Fixing labour plumbing

In 1901, Romesh Chandra Dutt, one of India’s earliest civil servants, told a British audience in Glasgow, “Facts tell their own tale; roseate pictures so often painted and sedulously circulated, convince no one, and deceive no one. To the mass of my countrymen, such roseate pictures appear like an unfeeling mockery of their misfortunes.” Mr Dutt would surely disapprove of the Union ministry of labour “painting roseate pictures” that “mock the misfortunes” of employers currently subject to mind-numbing and humiliating processes under 44 central laws. The politics of these plumbing reforms is hardly complicated; almost nobody outside the ministry believes that the five billion sheets of paper currently used by employers to comply with labour laws or targeted inspection regime have improved the lot of India’s labour.

It’s unfair, unwise and unnecessary to equate labour law reform with tackling the infamous Chapter VB of the Industrial Disputes Act (hire and fire); there is a lot of plumbing reform around making compliance transparent, seamless and hassle-free. But three meta-plumbing reforms – unique enterprise number, employee salary choice, and a PPC Compliance portal (paperless, presenceless and cashless) – have unfortunately not gone live largely because of the labour ministry dragging its feet. Let’s look at each of them in detail. Unique Enterprise Number (UEN): Every employer in India today has more than 25 different government numbers (PF, ESI, TAN, PAN, LWF, etc.). In an important move, almost every ministry has agreed to adopt the PAN number as the UEN but the labour ministry has held back finalisation saying it does not want a unique enterprise number but a unique establishment number (if an enterprise has more than one branch or factory each one of them should have a unique number). This makes no sense; the legal entity is the unit of compliance. And under law, the legal entity is responsible financially. Establishment is largely a hangover from a pre-digital era and a virtual concept that makes no sense in a world of GST (goods and services tax), national bank accounts and distributed labour forces. All information required location-wise is already available in currently filed information and the unique establishment number demand must be overruled. Employee salary choice: India has the highest payroll confiscation in the world (45 per cent of salary is confiscated at source for low-wage employees in a cost-to-company world) leading to the constant question at job fair; haath waali salary ya chitthi waali salary? More importantly these deductions are massively regressive; the 45 per cent for employees with wages of ~15,000 per month falls to nine per cent for employees with wages of ~55,000 per month). Recognising that their monopolies had made the Provident Fund Organisation and ESI unresponsive – EPFO is India’s most expensive government securities mutual fund and ESI is India’s world health insurance programme by claims ratio – the last Budget speech had promised employee choice for the provider of their provident fund and health insurance benefits. The ministry of labour is currently conflicted by its dual role as a policymaker and service provider but needs to become a champion of workers by increasing portability and linking benefits to employees rather than employers. Both laws must be amended to give workers the chance to stay with the status quo or pay their benefits to alternate providers and choose their personal

PPC Compliance portal:

The “India stack” is an important conceptual framework from iSPIRT that is revolutionising financial services with its PPC framework. Our guestimate is that labour laws currently cost employers about five billion sheets of paper per year (about 600,000 trees), many thousands of man-hours and mandate hugely inefficient banking transactions. The Shram Suvidha portal must adopt the India stack and give dates for all 44 labour laws to go paperless, presence-less and cashless in the five interactions between employers and government (registration, licensing/permissions, returns/registers, inspections and payments) and employees and government (benefits). A portal could meet the objectives of online and deadline but will have to be carefully designed to transparently record all transactions (rejections without reasons are frequently the weapon of choice to ensure physical appearances).

India’s regulatory cholesterol has ensured that our problem is not jobs (our official unemployment rate of three per cent is not a fudge) but wages (about 40 per cent of our workers are working poor, who make enough money to live but not enough to pull out of poverty). This wage crisis arises because most of our enterprises are dwarfs (small companies that will stay small) rather than babies (small companies that will grow big). India’s embarrassing enterprise stack – our 60 million enterprises only translate to one million companies and only 17,500 of these have a paid-up capital of more than ~10 crore – is a source of poverty because enterprises only pay the wage premium if they are productive. Formal enterprises are more productive than informal ones and bigger enterprises are more productive than smaller ones. Most of our employers are small and informal for many reasons but an important one is the regulatory cholesterol created by our labour laws. Getting these three plumbing reforms done will make India a more fertile habitat for formal job creation, larger employers and higher wages. Any takers?