Need permanent changes, policy predictability and flexibility: Mukesh Aghi

State governments are in the right direction but a permanent change to the laws is more preferred than temporary changes, says Mukesh Aghi
Various State governments in India are taking drastic steps in a bid to attract investments moving out of China. Mukesh Aghi, the President and chief executive officer at US-India Strategic Partnership Forum told Somesh Jha in an interview that the labour law changes by the State governments are in the right direction but a permanent change to the laws is more preferred than temporary changes. Edited excerpts:

A lot of state governments have started relaxing labour laws. In fact, we have seen the UP government, for instance, exempting companies from almost all labour laws for 3 years. What’s your idea of labour law reforms?

When you look at the labour law reforms, we have to move away from the 18th century guidelines and come into the 21st century. What the State governments are doing is the right thing. You have to find a balance where you are protecting rights of the workers – that’s absolutely necessary – but at the same time you also have to ensure that there is enough flexibility for companies to take risk and hire and if the business shrinks, have the flexibility to reduce the headcount. To me, that’s a normal way of doing business. And we all operate in an environment such that when economy and businesses do not pick up, we are subject to retrenchment. That’s a normal operating environment on a global basis. That’s why a lot of manufacturing companies are not willing to come to India because of the labour laws. Reforms should lead to a competitive environment.

What other factors do companies look at for investment in India? Are labour laws the only deterrent?

Besides labour and land reforms, the more important things are a sense of predictability. You need to have a predictable and transparent policy environment. There has to be a consultative process as you try to bring changes to the laws. The biggest challenges multinationals, which look at India as a potential investment country, are a sense of transparency. Those are the issues which are still quite pertinent before they take a call. Because for instance, the experiences of Walmart’s Flipkart acquisition or the decision by a new Andhra Pradesh government to cancel all the (clean energy) contracts does not send a strong message to investors looking at long-term investments.

Some of the State governments are saying they will bring the labour law changes for a period of 3 years but there is no clarity what will happen after that. Is it the kind of policy environment you are looking at?

When you try to say three years what really happens is you put a factory and it takes a couple of years to build it. When you start coming up to the third or fourth year and we switch to the old system then that’s an issue of predictability of policy-making. I think you should basically have permanent changes and convey those changes to the potential investors. It will help build confidence and long-term investments rather than the short-term ones.

The steps taken by the States have drawn the ire of the trade union leaders who are saying there was no consultation on bringing about these changes. How do you see such Ordinances being announced unilaterally in public?

I think the unions have to understand that times have changed and if you want job creation to happen, if you want investment and innovations to come in then you have to attract global players. Unions have to behave from a global perspective and if they don’t change then investments will go somewhere else.

But you pointed out that it’s important to build confidence of stakeholders and have a dialogue before going in for changes in the law…

The faster you move trying to go through the process, the faster you will draw investments. In this case, the governments have realised that there is a window of opportunity with the US and China under stress and if you miss the opportunity then the investors will go to other geographies. So, the leadership has taken the Ordinance route and come up for solutions with consultation with the unions. If you are looking for economic growth and job creations and if discussions drag on with the trade unions, which they have refused to change for a long time, then you miss the opportunity of current transition taking place.

Instead of reforming, the States are doing away with labour laws. As you said that some protection is required for workers but it will lead to major dilution to some of their rights. How do you see that?

I have to see the details before I respond to it because every state is doing something different.

But as a concept, would abolition of labour laws be an ideal situation?

It’s not a one-way street. It’s a partnership with the State and the labour force. Labour is not an enemy and it’s a partner. Multi-national companies bring in their own transparency and governance structure to make sure employees are treated well, with respect and dignity and I think that doesn’t go away.

How far do you see the compliance burden?

The whole concept of ‘inspector raj’ should come down with some of these reforms but at the same time it’s important that companies have to maintain standard, safety and follow certain guidelines. But it has to be ensured that inspector raj do not make running business more difficult and challenging. It’s important to find the right balance. Firms should be focusing on expanding business than dealing with the ‘inspector raj’.

Prime Minister Narendra Modi in his recent speech has made a big pitch for local products but states are competing to bring in foreign investors. How do you see the policy conundrum?

I think every nation has to have some self-sufficiency, be it on essential food items or medical items. At the same time, you want to be able to provide choice to the citizens and if you basically say that everything is going to be local then you have taken global competition and innovation out. You have to maintain a sense of open market also. I don’t think the comments of the PM about being ‘vocal for the local’ have an impact on multinationals which want a level-playing field to compete.

What do companies find attractive in China which they do not find in India?

I think both are different models. One is a democracy and the other one is a Communist state. Basically for a lot of companies, a predictable orderly environment suits better for mass manufacturing and a fluctuating environment may not suit. India, with its democracy, has a lot of strength.

Which countries are attractive for investors right now?

I think at the moment a lot of companies are preferring going to Vietnam and Combodia and for some areas like the apparels to Bangladesh. It depends on the sectors.

It’s very dynamic situation in India as everything has to be planned according to the curve of the virus and the policies keep on changing. How do you see to come in such an environment?

The Covid-19 crisis provides India an opportunity to streamline some of the policy framework. The US companies are comfortable operating in India. They feel the same value system; they know there is a rule of law. They know the quality of professionals is world-class and you have a market that will grow. The comfort level with India is high. The states are also trying to attract larger manufacturing companies coming to India.

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