BackWrong signals, weak governance hobble labour market reforms
The government, employers and trade unions together need to clear the historic muddles that will enable the passage of both efficiency-enhancing and labour welfare-promoting
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The proposals to amend labour laws and regulations are often referred to as “labour reforms". This is contestable because “labour" refers to a class or a factor of production, and conveys that “they" as workers or “it" as a class are/is being reformed. They predominantly refer to labour laws and labour administrative systems pertaining to the organized manufacturing sector and, often, largely concern measures the employers desire. One did not hear this term when legislative measures concerning workers in the unorganized sector and the rural jobs guarantee scheme were introduced!
Be that as it may, labour institutions concerned with the organized manufacturing sector, it is argued, have adversely affected employment and output creation and, thereby, economic growth and workers’ welfare in India. The government, irrespective of the political party in power, has bought this perspective hook, line and sinker, though research supporting the argument has been contested with merit.
Because of the high political costs and strident protests by trade unions, the United Progressive Alliance (UPA) government, in its two stints, dilly-dallied on core reforms, viz. amendments of the law to provide for hiring of contract labour without restrictions, retrenching of workers and closure of establishments without the government’s prior permission. Hence, the formal framework governing the labour market has remained virtually unchanged.
As both the central and the state governments have legislative powers on the subject of labour under the constitution, the centre has in the past passed the buck to the states. This has affected the policy credibility of the central government. This is set to change with the assumption of power in May by the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) under Narendra Modi. It is not a coincidence that the BJP’s Rajasthan government has passed amendments seeking to provide flexibility to employers amid high-decibel protests by trade unions, including its own labour wing, the Bharatiya Mazdoor Sangh (BMS). Again, the Union cabinet has endorsed the amendments to three labour laws and proposed changes in the labour inspection system despite protests by trade unions. The policy rush is evident.
There is no doubt that labour laws need amendment. In fact, both—the trade unions and the employers’ organizations—converge on this point. But the technical aspects of the reforms are contested. I argue here that the one-sided and bang-bang approach of the government to introduce core reforms has intensified trade unions’ opposition and has not led to durable solutions.
The central government has not bothered to implement even the unanimous recommendations of the tripartite consultative forums and reform measures approved by the erstwhile UPA cabinet such as universal pension of ₹ 1,000 for all, an effective and reasonable minimum wage system and so on. The demands put up by the trade unions have hardly evoked a positive response.
The “Inspector Raj" argument is clearly a case of hyper-labelling when the labour law enforcement by all accounts is weakening not the least because of the poor ratio of enforcers and workforce in India. The self-certification system and online governance system introduced in some states have failed because of deficiencies in supporting infrastructure like poor telecom links.
It is true that the demand for apprentices in India is perhaps quite low because of burdensome governance, among others, which affects the skill-management system. Around 14% of the total establishments in the organized sector in India have taken on board 300,000 apprentices, which is a shamefully low figure. But anecdotal evidence has shown that trainees who are not covered by the Apprentices Act, 1961, perform the tasks usually done by regular workers and their numbers are increasing exponentially. In some cases, apprentices act as striker-substituting workers. Trade unions, hence, oppose the reform of this law.
The demand by employers to reform the Contract Labour (Regulation and Abolition) Act, 1970, has suffered again as the result of an overdrive by employers. Industries exposed to the vicissitudes of market genuinely need numerical labour flexibility. But the aggressive use of the contract labour system even in regular tasks and in industries that need a durable skill-base has seriously eroded the legitimacy of the employers’ demand. The proposal by the Rajasthan government to amend the Contract Labour Act would hurt the welfare of thousands of contract workers who are vulnerably placed. The actual reform needed in this law is to insert a rule providing for same pay for same work into the Act. The labour market policies of the employers are in a serious muddle.
It is true that prior permission for collective dismissals exists only in a handful of countries and Chapter V-B of the Industrial Disputes Act, 1947, in India is tougher. But the virtual ease with which the employers have reduced the number or the proportion of the regular workers, and effected virtual closures (including via prolonged lockouts) has hardened the stance of the trade unions.
The reform of Chapter V-B must be preceded by legal measures to check the by-passing acts of the employers and a generous severance pay package built into the law, apart from measures for retraining and relocation of displaced workers. The failure of the National Renewal Fund is a reflection of misplaced governance.
It is true that labour laws are archaic, but that fact has been often used to frame laws from the employers’ perspective. It is true that the Factories Act, 1948, reflecting what critics call a “colonial regulatory mindset", has several absurd clauses such as provisioning for spittoons, and so on. But workers are equally disenchanted with tepid laws such as the Trade Unions Act, 1926, which merely provides for voluntary registration without offering them the right to collective bargaining. They are tired of asking for the reform of the minimum wages law and its system. Labour market reforms must be a comprehensive package or else they will lack legitimacy; this has been a fundamental obstacle to reforms.
The government needs to seriously consider the social dialogue forum to create trust in social actors that here is a government that seeks to promote both economic and social progress. How can reform measures be one-sided when deficiencies exist that hurt both labour welfare and economic efficiency? How can economic efficiency be promoted without the aid of a healthy and contented workforce that’s happy with provisions relating to minimum wages, safe working conditions and social security assurance, and so on? How can workers seek to maximize their gains without economic progress? So the three parties, viz. the government, the employers and the trade unions, need to clear the historic muddles that will enable the passage of both efficiency-enhancing and labour welfare-promoting measures.
The writer is a professor of human resource management at XLRI School of Management, Jamshedpur.
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