NATIONAL LAW INSTITUTE UNIVERSITY,

BHOPAL

In the partial fulfilment for the requirement of the project on the subject of Economics of B.A.,
L.L.B (Hons.), Second Trimester.

Submitted on 5th December 2018

Topic: - Disguised Unemployment in India and China

Submitted to: - Submitted by: -

Mr. Rajesh Gautam Durgesh Nandan Yadav (2018BALLB72)
(Assistant Professor of Economics) Kapil Katare (2018BALLB82)
Raj Chouhan(2018BALLB91)
Suraj Shekhar Singh (2018BALLB96)

Page 1 of 22
Table of Contents
ACKNOWLEDGEMENT ............................................................................................................................. 3
INTRODUCTION ....................................................................................................................................... 4
DISGUISED UNEMPLOYMENT .................................................................................................................. 5
CAUSES OF DISGUISED UNEMPLOYMENT ................................................................................................ 8
EFFECTS OF DISGUISED UNEMPLOYMENT ............................................................................................... 9
DISGUISED UNEMPOYMENT IN INDIA .................................................................................................... 10
MEASURES TAKEN TO CURB DISGUISED EMPLOYMENT IN INDIA ........................................................... 13
DISGUISED UNEMPLOYMENT IN CHINA ................................................................................................. 17
MEASURES TO CURB DISGUISED UNEMPLOYMENT IN CHINA ................................................................ 18
COMPARISON OF MEASURES TAKEN BY INDIA AND CHINA .................................................................... 20
CONCLUSION ......................................................................................................................................... 22

Page 2 of 22
 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my Teacher Mr. Rajesh Gautam who
has been a great mentor and has been a constant support throughout, as well as our Director Prof.
(Dr.) V. Vijayakumar who gave me the golden opportunity to do this wonderful project on the
topic Contract of Agency, which also helped me in doing a lot of research and I came to know
about so many new things I am really thankful to them.

I am also thankful to the library administration for the provision of necessary books and texts
needed for the completion of this project.

Lastly I would also like to thank my parents and friends who helped me a lot in finalizing this
project within the limited time frame.

Page 3 of 22
 INTRODUCTION

China and India followed similar developmental strategies prior to their respective reform
periods (Srinivasan, 2003). The Chinese economic reform was a huge effort as compared to
India’s, as India had already in place a significant presence of private sector. Both reaped the
benefits of economic reforms in terms of faster economic growth; but there were some important
differences. The Chinese economic growth was double the Indian average annual growth during
1978-93 (4.5 per cent); (Bosworth and Collins, 2007). But in recent years, this gap has been
narrowing down—the average GDP growth rate of China was about 8.5 per cent during 1997-
2005, while that of India has been around 8 per cent in recent years (ESCAP, 2006). India’s
growth prospects seem to be brighter in the long run (Gylfason, 2006).

Page 4 of 22
 DISGUISED UNEMPLOYMENT

The unemployment scenario is quite bleak in India. With every passing day, we are heading
towards a more precarious situation. A developing economy like India is defined by its large
population and large-scale unemployment, further leading to socio-economic issues like
malnutrition, poverty, drug & substance abuse and anti-social & criminal activities, etc.

One of the distinctive features of an under-developed economy is the prevalence of what our
economists are in the habit of calling 'disguised unemployment'. Too many people subsist on
agriculture. Seemingly they are employed. But their employment is not wholly productive. It is
not wholly productive in the sense that production does not suffer even if some of the socalled
employed are withdrawn . The ratio of labour to land and other resources is so large that the
marginal productivity of labour is reduced to zero, although the average productivity remains
positive. And . unlike in the organised sector, it is thin average productivity and not the marginal
productivity that determines the earnings, and hence consumption of the labourers. The result is
that the marginal body of labourers consume, but they do not produce. They are employed
physically, but not economically.

