India, Australia and Indonesia - Labour Reforms

Table 1: India and Australia – Snapshot Source: Australian Government – Department of Foreign Trade, Chidambaram Vs Ahluwalia, CIA - The world Fact Book, Index of Economic Freedom 2008 – India, Investment and Financial Services Association, Nation Master, Reserve Bank of Australia, Reserve Bank of India, World Bank.

The difference in the two economies can be attributed to various factors. The noticeable point in the table is the difference in population density of the two countries. Difference exists because though Australia is nearly 3 times the size of India, it has a population less than 1/50th of that of India. This makes the natural resources to be a part of Australian exports and finished goods to be a major component of imports. It is just the other way round for India.

Both economies have a steady inflation rate. India experiences a higher GDP growth rate due to the recent opening up of the economy and the boom in the services sector (showed in part B). The exchange rates and interest rates have been fairly stable although there is a major difference in the saving rate as the Indian public does not spend their savings very easily.

Australia also has an improved health services sector as can be seen from the lower infant mortality rate. Also, Australia and India are dominated by one religion although both are secular states.

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A Comparative Historic Profile of India’s and Australia’s Economic Development.

This section provides a comparative historical profile of the two economies from 1970 to 2007 and compares and evaluates various key macro-economic variables.

Real GDP Growth Rate

Graph 1: Real GDP Growth Rate Source: UTSOnline

The GDP of India had been growing at a faster rate as compared to that of Australia. Australian economy faced a drastic fall in the growth rate towards the late 1980s, but since then, has been growing consistently. On the other hand, the GDP growth rate of India has been very volatile, falling and recovering at short intervals.

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Inflation Rate

Graph 2: Inflation Rate Source: UTSOnline

The two economies have had a highly volatile inflation rate. India generally has an inflation rate higher than that of Australia. India had a negative inflation in the middle of 1970s, while Australia had almost zero inflation in the middle of 1990s.

Money Supply Growth

Graph 3: Money Supply Growth Rate Source: UTSOnline

Australia has a highly volatile money supply growth rate. India has been more consistent in this aspect. Also, the growth rate for India has generally exceeded that for Australia.

Sectoral Shares

Graph 4: Sectoral Share – Australia Source: UTSOnline

Australian economy has been dominated by the service industry for last four decades. The share of this sector in total value addition has been rising constantly while the contribution of the agriculture and the industry sector has been declining.

Graph 5: Sectoral Share –India Source: UTSOnline

Indian economy was earlier dominated by the agriculture industry but the share of this sector had gone down considerably. Over the same period, the contribution of services sector and industry sector has increased drastically. As of now, services sector has the maximum contribution and the agricultural sector has the least.

Population Growth Rate

Graph 6: Population Growth Rate Source: UTSOnline

The population growth rate of India has been declining steadily while that of Australia has been increasing consistently with Australia overtaking India in 2006.

Exchange Rate

Graph 7: Exchange Rate Comparison Source: UTSOnline

The value of Indian currency has been depreciating in terms of USD, while Australian currency has been consistent. The decline of Indian currency was on the rise from late 1980 and was at its worse in early 2000s. Since then, the Indian currency has once again started recovering.

Components of Aggregate Demand

Graph 8: Aggregate Demand – Australia Source: UTSOnline

The total demand in Australia has been rising consistently with the household consumption showing the maximum growth. The net export has formed a very small part of the total demand and has been negative.

Graph 9: Aggregate Demand – India Source: UTSOnline

Like Australia, the total demand in India has also been rising consistently, with the household consumption showing the maximum growth. The net export, in India as well, has formed a very part of the total demand and has been negative for the last four decades.

Current Account Balance

Graph 10: Current Account Balance Source: UTSOnline

Australia being a major importer in the world market has always had a negative current account balance. It has been declining steadily since early 2000s. India, being a smaller importer, has a smaller negative current account balance. They also had a positive balance for a short period from late 1990s to early 2000s.

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Australia’s International Trading Pattern With India.

This section will provide an overview of Australia’s trading pattern with India over the last 3 – 4 decades. The current and prospective trading relations between the two countries will also be discussed later in the section.

