Disempowering labour through poorly conceptualised reforms will only exacerbate other economic and governance challenges. The growth-versus-labour rights binary is false(PTI)
Disempowering labour through poorly conceptualised reforms will only exacerbate other economic and governance challenges. The growth-versus-labour rights binary is false(PTI)

A blueprint to protect labour rights without constraining capital | Opinion

Take into account State capacity, new economic realities, and the informality of the labour markets
By Yamini Aiyar and Maitreesh Ghatak
UPDATED ON JUL 03, 2020 08:07 PM IST

Two defining moments in India’s long and harsh lockdown bring out the sharp contradictions in labour-capital relations in the economy. Every day of the lockdown brought with it images of workers, left with no incomes and social security, making their way home, hungry and tired, laying bare the realities of India’s fragile labour market. In sharp contrast to the tragedy unfolding on our highways, several state governments set about “reforming” labour laws by quite literally doing away with crucial protections in a bid to make themselves more attractive to business and revive their economies.

These contradictory responses to the lockdown are a product of well-known truths about India’s labour market and unconscionable policy failure. More than 90% of India’s workforce is informally employed. About three-quarters is either self-employed or casual labourers, with no income and employment security or benefits. India’s organised sector too is characterised by stagnant wages, and a decrease in the proportion of employees with social security benefits. Juxtaposed against this is a complex and ominous legal regime for labour regulation. According to a study by Teamlease labour-capital relations are governed by 463 Acts, 32542 compliances and 3048 filings. This governance regime does relatively little to protect labour. Moreover, its complexity and associated red tape have contributed to the persistence of informality.

It is this reality, and not the urgency to attract global capital, that needs to drive the debate on labour law reform. Yet, in the rush to promote ease of doing business, deregulation of labour has taken precedence over the real debate India should be having —how to rebalance regulation to enhance the bargaining power of labour without unnecessarily constraining capital. As a contribution to this rebalancing, here are some basic principles and empirical realities that a debate on genuine reform ought to consider.

First, the challenge of State capacity. Indian capital’s frustration with labour laws stems from the fact that laws are being implemented in an environment that incentivises arbitrary implementation, corruption and abuse of the coercive powers of the State. This is a consequence of a deadly cocktail of bad laws and weak regulatory capacity, particularly relating to dispute resolution and grievance redressal.

Second, the imbalance in the relative economic strengths of capital and labour. India is a labour-surplus economy and labour markets are characterised by the presence of monopsony. These realities make a strong theoretical case for robust labour laws but, at the same time, risk laws being rendered ineffective by the forces of supply and demand. Therefore, labour law reform must go hand in hand with robust social security. Consider, for instance, the important role Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) played in driving rural wages upward. Greater freedom to hire and fire may make the labour market more dynamic, but in the absence of social security, they undermine labour bargaining power. Strengthening MGNREGS and Public Distribution System (PDS), and combining that with some form of social security, ought to form the backbone of a renewed reform effort.

Third, the shifting global economic landscape. Against the backdrop of trade wars and retreating globalisation, it is likely that the East Asian pathway of exporting its way to prosperity in a global labour market may no longer be available for India. At the same time, the ever-expanding role of information technology will continue altering labour markets significantly. In the gig economy for instance, it is a computer that navigates relationships between labour and capital. Think of the Uber and Ola driver or the Swiggy delivery person — the workers simply do not directly engage with employers. As the global economy responds to these changes, how will international capital reorganise itself? How will local economies reshape their growth paths and what implications this will have on labour- capital relations?

Fourth, the structural changes in India’s labour market post the 1991 reforms. The spatial concentration of growth has resulted in increased inter-state migration, placing new pressures on labour markets. This has been accompanied by an increase in temporary or contract workers. Contract workers now account for a third of workers in the manufacturing sector. They are dependent on intermediaries (or contractors) who are as powerful in shaping labour-capital relations as employers themselves. Meditating this dynamic is complex because contractors operate informally, a consequence of poorly designed laws. Labour law reform will need to contend with the challenge posed by the omnipresent contractor and the role he plays in shaping labour-capital relations, and yet manages to stay outside the direct purview of the law.

Finally, implicit in the narrative on labour reforms is the assumption that every other aspect of the economy is working well, and fixing labour laws will unleash latent growth potential like a volcano. The reality, of course, is quite different. Other factor markets such as land and capital have a plethora of problems and putting all the reform eggs in the labour-law basket is bound to disappoint. Above all, India’s governance and labyrinthine administration pose binding constraints on the growth process. Disempowering labour through poorly conceptualised reforms will only exacerbate these challenges, not resolve them.

Reforming and simplifying labour laws is the need of the hour. But doing this right requires a fresh debate. One that contends with economic realities on the one hand and revisits first principles of what makes good laws (and good economics) on the other. Above all, we need to step away from entrenched positions of growth vs labour rights, which lead to a zero-sum discourse. Protecting rights is not just a moral imperative in a democracy, but also an investment in boosting overall productivity.

Yamini Aiyar is president and chief executive, Centre for Policy Research.
Maitreesh Ghatak is professor of economics at the London School of Economics and director, Development Economics Programme, STICERD
The views expressed are personal
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