Labour shortage, wage increase hit Indian industry hard: FICCI

The situation has been compounded by the government’s flagship employment programme, the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), by opening an alternative employment avenue for casual labour in rural and semi-urban India, a FICCI Survey on Labour Shortage for Industry reveals.

That MGNREGA has not been implemented uniformly across states and may serve to enhance the divide between the states, is borne out by the Herfindahl Index. The index was constructed using the survey results. The index values clearly show that the impact of the MGNREGA is not uniform and is lumpy across selected states and industries.
The survey notes that the Herfindahl Index for industries in the sample is 0.18, indicating that this group of industries is getting impacted adversely because of the MGNREGA scheme.
  
Likewise, the Index for regions takes a value of 0.32. This shows that companies based in the Western and Southern regions are getting impacted more due to MGNREGA.  
The survey drew responses from about 10 associations and in total FICCI received duly filled in questionnaires from over 100 companies. A majority 40 per cent of the responses were received from Western part of the country. Further, about 37 per cent of the participants were from South India. Finally, about 12 per cent and 11 per cent of the responses were from Northern and Eastern region respectively.

With regard to the sectoral spread, responses were received from a wide array of sectors such as textiles, leather and leather products, handicrafts, gems and jewellery, construction, auto components, food processing, plastic and plastic products, pharmaceutical sector and machine tool manufacturers.

Going by the survey results, FICCI believes that the government should make some changes in the MGNREGA scheme to make the impact more uniform and distributed across states and industries. Towards this end, survey respondents have made the following suggestions:
· The scheme should be implemented during the non-peak agricultural season only.
· The work done in industrial units can also be considered for coverage under MGNREGA. This will be particularly useful in areas where there is heavy concentration of industrial activity.
· State governments must not make it mandatory to hire workers from within the state. Free movement of workers across states should be encouraged.

In statistical parlance, the Herfindahl Index is a well known and often used measure of concentration. Using the FICCI Survey results, the index was constructed to understand whether the impact MGNREGA Act is concentrated with respect to regions, states and industry. A small Herfindahl index indicates a smooth distribution profile with no concentrations. Typical ranges that may be applied are: Index below 0.1 indicates an unconcentrated index; Index between 0.1 to 0.18 indicates moderate concentration; Index above 0.18  indicates high concentration.    
 
The Herfindahl Index for industries in the FICCI sample is 0.18 with respect to Industries, indicating that these groups of industries are getting impacted adversely because of the MGNREGA scheme. In a similar vein the Herfindahl Index for regions takes a value of 0.32. This shows that companies based in the Western and Southern regions are getting impacted more due to MGNREGA. 

 This apart, many of the survey participants mentioned that they have to accept unavoidable delays in delivery schedules, slippages in meeting confirmed orders and even reduce production capacity at times due to scarcity of workers. As each of these developments can have a big negative impact on business, companies are trying to minimize the impact of shortage of labour by several initiatives.

Asked to comment on the extent of potential loss due to shortage of labour, nearly two thirds of the participating firms said that their potential losses are to the extent of more than 10 per cent of their demand.

While the problem of not being able to meet potential demand is one aspect, another related aspect is the upward pressure on wages that is now pervasive.

Further, when asked what has been the extent of increase in wages, a majority
82 per cent of the participants said it has been more than 10 per cent for them.

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