Graph 11: Australia – India Trading Pattern Source: UTSOnline 

Over the last four decades, the export to India has increase from around 1% of the total Australian export to around 5.5% and the imports have marginally decreased.

Australia exported goods worth A$ 9,294 million and services worth A$ 2,062 million to India in 2007. It also imported goods worth A$ 1,458 million and services wroth A$ 459 in the same year (DFAT 2008).

Major commodities exported were non-monetary gold (A$4,728million), coal (A$2,396 million), copper ores (A$1,113 million) and wool (A$151 million). Australia imported pearls and gems (A$108 million), rotating electric plant (A$88 million), jewelry (A$63 million) and medicaments (A$38 million) (Austrade 2008).

Over the last few years, India has become one of Australia’s most significant trading partners. India is the fastest-growing merchandise export markets for Australia, with the exports increasing y an unprecedented 37 per cent to $11 billion in 2006 – 07 (Truss 2007).

Very recently, Australia has agreed to allow the export of uranium to India, subject to several strict conditions (Truss 2007). This will help India to utilize reliable low emission energy resources like nuclear power to fuel its economic progress without creating unnecessary environmental challenges. In Australia, it will create new jobs and increase exports in the long term. Australian businesses have already carved out a niche by supporting India’s growth. For example, they are providing infrastructure design for the 2010 Commonwealth games and education services for more than 40,000 Indian students in Australia (Truss 2007).

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India and Indonesia - Comparison.

According to the last population census held in India in 2001, the country had a population of 318,034,600 falling in the age group of 20 years to 40 years out of which 206,045,300 were active population available as work force. On the other hand, Indonesia in 2000 had a population of 69,472,984 falling in the same age group out of which 51,725,298 formed the active population (Laborsta 2008). India, thus, has a much bigger labor force to offer.

Table 2: Unemployment in Indonesia. Source: Laborsta

Table 3: Unemployment in India. Source: Laborsta

The value added per person employed from 1980 to 2005 in India and Indonesia are 3.7 and 2.1 respectively (International Labour Organization 2005).

Strikes and lockouts

For India, only those stoppages involving 10 or more workers are included. It is unclear what the minimum criterion is for Indonesia (Perry 2006). India collects and publishes separate data on (i) lockouts and (ii) strikes. Indonesia lumps them together and refer them as industrial disputes or work stoppages. The following table gives an idea about the work stoppages in the two countries in 2004.

Table 4: Dimensions of Work Stoppages Source: Perry 2006 

However, the above table gives an absolute number. India, being a much bigger economy and having an equally huge labor force, has a larger number of workers involved in work stoppages.

The following graph indicates the fall in the work stoppages in India and shows the changes in the stoppages after the introduction of reforms in 1991.

Graph 12: Work Stoppages - India Source: Perry 2006 

 Table 5: India - Work Stoppages Source: Perry 2006 

The next graph and table shows the work stoppages related data in Indonesia.

Graph 13: Work Stoppages - Indonesia Source: Perry 2006

Table 6: Indonesia - Work Stoppages Source: Perry 2006 

A proper comparison shows that in the case of India, the labor reforms of 1991 had little, if any, direct impact on labor market legislation. Labor market reforms have occurred as an indirect result of reforms elsewhere in the economy as well as being a result of changes in state government regulations, judicial rulings and central government administrative initiatives. Just as unmistakably, there has been a marked declining trend in the pattern of time lost due to work stoppages during the various respective periods of neo-liberal reform (Perry 2006).

In case of Indonesia, neo-liberal labor market and general reforms have been less clearly linked to declining rates or work stoppages. The change in government in the mid-1960s saw a move towards neo-liberal policies, and an accompanying decline in stoppages. However, this decline was more a result of government control of unions than due to neo-liberal reforms.

All in all, Indonesia’s experience appears to be less linked to neo-liberal labor reform than has been for India. So, it is safer to invest in the Indian market as compared to the Indonesian market. The reasons behind this are:

• The Indian labor market is more stable than the Indonesian market and
• The government as well as the market forces is leading to reforms in Indian market, but in Indonesia, it is reformed mainly by the regulations and government control.

 

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