India has been moving towards a more open market economy since 1991. This liberalisation process includes reforms such as removing price controls and other restrictions on free trade. It has forced the cotton textile industry to restructure, resulting in the loss of many jobs. What can be done to support those made jobless by economic reform? Researchers at the School of Development Studies in the University of East Anglia have been inquiring into the impact of economic liberalisation on workers in India's cotton industry. They offer suggestions on how to make those impacts more acceptable to vulnerable workers and their unions.

As part of a package of economic reforms, the Indian government began in 1991 to free various sectors of the economy from restrictions on (for example) company size, prices and foreign investment. Business was opened up to competition from abroad. Attempts have been made to relax regulations on hiring and firing and wages. Despite slow progress on this many mills have nevertheless closed down, putting large numbers of workers out of work Most cotton mill workers who lost jobs have not found other permanent work in the formal sector. Some 98 percent of redundant workers who were interviewed now earn less than when they worked in the mills.

The change in economic policy forced the government to rethink its role in labour markets. To make changes more politically acceptable, the government also introduced a number of new supportive laws and policies. Support was given to ease closures of unprofitable firms. In addition, a National Renewal Fund (NRF) was created to re-train textile workers, compensate employees for job losses and promote employment regeneration schemes. However, the NRF has generally failed to achieve its goals. Funding constraints mean it has so far only financed voluntary retirement schemes in key public sector organisations. Provision of training has not kept up with needs: only 12 percent of workers who lost their jobs in Ahmedabad, participated in training programmes.

Main findings of the study were that:

• restructuring the cotton textile industry has led to the closure of less efficient mills, resulting in job losses
• firms that have survived by modernising now require less workers: those who lost their jobs may not find other work
• politically, mill closures resulted in conflicts of interest and changing alliances between government, business and unions
• to make economic reforms acceptable, safety-nets such as the NRF must be adequately funded and managed
• for re-training programmes to be effective close links must be developed between training and local employment needs
• traditional trades unions have not been effective in protecting workers in the changing economy.

To lessen the negative effects of liberalisation on employment, policy makers should (the researchers conclude):

• monitor and evaluate the effectiveness of compensation schemes and re-training programmes
• establish a time limit for failed firms to pay their debts, with priority given to compensation of workers who lost their jobs
• encourage new institutions to represent workers in the informal sector given the declining relevance of traditional unions
• provide financial support and advice on the best mechanisms for supporting redundant workers (safety-nets).

Source(s):
Liberalisation and labour markets in India: A socio-economic study. Research Report #6526 to ESCOR, School of Development Studies, University of East Anglia, Norwich, UK. J.Howell and U.Kambhampati (1997)

Funded by: ESCOR/DFID (Department for International Development), UK (1996-1997)

id21 Research Highlight: 1998-Apr-19

Further Information:
J. Howell and U. Kambhampati
School of Development Studies
University of East Anglia
Norwich
NR4 7TJ
UK

Tel: +44 (0) 1603 456161
Fax: +44 (0) 1603 505262
Contact the contributor: j.howell@uea.ac.uk

School of Development Studies, UEA, UK

Contact the contributor: u.kambhampati@uea.ac.uk