The organisational set-up (such as we have in a subsistence economy) is what makes for this.
Farms consist of family holdings, and productive operations are done by the members of a family
as a group. Labour is not, dissociated from capital, and workers may be said to be selfemployed.
There are the landlords and the money lenders. But they get their rent and interest at stipulated
rates; they do not perform the function of an employer. Whatever output is derived from
productive operations therefore vests in the family and is enjoyed by all the members irrespective
of their specific contribution; the redundant members are not just thrown away. The share of
output that goes to the redundant units of labour is of the nature of transfer income. If, of ten
persons workin g in a farm, four are redundant, in the sense that the far m could be managed
equally efficiently with six persons, then, from the economic point of view, 40 per cent of the
output of the farm can be viewed as being transferred to unproductive consumers. It is as if the
entire output is the contribution of six persons who just 'save' a part of this contribution and hand
it over to the remaining four.

Page 5 of 22
‘Disguised Unemployment’ actually in layman’s language, is the phenomenon wherein more
people are employed than actually needed. Usually, this has been witnessed in developing
economies and more so in labour-intensive economies. Disguised unemployment exists where
part of the labor force is either left without work or is working in a redundant manner where
worker productivity is essentially zero. It is unemployment that does not affect aggregate output.
An economy demonstrates disguised unemployment when productivity is low and too many
workers are filling too few jobs. Disguised unemployment exists frequently in developing
countries whose large populations create a surplus in the labor force. It can be characterized by
low productivity and frequently accompanies informal labor markets and agricultural labor
markets, which can absorb substantial quantities of labor.

Prof. Nurkse calls those disguisedly unemployed by various names e.g. 'unproductive surplus on
land\ 'useless dependents', 'people who contribute nothing to output' etc. These various terms
seem to imply that the marginal productivity of this surplus, useless population is zero or
negative. This proposition, of course, is only a hypothesis and no empirical evidence has been
put forward to support it. It is generally recognised that a mere removal of this excess population
from land will not maintain output unless accompanied by some other measures e.g.
reorganisational changes. But introduction of organisational changes to replace excess labour is
equivalent to introducing a new factor of production. It is then not necessarily proved that the
present excess population has zero or negative marginal productivity. If, to take an example, in a
developed country, the introduction of automation is expected to lead to an increase in total
production, it does not mean that there is a large volume of disguised unemployment present.

Disguised, or hidden, unemployment can refer to any segment of the population not employed at
full capacity, but it is often not counted in official unemployment statistics within the national
economy. This can include those working well below their capabilities, those whose positions
provide little overall value in terms of productivity, or any group that is not currently looking for
work but is able to perform work of value.

In certain circumstances, people doing part-time work may qualify if they desire to obtain, and
are capable of performing, full-time work. It also includes those accepting employment well
behind their skill set. In these cases, disguised unemployment may also be referred to as the

Page 6 of 22
underemployment, covering those who are working in some capacity but not at their full
capacity.

For example, a person with an MBA accepting a full-time cashier position because he cannot
find work in his field may be considered underemployment since he is working below his skill
set. Additionally, a person working part-time in his field but who wants to work full time may
also qualify as underemployed.

Another group that may be included is those who are ill or considered partially disabled. While
they may not be actively working, they may be capable of being productive within the economy.
At times, this form of disguised unemployment is temporary in the case of illness, and
categorized when someone is receiving disability assistance. This means the person is often not
considered part of the unemployment statistics for a nation.

Disguised unemployment is primarily traced in the agricultural and the unorganised sectors of
the economy. As the primary sector of the Indian economy, Agriculture provides employment to
almost 51% of the total population. However, the sector’s contribution to the country’s GDP is
just 12-13%.

Example 1- Agriculture sector in rural areas- when 10 members of a farmer family employed on
small farm plot when 5 are enough. Those extra 5 members are actually unemployed rather than
being employed.

Example 2- service sector in urban areas- if in a family all 10 members are working in a shop or
small family business when 5 are enough to work efficiently then those extra 5 members are
actually unemployed.

