Hindustan Times ST (Mumbai)

A blueprint to protect labour rights without constraini­ng capital

Take into account State capacity, new economic realities, and the informalit­y of the labour markets

- YAMINI AIYAR MAITREESH GHATAK PTI 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 expr

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 labourcapi­tal 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 the 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. of conflict? No, it doesn’t. But it does mean that both sides will incur extremely heavy costs in case of conflict.

For all its bluster, a conflict will seriously retard Beijing’s march towards its centenary goals. At the same time, even with significan­t political engagement, the structural fault lines between India and China imply that a new normal will not be any less volatile. This will complicate political decision-making going forward.

There are tactical and strategic factors driving the current stand-off, which derive from these structural fault lines. While there is a significan­t power asymmetry between India and China, both are experienci­ng a simultaneo­us rise. Both sides have greater capacity today than at any point since the formation of the modern Republic of India and the People’s Republic of China. This translates, for instance, into enhanced infrastruc­ture developmen­t on the boundary, which can spark insecurity in itself.

At the same time, both sides also have coinciding and expanding circles of interests, which lead to new sources of friction. This has been evident in the jostling for influence and crossing of old redlines in the broader Indian subcontine­nt.

Now place all this in the context of the geopolitic­al flux that prevails in the world — a flux characteri­sed by not just China-united States (US) competitio­n but also socio-political chaos in the US, the unpredicta­bility in its foreign policy, and ambivalenc­e with regard to alliance partners and global institutio­ns. In such an environmen­t, one can only expect increased volatility between India and China.

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