Note4Students

There is intense debate on labour market reforms in India today. It is argued that but for restrictive labour laws that create inflexibility in the labour market, the Indian economy would have experienced a higher growth of employment. The government has come up with some Labour reforms like: Deen Dayal Upadhyay Shramev Jayate Karyakram, new social security schemes, convergence of social security schemes with labour welfare etc.

Context/Introduction

• The body of legislation that shapes the industrial and labour environment in India is huge. Here is a minuscule sampler:
• Minimum Wages Act, 1948; Trade Unions Act, 1926; Contract Labour Act, 1970; Weekly Holidays Act, 1942; Beedi and Cigar Workers Act, 1966.
• These and much more form a crisscrossing network of chaotic, strangulating, overlapping and often-contradictory laws that are crying out for overhaul.
• Despite low wages, India is not a global manufacturing hub, even while being one of the fastest growing service sectors in the world. India’s service sector has grown at an annual rate of 9% since 2001, and contributed 64% of the GDP in 2015-16.The industrial sector, meanwhile, only recorded a negligible increase and contributes nearly half at 20% of GDP.

Despite the availability of human resources, India has not been able to leverage its demographics for industrial development.

Issues in Indian labour laws

Archaic laws

1. In the pre-independence period, British colonialists in India suppressed labour rights, trade unions and the freedom of association among workers. As a result, labour activism became a part of the Indian freedom struggle.
2. In 1950, the newly framed Constitution of India looked to undo these wrongs by including fundamental labour rights, along with complex labour laws. These laws made hiring additional workers increasingly difficult.
3. Despite several decades of economic progress, these laws have not been amended or reformed in order to foster a friendlier climate for business.

Labour productivity

1. India has low labour productivity in comparison with other developing nations.
2. As a result, in the early days of offshoring, Western firms showed greater interest in setting up manufacturing facilities in Thailand, Mexico, China, Vietnam and Philippines rather than in India.
3. All of these countries had as bad a record of bureaucratic corruption as India did at the time, but labour productivity was found to be higher in those countries.

Politics

1. In Kerala alone, for example, there were nearly 363 hartals between 2005 and 2012, causing loss of so many working days
2. In addition, in the 1970s and 1980s, Indian politics was dominated by socialists who created the impression that profit making by private enterprises is undesirable.
3. Policymakers also further strengthened India’s complicated labour laws

Complexity

1. Labour is a subject in concurrent list of the Constitution of India. Thus both centre and states can enact laws on labour matters
2. There are about 45 central government laws and more than 100 state statutes, sometimes overlapping or contradicting

Rigidity

1. India has one of the most rigid labour regulatory frameworks in the world
2. Example- Industrial Disputes Act of 1947 stipulates that a firm with 100 employees or more cannot close down without government permission
3. Such laws curtail the growth of a firm by forcing it to hire fewer workers and remain small

Cost of compliance

1. There are also high costs involved in complying with several labour laws
2. Example- under the Factories Act, firms with 10 or more workers and firms which use electric power are required to keep records and file regular reports on matters such as overtime work, wages, attendance, sick leave and worker fines.

Need For Reforms

1. As early as in 2002, the Second National Commission on Labour suggested the formulation of labour codes similar to those in Russia, Germany, Poland, Hungary and Canada
2. The commission recommended that labour legislation be divided into five broad areas: industrial relations, wages, social security, safety and welfare, and working conditions.
3. NITI Aayog has pressed for ‘substantive’ reforms in labour laws to take the country out of the current low-productivity and low-wage jobs situation.
4. It is predicted that the size of India’s workforce will swell to 249 million by 2050, while China’s is set to decline to 166 million during the same period.

Recent Reforms

1. Recently Govt. unveiled a new roadmap, including measures to end ‘Inspector Raj’ with a system that is expected to sharply curb the element of discretion with labour inspectors and a single window compliance process for companies on labour-related issues.
2. As a step in this direction, all 1,800 labour inspectors will be disallowed from swooping down on companies and instead, a computerised system will randomly send them on inspections, based on data trends and objective criteria.
3. Following inspections, they will have to upload their reports within 72 hours and cannot modify them thereafter.
4. Govt. also unveiled nearly half-a-dozen schemes, including a Shram Suvidha Portal where employers can submit a single compliance report for 16 labour laws, a new web-based labour inspection system, unique account numbers for members of the EPFO, a revamped Rashtriya Swasthya Bima Yojana as well as a new skill development and apprenticeship scheme.
5. Sharply streamlined the cumbersome compliance process, manufacturers can now register online at the Shram Suvidha portal and file a self-certified single compliance report for 16 Central labour laws.
6. In return, labour inspections by four central agencies — EPFO, Employees’ State Insurance Corporation, Central Labour Commissioner and Director General of Mines’ Safety — will be based on a computerised list of units that are picked up from this database.
7. A panel, headed by Finance Minister Arun Jaitley, is mulling converting 44 labour laws into four simplified codes. They relate to industrial relations, wages, social security and safety.

Criticism for the Reforms

1. Any dilution of the existing laws will compromise employees’ welfare and they think the government is insisting on changing labour laws without realizing that it is not a short cut for job creation
2. The government said that 30 million organized sector workers are getting less than 15000 a month. So, by changing the laws you will put these poor workers in
   further trouble.
3. The trade unions have opposed the provision of deducting 8 days salary for one day of strike.

Way ahead:

1. Legislative reforms such as those taken up recently by central government and states such as Rajasthan, Gujarat, MP are very much needed
2. Empowering women to enter the workplace and providing them additional support
3. Physically challenged- Increasing current 3% reservation in governmental and government-funded jobs. Also ensuring that workplaces are disabled-friendly
4. Example- Karnataka granted exemptions to IT industries from the Industrial Employment (Standing Orders) Act of 1946. It undermines the employer’s autonomy in determining the terms of employment, working hours, leave grant and similar matters
5. Providing social security to workers in the informal sector would also pave the way for a more satisfied and productive workforce
6. Training and skilling- India has a demographic advantage but in order to utilize this dividend, India needs to invest heavily in training its talent
7. India’s supply of labour presently outnumbers industry’s demand for them. As a result, the government and manufacturing firms need to invest in training and skilling

Conclusion:

1. The guiding principle for India’s labour policy reformers should not merely be ring fencing jobs but safeguarding workers through social assistance, re-employment support (such as that which is provided in several Western nations) and skill building, and supporting employers in employee training and development.

Model Question

Q.) Recent Labour Reforms balance the concerns of the industries and the workers. Critically evaluate.

Q.) “Success of make in India program depends on the success of Skill India programme and radical labour reforms.” Discuss with logical arguments.(2015 GS Paper III)

References

http://labour.nic.in/

http://indianexpress.com/article/india/india-others/live-prime-minister-narendra-modi-announces-labour-reforms/

http://www.livemint.com/Politics/OeEG5RZFnP7xEX61lV9rYM/Niti-Aayog-presses-for-substantive-reforms-of-labour-laws.html

http://www.thehindu.com/business/budget/india-has-second-fastest-growing-services-sector/article6193500.ece