Page 7 of 22
 CAUSES OF DISGUISED UNEMPLOYMENT

There are many causes of disguised unemployment :-

1. Population growth: High growth in population leads to surplus labour, especially in the
rural areas. India, being the second most-populous country, has almost 70% of its total
population in the rural areas (2011 census). Surplus labour exists in the rural areas,
however, employment in such areas mostly remains seasonal, thus causing disguised
unemployment.
2. Poverty: Poverty results in inability to purchase land and thus people have access to
limited capital. Limited capital: It further increases dependency of more and more people
on limited means.
3. Labour-intensive economies: With such high population, labour is available at cheaper
rates. Thus, more people are easily employed for a particular work, which can be done by
lesser number of people.
4. Limited skills and knowledge about better opportunities: Disguised unemployment is
also caused by limited skills of the labourers. At the time when majority of India’s most
population lives in the rural areas with limited means, people lack proper skills to be
recruited at better places.
5. Too much focus on investments in foreign countries : The inclination of the businesses
to invest in the foreign countries brings about a decline in the Gross Domestic Product of
their own country, this results in lack of opportunities available for people in a field they
have acquired knowledge and are willing to contribute to increase the marginal
productivity. This situation forces them to get employed in the jobs inappropriate with
their qualifications and work in sectors in with their marginal efficiency is low.

Page 8 of 22
 EFFECTS OF DISGUISED UNEMPLOYMENT

1. Depression among the citizens of the country which may cause increase in the suicide
rate

2. Chances of political upsurge and instability caused due to disappointed and frustrated
public.

3. Decrease in the GDP (Gross Domestic Product) of the country.

4. Increase in the crime rate. Social evils like drug addiction may rise.

5. Waste of valuable human resources of the country.

6. Migration of population to other countries in search of employment.

Page 9 of 22
 DISGUISED UNEMPOYMENT IN INDIA

A developing economy like India is characterized by its substantial population and extensive
scale unemployment, further prompting financial issues like lack of healthy sustenance,
destitution, drug and substance misuse and anti-social and criminal exercises, and so forth.

At the center of such financial issues lie a few sorts of unemployment – structural, frictional or
seasonal. In any case, one which is more serious and significantly more hard to follow is the
disguised unemployment. Such unemployment can't be reflected in the official unemployment
records.

Disguised unemployment is basically followed in the rural and the disorderly segments of the
economy. As the essential area of the Indian economy, Agriculture gives work to relatively 51%
of the aggregate population. Be that as it may, the part's commitment to the nation's GDP is only
12-13%.

The reasons for such disguised unemployment are many. Maybe a couple of which are:

1. Population development: High development in population prompts surplus work,

particularly in the provincial regions. India, being the second most-crowded nation, has
relatively 70% of its aggregate population in the provincial territories (2011
enumeration). Surplus work exists in the rural zones, be that as it may, work in such
territories for the most part stays regular, in this way causing disguised unemployment.
2. Poverty: Poverty results in failure to buy land and in this manner individuals approach
constrained capital. Restricted capital further expands reliance of an ever increasing
number of individuals on constrained means.
3. Labour intensive economies: With such high population, work is accessible at less
expensive rates. In this way, more individuals are effortlessly utilized for a specific work,
which should be possible by lesser number of individuals.
4. Limited skills and information about better opportunities: Disguised unemployment is
additionally caused by restricted aptitudes of the workers. When larger part of India's
most population lives in the rustic regions with constrained means, individuals need
abilities to be enlisted at better places.

Page 10 of 22
As is known to all, organised sector employment has had improvement since 1991, incorporating
under four percent in the entire decade 1991-2001. Further, it has fallen every year some place in
the range of 1997 and 2001. The slide continues steeply: According to Planning Commission, the
corporate part has shed one million employment in 2003 alone. For the more broad definitive
data on work and joblessness, we should swing to the National Sample Survey rounds of 1983,
1993-94 and 1999-2000. As per these figures, the rate of joblessness was 8.3 percent in 1983; it
tumbled to six percent in 1993-94; and after that rose again to 7.3 percent in 1999-2000. This
would suggest that employment exacerbated in the second half of the nineties, in the midst of the
season of the New Economic Policy. There was a sharp support off of the rate of advancement of
work—from 2.7 percent consistently in the midst of 1983 to 1993-94 to 1.1 percent for
consistently in the midst of 1993-94 to 1999-2000. The amount of new employment tumbled
from 7.6 million consistently in the earlier period to 3.5 million every year in the later period.

According to GDP data of 2015-16, agribusiness (in fact horticulture, forestry and fishing),
compensated for around 14.1% of the GDP, throughout the budgetary year. The inconvenience is
that near half of the populace keeps on relying upon horticulture professionally.

