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Home / Columns / Strike a balance between industry and labour | Chanakya

Strike a balance between industry and labour | Chanakya

Labour laws must change to help the economy, and now is as good a time as any to amend, suspend, even scrap them — but not at the cost of workers. Take nuanced decisions on which laws to junk, while preserving those which are to do with lives, livelihoods and liberties.

columns Updated: May 09, 2020 19:22 IST
Hindustan Times
Experts believe India’s archaic labour laws have prevented the rise of large enterprises, contributed to the informalisation of the labour market and hurt workers, industry and the economy.
Experts believe India’s archaic labour laws have prevented the rise of large enterprises, contributed to the informalisation of the labour market and hurt workers, industry and the economy. (Bloomberg)

India’s labour laws are a mess.

Any rational discussion of the country’s labour laws has to start from there.

They are well-intentioned, like all things in this country are, but far from the kind of labour laws a country that has to create hundreds of millions of jobs needs to have.

Some economists consider them partly, if not wholly, responsible for the curious absence of large enterprises in the country. India may have 63 million companies, but only 18,500 of them have a paid-up capital of at least Rs 10 crore.

The laws are also blamed for the informalisation of the Indian labour market. According to the 2020 Economic Survey released in January, around a fifth of jobs in India are in the so-called formal sector. Some experts believe this might be an overestimation and the actual proportion could be lower — perhaps even as low as 10%.

And most workers in the informal sector, if not all, do not enjoy the protection and the safety net those in the formal sector do.

Some experts believe that the laws are the reason why many companies, including large ones, prefer to hire workers on a contract basis (usually through contractors). Even large auto companies prefer such contract workers to those on their rolls. In effect, a regime that should safeguard the interests of workers has had the opposite effect, hurting not just them, but industry, and the economy as a whole.

It’s the reason changes in labour laws headline any discussion on the second generation economic reforms India has to embark on to make it easier to do business in the country, and help businesses become more competitive.

If, almost three decades after India liberalised its industrial policy in the first wave of economic reforms, it hasn’t happened, blame it on politics — the same reason why much-needed agricultural reform hasn’t happened. Interestingly, much like workers, farmers too have borne the brunt of laws originally designed to protect them, and, improve their lot, but that’s the subject of another column (perhaps, even a book).

The Narendra Modi government has, since it came to power in 2014, tried to overhaul the country’s archaic labour law regime in an attempt to do the right thing by both industry and workers. This has involved parcelling a multiplicity of laws into four labour codes. Parliament has already cleared the code on wages. A second code on industrial disputes has been cleared by the Union Cabinet. The third, on occupational safety and health, and the fourth, on social security, are before a parliamentary panel. But these are only central laws.

Since labour is what is called a concurrent subject under the Indian Constitution, states also have the right to make laws on it. The result is a complex, and often almost incomprehensible web of laws, many of which emphasise compliance and inspection — giving tremendous powers to labour inspectors, often resulting in harassment.

It is some of these laws that have been suspended by the states of Uttar Pradesh and Madhya Pradesh, both governed by the Bharatiya Janata Party. Uttar Pradesh, for instance, has suspended, for three years, all but four labour laws. The changes will need to be approved by the Centre, where central labour laws are involved, and all indications are that they will be. On Friday, the CEO of Niti Aayog, the central government’s think tank, endorsed the changes.

Uttar Pradesh explained the suspension as necessary to attract industry and create employment. Yet, among the labour laws that have been suspended are those related to unions, the settlement of disputes, and, most important, those prescribing working conditions.

Madhya Pradesh said it will exempt all new factories from most provisions of the overarching Factories Act, 1948, for 1,000 days. Among the exemptions are those related to working conditions and the health and safety of workers.

This is where the central government and state governments will have to strike a balance. Understandably, governments want to push through labour reforms to attract businesses and boost industrial activity to revive the economy. The coronavirus disease induced pandemic and the resulting nationwide lockdown enforced to slow its spread have wreaked havoc on the economy. It has also resulted in a huge reverse migration, with migrant labour for large urban centres fleeing back home — usually to Bihar, Uttar Pradesh, Madhya Pradesh, Odisha, and West Bengal, where there are few jobs to be had.

Yet, more than ever before, governments will have to ensure that the rights of workers are not compromised. This will require more nuanced decisions on which labour laws to junk (there are many), and which to keep (some are inviolable because they deal with issues of lives, livelihoods, and liberties)

Importantly, the use of executive orders to effect these changes, while efficient, is avoidable where the health and safety of workers are involved. Indian labour laws must change to help businesses and the economy, and now is as good a time as any to amend, suspend, even scrap them — but not at the cost of workers.
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