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The new labour laws will bring greater formalization benefits to all workers. (Mint)
The new labour laws will bring greater formalization benefits to all workers. (Mint)

A portable workforce for India’s new economy

  • The new labour codes should benefit all stakeholders by providing greater employment flexibility that is suitable to the evolving job requirements of our economy.

When governments think about development, they tend to focus on infrastructure, education and regulation. What is often passed over is worker-company relationship. Nearly three decades after its biggest economic reforms, India has enacted labour laws that amount to a leap from a bygone era to the gig economy. Business leaders, foreign investors and the workforce should all welcome India’s disposal of antiquated rules that have flummoxed the best of us: an economist described our labour rules as metaphysical because we failed to agree on the multitudinous definitions of employment itself.

The 41 laws that have been consolidated into four new codes on wage, social security, industrial relations and occupational safety are a response to two inexorable forces: first, the need to bring tens of millions of workers in from the shadows, and formalize their contribution to the economy, which qualifies them for social security. Second, the laws are a recognition that digital immersion in our offices, factories and homes is changing the very nature of work, and we must respond.

India has borne a high price from the mismatch between its old labour laws and its new economic reality: hiring the right people has been costlier while disparities in rewards for similar work have infuriated employees. The codes will dispose of these and other oddities. Some 470 million workers, many of them women in the unorganised sector, will be positively impacted.

This is a fitting calling card for a competitive India in a post-pandemic global economy.

In the first of the big ideas behind this change, the most eye-catching measure is a new status of employment known as ‘fixed term’ for ‘on demand’ workers in, say, manufacturing, or now in the gig economy. In a model of so-called ‘portable benefits’, fixed-term workers will be entitled to the same social security benefits as those given to permanent employees. Structurally, this narrows the borders of the unorganised sector, augmenting initiatives such as the opening of bank accounts, which brings millions more into the formal economy. Philosophically, universal welfare is extended to the one half of our population disenfranchised by income or opportunity.

The codes take a ‘jobs-first’ approach, focussing on the needs of businesses to serve the needs of individuals and the economy. Business will gain the flexibility long denied by the cost and rigidity of ‘permanent’ recruitment, even if the cost will be higher employer contributions to social security. In practice, companies will be able to price and hire labour appropriately, and to reskill or replace if the work becomes obsolete. The upshot is competitiveness, the watchword for a future India.

The second big idea is the future of work itself. The pandemic, which has forced millions of people to work from home, is an immediate and personal demonstration of the change in individual circumstances and that makes the law relevant and well-timed.

The reality is that today, work is more federated, vulnerable to shocks, project-based, and involving multiple employers across a working life. The notion of one job and employer for life is dead. Life-long learning and upgrading skills (to dovetail with shorter technology cycles) is the new workplace lifeline. In India, this reality is sinking in, and the pandemic has raised the urgency for business to design work and employment accordingly.

The codes are especially relevant to India’s services economy, as we move towards the next iteration of business organisation, broadly termed Industry 4.0. The invasive expansion of the internet economy will continue to create more services jobs, which contribute 55% of gross domestic product. Platforms have been big creators of services jobs in recent years and that will persist, with the beneficiaries mostly young people.

Foreign investors considering investments in Indian manufacturing can cheer. The rigidities of recruitment, the reign of labour inspections, and the chess-games of collective bargaining that have often priced out investment, have been replaced with a lexicon that is clear and a compliance regime that is digital, remote, and with risk assessed on the basis of self-declaration and a record of prior violations.

All investors will cheer the ending of a perverse incentive for ‘staying small’ though doubtless not for the ‘small is beautiful’ philosophy advocated by economist Ernst Schumacher. In the old regime, only companies exceeding a threshold of employment were subject to rules that asphyxiated management and crushed free enterprise. The response across manufacturing was to exploit the loopholes. Again, with simplification, governance will improve.

There are holes, which hopefully will be plugged. Labour is a concurrent subject shared between federal and state governments. The new codes will require adoption by state governments for implementation to happen. And though the codes are bold, business would, for example, have liked more flexibility for sectors with seasonal peaks, such as exports.

The new policies support an innovative nation. The big winner in all this is investors, employers, and workers as they collectively reinvent the worker-company relationship on the road to a digital future.

N. Venkatram is CEO, Deloitte India

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