This basically implies that agribusiness conformed to one seventh of the Indian economy amid
the last money related year. In the meantime around half of the populace is subject to it. The fact
of the matter being that it utilizes numerous individuals than it really should. Thus, there is an
immense disguised unemployment in the rural areas.

Disguised employment basically implies that there are far such a large number of individuals
endeavoring to bring home the bacon out of agribusiness. On the substance of it they appear to
be utilized. In any case, their business isn't productive, given that horticultural creation does not
endure, regardless of whether a portion of these utilized individuals quit working

There are many more people than the sector requires and this prompts bring down livelihoods for
the individuals who work in agriculture. The more extensive point is that if the normal
livelihoods need to go up, individuals should be moved far from farming. Yet, another
examination proposes that this won't occur at the pace it was before anticipated that would be.

Page 11 of 22
Akhilesh Tilotia of Kotak Institutional Equities makes this point in an ongoing exploration note
titled Forecasts of less occupations dull statistic sheen. Tilotia is likewise the creator of The
Making of India. He reviewed a “set of 24 industry reports commissioned by the National Skills
Development Council (NSDC) and compare them with similar reports that NSDC had put
together around the end of the last decade.”

The prior reports had put the extent of the Indian workforce at 65.4 crore by 2022. The number is
presently a considerable measure bring down at 57.5 crore. To the extent number of individuals
utilized in farming in 2022 is concerned, the prior evaluations put the number at 11.4 crore or
18% of the workforce. According to new gauges the quantity of individuals who are relied upon
to work in farming in 2022, remains at 21.6 crore or around 38% of the workforce.

This fundamentally implies almost 10.2 crore more Indians will be subject to farming as a
method of living, than was expected earlier. Further, by 2022, agribusiness is required to
conform to one-ninth of the GDP or the in general financial size of the nation.

The automobile sector which was before anticipated that would utilize 4.8 crore people is
currently anticipated that would utilize just around 1.5 crore people. The same goes for the food
processing sector, which was prior anticipated that would utilize around 1.8 crore people, yet is
presently anticipated that would utilize just 40 lakh people. Then again, the numbers for
organised retail have gone up drastically from 1.8 crore people prior, to 5.6 crore people,
according to the most recent assessments.

Solutions:
India, as an economy, has all the above highlights as a creating nation. From an all-
encompassing perspective, a few arrangements of handling masked unemployment can be:

1. Teaching the majority for the population control measure through family arranging
projects.
2. Making credit accessible to the general population for independent work.
3. Giving expertise advancement and business programs.
4. Empowering versatility of the workforce from provincial to urban regions.

Page 12 of 22
 MEASURES TAKEN TO CURB DISGUISED EMPLOYMENT IN INDIA

The Indian Government has taken many measures to check disguised unemployment and overall
unemployment. Numerous self-employment schemes have been propelled and older ones
changed to control this social problem.

The following steps have been taken by Govt, to increase employment opportunities:

1. Integrated Rural Development Programme (IRDP):

In 1978-79, IRDP was introduced by Indian Government to create full employment opportunities
in rural regions. Under this programme agriculture, animal husbandry, forests, fisheries, small
and cottage industries, construction of roads and canals etc. are to be developed in all the 5111
development blocks.

Also, to give more employment, in the Seventh Plan a whole of Rs. 312 crores was spent on this
program. It profited 182 lakh families. In 1995-96 around 21 lakh families have been benefited.

2. Drought Prone Area Programme (DPAP):

This program was propelled in 70 such regions of 13 states as were inclined to drought. In Sixth
Plan, the program gave 17 crore and 70 lakh man-long stretches of employment.

In the same period, a total of Rs. 301 crores was made on the program. In Seventh Plan, Rs. 474
crores has been spent for the program.

3. Training for Self-Employment:

This program was propelled on fifteenth August, 1979 by the Government of India. It is called
National Scheme of Training of Rural Youth for Self Employment (TRYSEM). The primary
target of this program is to lessen joblessness among the youth. Amid Seventh Plan about 11.6
lakh youth were imparted training under the program.

