Date:19/09/2006 URL: http://www.thehindu.com/2006/09/19/stories/2006091908701600.htm

Business

OECD advises India to ease regulation

Special Correspondent

Working on `Economic Survey' which will provide extensive analysis of growth drivers

NEW DELHI: The Organisation for Economic Cooperation and Development (OECD), which is working on the first ever Economic Survey of India, has counselled the Government to liberalise business regulation by doing away with reservations for small firms, reducing tariff rates and easing labour laws for large firms.

"Such an approach could pave the way for labour market reform, as shown by the OECD experience," said Chief Economist of OECD, Jean-Philippe Cotis, during an interaction with industry leaders organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) here on Monday.

Mr. Cotis said, "In India, the existing combination of greater competition and unchanged labour regulation is probably not sustainable. Indeed, it is putting pressure on many large employers to expand output through capital investment and reduce employment wherever possible, pushing jobs into the less productive informal sector."

Giving a snapshot of the OECD analysis on labour and product market reforms across OECD countries through the past three decades, Mr. Cotis said, "One policy lesson is that many of the top reformers have `bunched' their reform into packages so that the net losers from one type of reform may be the net winners from another type. By spreading the net gains from reforms more evenly across the population, such a strategy may help overcome the resistance to change."

On the first-ever OECD Economic Survey of India, he said it would provide an extensive analysis of the growth drivers and impediments, with particular emphasis on the role of economic policies.

Strict labour regulation might hamper the job prospects of the least skilled workers, which in turn might raise equity concerns, he said.

Sushil Jiwarajka, Chairman, Western Region Council, FICCI, and President, All India Organisation of Employers, said, jobs to the millions joining the workforce every year, particularly from rural areas, could be provided adequately only through a robust revival of the manufacturing sector.

It is estimated that nearly ten million people will join the workforce annually between 2005 and 2015 and will require to be provided with employment. While the services sector would provide high quality employment opportunities that were essential for the growth process, it was likely to benefit only a fraction of the job seekers entering the market, he said.