Hyderabad: States should bring in labour reforms enhancing the threshold of employee number to increase their productivity. There should also be a sunset clause for the incentives given to enterprises, said Chief Economic Adviser Krishnamurthy Subramanian.
Addressing students and faculty at the Indian School of Business, Subramanian, the author of the Economic Survey, said many enterprises preferred to stay small to benefit from incentives. In the process, they sacrificed real growth and achieved lower compared with the real potential or scope available.
Citing Rajasthan as a successful example of enhancing productivity, the CEA said it enhanced the limit of employees to 300 from 100 to benefits from labour rules. The productivity, in this case, increased at 9.33 per cent CAGR (compound annual growth rate) from 3.65 per cent before reforms. In the rest of the country where no labour reforms have been introduced, the productivity grew at 5.52 per cent from 4.56 per cent.
Classifying enterprises as infants (which can grow into giants) and dwarfs (which will age but not grow), he said incentives should be given to the former, which have scope to grow. The growth can be tracked using Aadhaar to deal with attempts to kill an enterprise and starting afresh for incentives.
Subramanian, Professor of Finance at ISB, was here to speak on ‘$5 trillion in five years? Is it possible?’ The event was organised by The Global ISB Forum and the interaction was moderated by Prof Bhagwan Chowdhry, Professor of Finance at ISB.
The CEA said the target was achievable and the process needed a trigger in the form of increased exports. “The Indian economy now is about $ 3 trillion (lakh crore) and the first trillion took 55 years. It grew from $ 1.7 trillion to $2.7 trillion in five years from 2014-19 and the gallop to $5 trillion could happen in five years,” he said.
On the target of doubling farm income, he said it depended on the quantum of value addition in the agriculture sector and not just an increase in the output.