Amid preparing period, young fellows are given money. On completion of training, they are
requested to plan project report. Game plans are made to get them money related help from the

Page 13 of 22
banks. Each prepared individual is given a budgetary help differing from Rs. 3,000 to Rs. 5,000
to begin his work.

In the Seventh Plan, under this program, Composite Rural Training and Technical Centers
(CRTTC) were set up to grant preparing to provincial youth. In 1995-96 preparing was to be
given to 2.8 lakh country youth under this program.

4. Jawahar Rozgar Yojana:

The Jawahar Rozgar Yojana was begun on 28th April 1989. The goal of this Yojana is to give
work to no less than one individual from every poor rural family for fifty to a hundred days a
year at a work put close to his residence. An uncommon component of the plan is that 30% of the
work produced will be saved for women.

The Central government will fund 80% of the program and the state government should bear just
20% of the consumption of this plan. In 1989, National Rural Employment Program and Rural
Landless Employment Guarantee Programs were converged in the yojana.

5. Employment in Foreign Countries:

Government also helps people to get employment abroad. Special agencies have been set up to
recruit people to serve in gulf countries like Kuwait, etc.

6. Self-employment to Educated Unemployed Youth:

In 1983, a plan namely self-employment of educated unemployed was started. Under this plan,
credits up to Rs. 25,000 are given to those unemployed who were jobless and who have no other
financial resources.

This plan is authorized by District Industries Centers. Government will give 25 percent as
subsidy of the credits given by the banks under this plan.

7. Nehru Rozgar Yojana (NRY):

This Yojana was begun in 1989. There are three plans under it. (1) Under the main plan,
appropriation is given to urban poor to set up micro enterprises. In 1995, under this program,
1.25 lakh families have been profited. (2) Under the second plan courses of action have been

Page 14 of 22
made for wage-work to workers in urban areas with less than 10 lakh populace by giving Indian
Economic Development and Elementary Statistic 'them fundamental offices. In 1995, under this
plan 93 lakhs man-long periods of business have been given. (3) Under the third plan, urban poor
in the urban areas are to be given business openings in employments like house fixing and so on.

8. Small and Cottage Industries:

So as to reduce unemployment, government if has attempted special efforts to grow small and
cottage industries. In 1995-96 around 33 lakh people were employed in these ventures.

9. Development of Organized Sector:

Numerous individuals are getting work in organized public and private parts. In 1995-96, almost
340 lakh people got work in large enterprises.

In 1961, organized public sector gave work to 70 lakh people; now it gives work to 1 crore and
92 lakh people. In like manner, in 1961 composed private area gave work to 50 lakh people; in
2000 it gave work to 89 lakh people.

10. Employment Exchanges:

Government has set up around 890 business trades offering data on the possible vocational
avenues. These exchanges provide employment indirectly and are of incredible help with guiding
the job-seeker to the possible areas of employment.

11. Employment Guarantee Scheme:

This Scheme has been launched in man; states, such as, Maharashtra, West Bengal, Kerala,
Rajasthan etc. Under the scheme unemployed persons are given economic assistance.

12. Employment Assurance Scheme:

The Employment Assurance Scheme (EAS) was propelled in 1994 of every 1752 in backward
blocks in the nation. The fundamental goal was to give 100 days of unskilled manual work to the
rural poor who are looking for jobs.

Page 15 of 22
13. Prime Minister's Integrated Urban Poverty Eradication Program (PMIUPEP):

This programme has been implemented in 1995-96. This program goes for to give work to the
urban poor. It will cover 50 lakh urban poor living in 345 towns. The central government will
bring about a use of Rs. 800 crores this program amid a time of Five years.

14. The Swaran Jayanti Rozgar Yojana:

This plan began on December 1, whereas launching of this yojana, previous programmes meant
for providing employment to urban unemployed like Nehru Rozgar Yojana and Prime Minister
Integrate Urban Poverty Eradication Programme were merged into it.

It goes for giving independent work or wage work to urban jobless and under-utilize people. It
contains two designs: (I) Urban Self-Employment Program-(USE and (ii) Urban Wage
Employment Program-(UWEP). Of the aggregate consumption on "Yojana, 75 percent will be
borne by the middle and 25 percent by the state governments. In the year 1997-98, an aggregate
of Rs. 125 crore was spending on this yojana.

