A series of worker protests in North India amid the rollout of the new labour codes has drawn attention to India’s lopsided labour regime once again. India’s labour regime offers very little protection to the vast majority of the country’s workforce that is employed in the unorganised sector. It seemingly offers very generous protection to those employed in the organised sector.
Yet, enforcement of labour laws remains patchy, given the limited resources of the State.
India’s labour regime has been disjointed right from the start. In the early part of the 20th century, both British administrators and Congress politicians struggled to reconcile the competing demands of a heterogeneous workforce and a diverse group of employers. A compromise was reached only at the fag end of the British Raj, when major employer groups and trade unions agreed to a contributory model of sickness insurance (involving paid sickness leave and medical benefits) for industrial workers.
Soon after Independence, the Employees State Insurance Corporation (ESIC) and the Employees Provident Fund Organisation (EPFO) were set up to offer sickness insurance and retirement planning benefits to workers in the organised sector. Workers in the unorganised sector remained outside the social safety net. There were several attempts to devise a broader safety net, centred around a universal unemployment insurance scheme, political scientist Louise Tillin wrote in her recent book, Making India Work. But they all ended in failure.
The labour regime took a turn for the worse in the 1970s. Following industrial unrest, the Indian State made retrenchment more difficult than before, in a bid to appease trade unions. At the same time, employers were encouraged to hire more contractual workers, who could be fired more easily. The labour department was systematically starved of funds, weakening its ability to enforce labour laws. The liberalisation of the economy in 1991 accelerated these trends. If the labour regime differed for organised and unorganised workers earlier, now it differed for workers within the organised sector.
{{/usCountry}}The labour regime took a turn for the worse in the 1970s. Following industrial unrest, the Indian State made retrenchment more difficult than before, in a bid to appease trade unions. At the same time, employers were encouraged to hire more contractual workers, who could be fired more easily. The labour department was systematically starved of funds, weakening its ability to enforce labour laws. The liberalisation of the economy in 1991 accelerated these trends. If the labour regime differed for organised and unorganised workers earlier, now it differed for workers within the organised sector.
{{/usCountry}}Most large employers in the country had to rely on regulatory arbitrage to survive and grow. Legal and compliance cells were set up specifically to deal with India’s byzantine labour laws, and find workarounds. Contractual workers were hired en masse to bypass the rigid rules governing the employment of regular workers. For small and medium enterprises, bribes to labour officials became part of the usual cost of doing business.
This dysfunctional labour regime has hit India’s manufacturing sector the hardest. Manufacturing’s share in the workforce and its share in the national output have stagnated for several decades. India’s weak industrial base is not just an economic liability. It is also a geopolitical constraint in a world of growing conflicts.
The new labour codes address only a small part of the problem. They simplify multiple, overlapping legislation into a set of four well-organised codes. They offer greater flexibility to employers and recognise new kinds of work (such as platform or gig work). Yet, the basic structure of the existing labour regime stands.
Large factories still need to take government permission to layoff workers (only the threshold has been raised), contract workers are still prohibited in core activities (a provision that has been routinely flouted, and almost impossible to enforce in the modern workplace), and social security benefits still remain unequal across different categories of workers.
What India needs is a grand bargain between citizens, firms, and the State that protects worker rights and eliminates regulatory micro-management at the same time. We need a more minimalist labour code that focuses on workplace safety, basic working conditions, and effective grievance redressals. These norms should apply to all firms, regardless of their size, and to all workers, regardless of the nature of their contracts. The unspoken hierarchy in the labour market — with different levels of social protection for organised regular workers, organised contractual workers, gig workers, and unorganised workers — must end.
Instead of a lopsided social security setup, we need a universal unemployment insurance mechanism. That should enable distressed firms to lay off workers without State permission, and allow unemployed workers to meet their basic needs while they look for other jobs. Minimum wages (and annual increments to it) should be based on a transparent and predictable formula, so that employers are spared sudden increases in wage bills, and employees are protected from rising costs of living.
If Indian capitalism has to grow while India remains a democracy, we must build a rational, fair, and predictable labour regime. Industrialists should not expect the Indian society, or the Indian State, to tolerate the kind of labour repression that China or East Asia practised when they industrialised at break-neck speed.
At the same time, labour activists cannot expect the same labour standards here as in Europe. Indian labour norms must be tailored to suit local conditions, and take into account the limited capacity of the Indian State — in providing social security, in enforcing contracts, and in monitoring violations. Without a reset in capital-labour relations, we should not expect a labour market boom.
Pramit Bhattacharya is a Bengaluru-based journalist. The views expressed are personal