Photo: Priyanka Parashar/Mint
Photo: Priyanka Parashar/Mint

No ‘Make in India’ without labour reforms

There may not be a more opportune time for that than now, given the political will and a bipartisan consensus

The call for greater action to spur economic growth assumes major reforms in labour market governance—something earlier governments promised, but failed to deliver. There may not be a more opportune time for that than now, given the political will and a bipartisan consensus.

The central government must focus on two major priorities: reform of chapter VB and section 9A of the Industrial Disputes Act, 1947. Unless these two dreaded provisions are reviewed and substantially amended, the clarion call to come and “make in India" may sound hollow and the dream of converting India into a global manufacturing hub may remain elusive. And India’s position on the World Bank’s “Ease of Doing Business" scale may fall even below where it already has—at 142 among 189 nations in 2015.

Prospective investors see chapter VB and section 9A of the Industrial Disputes Act as villains of the piece. If New Delhi is to allay their apprehensions and create an enabling business environment, all guns must be trained on these two.

Chapter VB requires all establishments employing a “specified number" of workers to obtain prior permission of the appropriate government or designated authority before resorting to any layoffs, retrenchment or closure. When the “prior permission clause" was first introduced, the specified number was pegged at 300 workers. By an amendment incorporated in 1984, the specified number was reduced to 100 workers, thereby making the provision even more restrictive.

And then there is section 9A, one of the most restrictive of labour laws. It mandates that every employer who wishes to make any change in the conditions of service concerning any matter specified in the Fourth Schedule, shall notify workmen likely to be affected by such change of the nature of the proposed change. And it prohibits the employer from giving effect to the change before the expiry of 21 days from such a notice. There are exemptions, but they are not relevant to this discourse. For the majority of workmen, employers are bound by the 21 days’ notice clause. Even Draco may have found it challenging to craft a more draconian provision.

The Fourth Schedule contains a list of 11 service conditions for which notice of change is required. Besides the usual wages, allowances, hours of work, leave, etc., the most striking entry is item 10: “Rationalisation, standardisation or improvement of plant or technique which is likely to lead to retrenchment of workmen".

The “prior notice clause" was meant to provide a window of opportunity to workmen ostensibly in the interests of natural justice, but has practically opened the floodgates of litigation. Workmen generally tend to resist any change in established service conditions, regardless of technological advances that may have rendered the original work environs and processes obsolete.

Any attempt by employers to adjust established service conditions is viewed as infringement of basic workers’ rights, and every consequent action of employers to retrench workers by declaring them as surplus is challenged as unfair labour practice in conciliation proceedings as well as labour courts and industrial tribunals. This results in a lawyers’ paradise as the wheels of justice grind slowly through labyrinthine portals.

Spooking investors

Regrettably, our labour courts and tribunals have not found the right balance. In defence of progressive justice, they have chosen the path of least resistance. Even where changes contemplated are prompted by “rationalisation, standardisation or improvement of plant or technique", any change in the “number of persons employed or to be employed in any occupation or process or department or shift" without appropriate notice has been censured with awards of reinstatement and back wages. Appropriateness and timing of the mandatory notice have been moot points in the spate of litigations. Besides enormous time and money spent on seemingly endless lawsuits, the adverse implications on discipline and morale are often overlooked.

Employers are understandably spooked by the prevalence of such antediluvian provisions that severely curb the prerogative to restructure their business models. Globalization and evolving patterns of present-day manufacturing processes require a whole new set of responses to cater to the demands of fast-changing global markets. Supply-side imbalances can easily throw the best of businesses out of gear. Where time is of the essence to stay ahead of the competition, tardy legal processes impeding workforce adjustments present serious challenges to profitability and business success.

Can legal pronouncements bring finality in such matters and satisfy the interests of all parties? Reinstatement of workers with back wages is akin to a family court ordering divorced couples to return to their marital abode and revive conjugal relations. Is “business as usual" feasible? Conflicting interests of employers and workers position them at two ends of the spectrum. But can common interests supersede class interests? They may not agree to a traditional marriage, but can they at least forge a live-in relationship based on partnership and shared concerns? This has been the staple of generations of industrial relations theorists and practitioners.

Section 3 of the Industrial Disputes Act provides that any industrial establishment employing 100 or more workers must constitute a Works Committee comprising equal number of employers’ and workers’ representatives to promote good relations and settle outstanding issues—if the appropriate government so orders. This provision should be made mandatory in every case, extended from the shop floor to the establishment and industry level, and internalized as the mantra of labour-management cooperation. Transparent and credible grievance settlement machinery should also be established to nip emerging differences in the bud.

There is no alternative to dialogue and compromise for settling outstanding issues between employers and workers. While recognizing their competing interests, there is wide scope for minimizing differences and celebrating commonalities.

Denial of legitimate profits for investors leads to losses, business failure and termination of employment. If this is realized as inevitable and non-negotiable, it will be easier for both parties to come to the negotiating table and devise workable solutions rather than assuming adversarial positions with little or no gain.

The writer, a former Indian Administrative Service officer, was a senior specialist in industrial relations and labour administration at the International Labour Organization.

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