15. Jawahar Gram Samridhi Yojana:

Jawahar Rozgar Yojana was restructured as Jawahar Gram Samridhi Yojana with effect from
April 1999. This Yojana has been launched to enhance the quality of the rural poor by giving the
extra productive work.

Page 16 of 22
 DISGUISED UNEMPLOYMENT IN CHINA

In an immense developing country like China, “keeping the rice bowls”—literally “holding on to
the job to bring food home”—has for centuries been an important issue that has become even
more critical at present, and likely in the years to come. Mass disguised unemployment has
drastically increased the volume of labour disputes and mass protests in late 2008, as many
factories have closed down. Facing closures, some factory owners fled without paying their laid-
off workers the required compensation and/or wage arrears. Moreover, mass urban
unemployment tends to carry the seeds of social unrest as well as the possibility of political
destabilization.

Despite the importance of this issue and the great necessity for the government and businesses to
be able to monitor the situation and take appropriate measures as events continue to unfold, there
are no direct, readily available statistics and information upon which one can rely. The only
disguised unemployment statistic available regularly, the urban registered employment rate, is at
best a quite partial, if not misleading, indicator of urban unemployment, not to mention that for
the country as a whole. Since late 2008, analysts have complained loudly an almost incessantly
about the problems associated with use of this statistic and have called for changes in existing
practice.

Informal urban employment consists of workers (and the self-employed) in the informal sector,
including those in small businesses, such as “individual enterprises” (getihu; with less than eight
employees) and “private businesses” (siying qiye; those employing eight or more people). Wages
are often below the market rate (sometimes below the local minimum wage) and the “informal”
employees have no right to receive unemployment compensation or any benefits such as from
the urban pension system. Most of their jobs are temporary (very flexible, with high turnover),
“transitional” (seasonal), or only part-time. This informality creates many ambiguities and grey
areas, so that the definition of “employment” (and hence, unemployment) tends to be vague in
legal as well as statistical terms, from the employer’s and/or employee’s viewpoint.

Page 17 of 22
 MEASURES TO CURB DISGUISED UNEMPLOYMENT IN CHINA

The Chinese government has always regarded promoting employment as a strategic task for
socio-economic development. It takes controlling unemployment rate and increasing job
opportunities as one of its principal macro control targets and incorporates it in its plan for
economic and social development. It adheres to the principle of expanding domestic demand,
exercises a stable fiscal and monetary policy, maintains a steady and fairly rapid development of
the national economy, actively adjusts the economic structure and enhances the motive power of
economic growth in driving employment.

Central and local governments set up special funds to support and help urban and rural labourers
to be employed and receive proper training. Using favourable taxation policy, the governments at
all levels support the unemployed to realize self-employment or start up their own businesses, at
the same time, encourage SMEs to absorb the unemployed. The governments provide small
loans and give interest subsidies to support the unemployed to start up their own businesses, and
support SME’s development in order to expand employment. The assistance policies for urban
vulnerable people mainly include:

1. Encouraging the unemployed to realize self-employment or start up their own businesses.

Through reducing and exempting taxes and administrative charges, small security-backed
loans and loans at discount interest should be available when they meet specified
qualification, and within some certain term and number of loans.
2. Encouraging enterprises to absorb labourer. Especially for small processing enterprises in
service, commercial and trading sectors, labour employment service enterprises as well as
small entities with processing nature in neighbourhoods and communities, they shall
enjoy relevant tax reductions and exemptions, social insurance subsidies within some
certain specified qualification and term, when they recruit the urban vulnerable people
reached prescribed amount.
For small labour-intensive enterprises met certain specified requirements, the loans 6 at discount
interest, with a maximum of 1 million Yuan, should be available when they recruit the urban
vulnerable people reached to prescribed amount.

Page 18 of 22
3. Offering certain social insurance subsidies and post subsidies to the “4050” urban
vulnerable people (laid-off men over 50 years old and women over 40 years) when they
realize re-employment in a flexible form.

