Strategic PSU Sale, NBFCs And Piecemeal Labor Reforms

Despite reeling under the effects of the slowdown, we have seen positive steps being taken by a resilient finance minister over the last four months. She has been doling out sops to the impacted sectors and industries to trigger multiplier effect. The erstwhile sunshine sector – Telecom –  has been in the red for long and its fiscal health has been on the decline akin to the aviation industry. The large sectors have contributed heavily to the ill health of the economy. All the major telecom players have incurred huge losses and the government announced Rs 42,000 crore sops to them with a two year moratorium on payment of spectrum dues. This is the breather the industry needed for a turnaround.

The Maharaja has been a white elephant for decades. Successive union governments have deliberated its privatization but inaction has widened the losses incurred to keep Air India afloat. The government kept the PSU airline out of the purview of privatization when earlier this week it put five PSUs on the bloc. The sale of BPCL, SCI, THDCIL, Neepco and Concor is expected to get over Rs 100,000 crore in revenues and the government hopes this strategic sale will not only improve their administration but also reduce the overall fiscal deficit of the nation. The decision to finalize their sale by March 2020 is a bold move and will need political will coupled with strong execution abilities to help meet the deadline.

The NBFCs have been giving sleepless nights to customers and the government alike. Banks too have been losing their sheen. The RBI and the government must tighten the norms around ethical governance to prevent the financial sector from crumbling. Recently, RBI superseded the board of the DHFL and appointed an administrator by initiating insolvency. Poor fiscal discipline has hit DHFL almost like it hit PMC in the recent past. Between them, thousands of jobs have been lost, customers’ trust has been betrayed and their hard earned money and future has been put at risk. Above all, the image of the nation in being a safe place to do business is jeopardized.

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Though the government has shown seriousness in pushing through reforms, sense of urgency is still an area it might wish to improve on. On the labor reforms front, the Union cabinet has approved the Code on Industrial Relations 2019 and sent it to Parliament. Some of the key proposals are like the one allowing companies to hire workers on fixed-term contract of any duration is a good move. The code has retained the threshold on the worker count at 100 for prior government approval before retrenchment, but it has a provision for changing ‘such number of employees’ through notification. A minor change, which the government feels is a good relaxation, is replacing Parliament’s approval with the government’s approval. It will certainly reduce the time taken for obtaining approval but employers still would need to go through the rigmarole of bureaucratic red tape while applying to the government.

The bill provides for all workers – permanent and FTE – to be treated at par. Textile industry is the first beneficiary of this move. One wishes the cabinet would have accorded automatic approval to industries with the limit of a threshold number of workers. These cosmetic changes will not bring about ease of doing business and certainly won’t immediately lead to job creation.

Bengaluru is home to IT and ITes companies, start-ups, hotels, biotech companies which have a sizeable diversity ratio. Except IT/ITes and hotel industries, the others have for nearly a decade been requesting the government to relax rules enabling women to work in the night shift (7pm – 6 am). The Karnataka government finally approved the employment of women workers willing to work in night-shifts fulfilling a long due demand which will also help generate employment for women. It’s the right step taken to bolster ease of doing business in the state as well as being ready to support the ecosystem of new-age companies, startups, aggregators etc.

Despite these piecemeal measures, the big ticket labor and structural reforms are still not on the anvil. The $5 trillion dream, generating employment and improving the ease of doing business are achievable provided fiscal discipline, hard but necessary reforms and keeping populism to a minimal level in the political economy are adhered to.