India’s policy shift away from an inflexible labour market is designed to solve the kind of problems seen at the iPhone factory
The unfortunate events of 12 December at the Wistron plant near Bengaluru have re-opened an old and ongoing debate about India’s labour laws, both in terms of reforms of those laws and the enforcement of existing rules. As expected, vandalism by workers at the factory, which manufactures iPhones for Apple, has been widely publicized across the world in the light of similar lapses at other Apple-contracted factories in China and elsewhere.
The incident also raises fresh questions as to whether Prime Minister Narendra Modi’s entirely laudable objective to increase India’s importance as a regional and global manufacturing hub is viable, given both the creaky state of India’s infrastructure and lapses in enforcement of the rule of law, such as at Wistron.
Predictably, the Wistron fiasco has also become a political football. In the immediate aftermath of the incident, mutterings of a Chinese plot to discredit India were floated by some elements of the governing party’s social media ecosystem. When it became clear that a violent protest was the wrong response by workers to legitimate grievances about late, and in some cases, incomplete payment of wages, that canard disappeared from the radar screen.
More seriously, it was reported on 21 December that former Karnataka chief minister and senior Congress leader Siddaramaiah had written a letter to current chief minister and senior Bharatiya Janata Party leader B.S. Yediyurappa alleging that the recent labour law reforms were the root cause of the incident. “The main cause for the current workers unrest are the anti labour laws of the Centre and State," the letter is reported as claiming. Siddaramaiah made reference not only to the events at Wistron, but also to protests at Toyota Kirloskar Motors’ operations in the state. As reported, he complains that under the aegis of the newly-reformed labour laws, firms are increasing work hours and resorting more to contract labour to get around formal worker protections.
It may be good politics, but this is bad economics by Siddaramaiah, and other critics of economic reform, who have parroted such claims. Ironically, resorting to contract labour is itself a distortion caused in the first place by rigid labour laws that firms in India often try to skirt. The recent labour reforms, once they have had an opportunity to show results, should result in less, not greater, reliance on contract labour, as they make it easier for firms to fire workers and raise the threshold for unionization. Moreover, the new laws extend benefits and protections to contract workers that they did not previously enjoy. This too should make it less profitable at the margin for firms to switch from formal to contract employment.
Whether such new worker protections will actually be implemented by firms and enforced by government is a valid question, and goes to the root of the matter. The problems at Wistron had been brewing for some time, yet government regulators did not apparently pick up on the fact that workers were not being paid wages owed to them for a long period of time. This is unacceptable and actionable whether under the old or the newly reformed labour laws. To blame new labour laws for this failure would be akin to blaming the Indian Penal Code for the proliferation of crime in the country.
When one cuts through the noise and political point-scoring, a number of legitimate concerns are brought to the fore by the Wistron and similar incidents. The problem in India is not that there are not good laws; the problem is that they are seldom enforced, and when they are, laws are often selectively and opaquely applied.
One of the best arguments in favour of the recent economic reforms, apart from their soundness in terms of the basic principles of economics—other things being equal, more market and less government at the margin creates less economic distortion and is good for everyone in the long run—is that India simply lacks the state capacity to enforce many of the laws and regulations that are on its books across all domains, including labour relations. The wise course of action, therefore, is to have a minimal, transparent and sensible set of rules that do not impose an excessive regulatory burden and its associated cost on firms, and which are lean enough to raise both the probability that firms will voluntarily adhere to them and that authorities will step in with appropriate punitive and remedial action if they fail to.
These observations and arguments are not new at all. Many of us, including your columnist, were pushing for sensible reforms based on the same reasoning during the decade-long rule of the Manmohan Singh government (2004-2014), which was marked by an abject failure to carry forward the country’s reform agenda. Many of us were equally disappointed by the inability of the Modi government in its first innings (2014-2019) to accomplish much-needed second-generation reforms, including of outdated labour laws.
Now that the Modi government has acted boldly in its second term, it behoves those who advocated such reforms in the past to acknowledge these important steps. It is perfectly reasonable to have wished for these reforms earlier. Also, as this column has argued, it is difficult for reforms to bear full fruit in a time of crisis.
Having said that, it would be churlish not to give credit where it is due. One should hope for more such reforms going forward.