THE FUTURE OF LABOUR LAWS

In his televised address to the nation on May 12, Prime Minister Narendra Modi looked past arguably more pressing questions to focus our attention on the broad-sweep reforms he had in mind to reshape the Indian economy. A key area of reform, he told us, was labour. India’s labour laws have often been seen as a big impediment to economic progress. An attempt was made last year to recodify them, but it’s a work in progress and still mainly restricted to central laws.

Meanwhile, in an apparent attempt to resuscitate economic activity, and even in the face of a flight of labour from the country’s big industrial centres, several states have announced their own industry-friendly tweaks to labour laws. The desperation among the state governments is evident. The COVID-19 pandemic has severely dented the capacity of scores of industrial units, which face closure if not allowed to restructure their wage bills. The legal rejig in laws, it is hoped, will give them the necessary stretch room to make adjustments and survive the crisis.

The most significant changes have been announced in BJP-ruled Uttar Pradesh, Madhya Pradesh and Gujarat, but states like Rajasthan and Punjab, where the opposition Congress is in power, have also tweaked their labour laws. UP has passed an ordinance exempting businesses from the purview of most labour laws for the next three years. Only the laws on construction workers, bonded labour, deployment

of women and children and timely payment of salaries have not been touched. In Rajasthan, MP, Gujarat, Himachal Pradesh, Punjab, Odisha and Goa, work shifts in factories have been increased from eight hours to 12, with provisions for overtime.

Other changes such as the freedom to fire labour at will in units that have less than 300 workers (this limit was set at 100 earlier) are clearly intended to woo investors. In sync with Modi’s vision of a self-reliant India, the states are promoting the changes in labour laws as an attempt to emerge as alternative manufacturing hubs to China in a post-Covid world. “Industrial reforms were long awaited. We plan to increase job opportunities by wooing investors to our state. This is the right time to amend rules to attract industries willing to shift to MP,” said state chief minister Shivraj Singh Chouhan. UP’s minister for MSME, investment and export promotion, Sidharth Nath Singh, says his state is geared up to attract Japanese investments moving out of China. This followed his video-link interaction last week with Japanese ambassador to India Satoshi Suzuki.

Some steps announced by the states target bureaucratic red tape. In MP, for instance, start-ups will no longer need to apply for renewals while factory licences will be renewed once in 10 years instead of annually. Registrations and licences will be issued within a day. In Gujarat, all industry approvals will be given online within 15 days. Delays in clearances are the bane of business, and cutting turnaround time will no doubt make them happy. “Relaxations in labour laws, and states moving towards a friendly labour environment should go a long way in making foreign companies shift their factories from China to India,” says D.K. Aggarwal, president, PHD Chamber of Commerce and Industry.

India has around 45 central labour laws and about 200 more formulated by states. Industry is wary of this labyrinth and has often made the case that these laws are both anti-labour and a disincentive to hiring more workers. There is some merit in that argument as even the formal sector, which by one estimate accounts for 18 per cent of the employed in India, is increasingly hiring workers without formal contracts. Many believe that revoking some of these outdated laws will allow industry to flourish, which, in turn, will encourage the creation of more jobs.

However, there is no empirical evidence to suggest that labour laws are the main obstacle to industrial growth or are encouraging informal labour arrangements. The Working Group of Experts of the Commission on the Legal Empowerment of the Poor, set up by the United Nations Development Programme (UNDP) in 2005, did not find conclusive evidence that rigid labour laws force companies to opt for informal employment. Several European countries, where labour regulations are significantly more liberal than

A 2017 STUDY BY THE V. V. GIRI LABOUR INSTITUTE SAYS LABOUR LAW AMENDMENTS DO NOT ALWAYS ATTRACT BIG INVESTMENTS OR CREATE JOBS

elsewhere in the world, too, have witnessed massive informalisation of work in the past three decades. Back home, a 2017 study by the V.V. Giri National Labour Institute in four states—Rajasthan, UP, Andhra Pradesh and MP—found that amendments to labour laws did not necessarily attract big investments, boost industrialisation or create more jobs.

The move by several states to relax or altogether suspend labour laws has drawn criticism from trade unions, opposition parties and independent experts alike. “These arbitrary actions by the states violate the minimum wage guarantee for labour, a right upheld by the Supreme Court,” says Jeet Singh Mann, a labour law expert, who teaches at the National Law University, New Delhi. The Rashtriya Swayamsevak Sangh-affiliated Bharatiya Mazdoor Sangh (BMS), too, has taken a dim view of the changes. “This is the worst time to amend labour laws. It will make workers more vulnerable to job losses at a time the country should be joining hands to rebuild their lives and the economy hit by COVID-19,” said BMS president C.K. Saji Narayanan. The BMS, which claims the affiliation of over 6,000 labour unions, said it will urge the Centre to prevail upon the states to roll back their decisions. Labour being a concurrent subject under the Constitution, states can frame their own laws, but these need the Centre’s approval.

Experts caution that the abolition of labour laws will create a hire-and-fire employment model and further encourage informalisation of the workforce. Job insecurity will push wages down, reducing consumption and, eventually, demand in the economy. “This will slow down the economic recovery. Workers’ interest and the country’s interest aren’t two separate things,” says Prof. Alakh N. Sharma, an eminent labour economist.

To mitigate the impact of COVID-19 and the lockdown on workers, several labour experts recommend that the government offer a stimulus to industry to support the wage burden and bring about comprehensive reforms in labour laws. Several countries have extended wage support to industry. India, too, has taken measures in that direction. Starting April, in businesses that employ less than 100 workers, those earning below Rs 15,000 per month are to receive 24 per cent of their monthly wages in their provident fund accounts for the next three months. Employees’ Provident Fund (EPF) regulations have been amended to allow account-holders to cite the pandemic as a reason and make a nonrefundable withdrawal of 75 per cent of their corpus or three months of their wages, whichever is lower. The states can now use the building and construction workers’ welfare fund to provide relief to registered construction workers.

Sharma believes the states must now move beyond temporary suspension of labour laws and bring forth the long-awaited reforms to create a conducive environment for both workers and employers. Even the BJP, last month, submitted a report to the Union government, recommending a review of labour and land acquisition laws to woo investors. Late last year, the Modi government streamlined central laws into four codes—on industrial relations, wages, social security and occupational safety. Parliament has passed only one code—the Code on Wages—while the other three are still hanging fire. The COVID-19 pandemic now leaves no scope for delay as fragile firms need handholding from the government and freedom from the legal maze. That Modi, in his May 12 address, mentioned land and laws as the two other focal points of reforms comes as no surprise.