrastructure, port facilities and warehouses to its members.

Migrants as currency speculators?

One of the bright spots in the financial crisis so far has been the resilience of remittance flows to developing countries. While other forms of private finance fled developing countries when the international financial system came under stress, migrants kept sending money home. The latest Migration and Development Brief from the World Bank contains the relevant details: remittances to developing countries rose 15 percent between 2007 and 2008.

The curious question is why, considering that employment of migrants in many recipient countries has been hit hard. The Economist offers an explanation:

...returns do matter. For example, the combination of a weak rupee and higher interest rates in India compared with rich countries, may go a long way towards explaining last year’s vastly increased flow of remittances from Indians abroad.

Thinking at the margin

In a previous post, I had talked about problems due to power outages faced by retailers in India using Enterprise Survey’s data on 1,948 retail stores. I provided evidence showing that losses due to power outages (as a % of the annual sales of stores) and hours of power outage in a typical month were much higher for low-income lagging states compared with more developed leading states in India.

However, I had cautioned that to properly understand the rate of return on investments to improve power supply across regions, we should look at which states (leading vs. lagging) benefit more from an hour’s reduction in power outages. It is possible that this marginal benefit could be higher in the leading states even though they face much fewer power outages.

Retailing in India: Setting the priorities

The retail and wholesale sector in India is among the biggest in the country, yet it receives little attention from policy makers and researchers. The sector accounts for about 14% of India’s GDP and over a quarter of the value added in all services sectors. It is the second largest employer (after agriculture), providing over 10% of all formal jobs in the country. The sector has also shown strong growth in recent years, with an average annual growth rate of 7.3% over the 1990s (and with some predicting continued strong growth over the next few years). These numbers tell the story in the formal sector. But an estimated 95% of the sector’s activity takes place in the informal sector that is not accounted for in the official figures.

PPPs in India

In a recent post, Filip talked about the role of EPEC in promoting Public-Private Partnerships (PPPs) in the EU. Filip’s post highlighted some of the problems facing PPPs, such as a lack of adequate finance and insufficient capacity within the public sector to define, manage and/or implement its PPP policies and programs in accordance with market best practice. The EU is not the only one facing these kinds of challenges. Below, I report on the problems faced by PPPs in India, suggesting that the concerns raised by Filip have a broader implication for developing countries.

Time for another look at labor laws in India?

India is known for its stringent labor laws—so stringent, in fact, that studies have shown they stifle employment creation. The current global financial crisis seems to have forced policy makers to take another look at these laws and their impact on employment. Last week, India’s Ministry of Finance presented the Economic Survey (2008-09) for the year to the Parliament. The Survey is an annual exercise taking stock of the economy and suggesting the way forward.

What caught my attention this year was the discussion on labor issues: labor laws and the emerging skill shortage. Taking note of the global crisis and the impact on the Indian economy, the Survey highlights the urgent need to create more employment by reviewing labor laws. It notes that:

Further, there is an imperative need to facilitate the growth of labour-intensive industries, especially by reviewing labour laws and labour market regulations. This is particularly important in reversing the current, not-so-encouraging manufacturing employment trends.” (Economic Survey, page 223)