Page 19 of 22
 COMPARISON OF MEASURES TAKEN BY INDIA AND CHINA

 INDIA
Economic reform process in India began during the Rajiv Gandhi’s rule, but did not gain
momentum as a result of political set backs and opposition (Varshney, 1999). The
balance of payment crisis in 1990-91 and the consequent conditions-attached structural
adjustment loan significantly changed the reform process. It has been argued that reform
of labour market and industrial relations institutions are complementary to product
market reforms; indeed the effectiveness of product market reforms hinges on the
implementation of factor market reforms. Employers are calling for ‘major’ labour
reforms. By ‘major’ labour reforms, it is meant that the existing laws should be amended
to provide for ‘free hire and fire’ and ‘free closure of firms’, among others. The
governments (both central and regional) have been introducing reforms here and there
(marginal, decentralised, and piecemeal). While the state is driven by its political logic,
firms are driven by market logic. But employers (especially foreign firms) and pro-
reform academics are not content with this approach. On the other hand, trade unions
have been demanding some reforms which would widen the coverage of labour laws;
better enforcement of labour laws, better economic and social security to both organised
and unorganised workers among others (Shyam Sundar, 2005a). Both the social actors
have adopted ‘rigid’ positions and thus there prevails a ‘social deadlock’ over the reform
contents and direction. The labour reform processes thus in India has been marginal,
piecemeal and often decentralised (at the state level) and implicit; major reform demands
from either side have been cleverly skirted. The reform process is indecisive and chaotic.

Page 20 of 22
 CHINA

China started the reform process early (in the late 1970s) and achieved faster economic
growth as seen above. China’s reform agenda of labour market and IRS agenda was
heavy because the rigidities in the two were extensive. Along with economic reforms, it
has been carrying out labour reforms gradually but strongly. It was gradual because of the
social implications and the magnitude of reforms themselves; but the political
commitment to policies and the reform process was strong. These two distinguish
Chinese labour reform process from that of India. Notwithstanding the above, the labour
reform process pursued in the 1990s, especially since the mid-1990s have resulted in
welfare losses and social unrest. This caused the government to reconsider some of the
labour reform measures. Accordingly, the Chinese government unveiled some re-reforms
measures in 2006 which were kept for public response for some time; the response has
been huge and significant. As a result of this social process, a new Employment Contract
Law has recently been passed, and the new law will be effective from January 2008.

Page 21 of 22
 CONCLUSION

The Indian labour reform story reveals a ‘mixed picture’. The government is under pressure to
introduce ‘hard’ labour reforms such as privatisation, amendment to ID Act to relax the
regulations governing retrenchment and closure, and to liberalise contract labour law. But trade
unions have been vocal and have succeeded in stalling these reform measures. The government
has resorted to ‘soft’ and ‘implicit’ routes by which it has sought to afford labour market
flexibility to employers. The employers, especially foreign firms, demand explicit reforms. The
soft route has been preferred because of several factors like political costs of hard reforms,
opposition from coalition partners, mass struggles by trade unions and allied interest groups, and
so on. Finally, absence of unemployment benefit system and retraining facilities (the National
Renewal Fund was a disaster as is well known) weakened the case for labour flexibility. The
Chinese story of labour reforms is interesting in several respects. The reform strategy was to
introduce reforms gradually, but definitely. The reforms causing unemployment, loss of
privileges, and dislocation were introduced with great caution often gradually fearing social and
industrial unrest – the fine example of this approach is the gradual but definite introduction of the
contract system. Secondly, the reforms were accompanied or preceded by social protection
measures to soften the impact of them. The government designed social protection measures
such as unemployment insurance scheme, re-employment centre scheme, retraining, relocation in
subsidiaries, etc. This is known as “make the channel before the water comes” (Sheehan et al.,
2000). Thirdly, the Chinese government unlike its Indian counterpart enjoyed institutional,
political, and organizational support from the official trade union, the ACFTU. But the two
important lessons from the Chinese story is that (a) it is undesirable to create more labour
flexibility than the socio-economic system could accommodate, and (b) the heavy dose of radical
reforms however well planned could result in social unrest and dislocation. Indeed, the recent
reform measure in the form of proposed new Contract Law seeks to strengthen the protections to
workers. The absence of a free collective bargaining environment and the inadequate dispute
resolution machinery are two disturbing features of the industrial relations system in China.

Page 22 of 22