Opinion | Every change in labour rules is not necessarily reformist4 min read . Updated: 18 May 2020, 12:05 AM IST
Genuine reforms should result in a drop in organized sector wages and an increase in pay for unorganized sector workers
Some states have introduced changes in labour laws—such as Uttar Pradesh, Gujarat, Madhya Pradesh (MP) and Punjab. In some instances, there has been simplification. In others, temporary abeyance. Labour is in the Concurrent List of subjects, a matter for both the Centre and states to legislate on, and there are several Union-level labour-related statutes, with some state-level amendments. Even when a statute is Union-level, rules are often state-level. At a pinch, depending on how you define a statute as a “labour law", there are between 50 and 55 labour laws in India. Broadly, they cover four heads: (a) wages; (b) social security; (c) safety; and (d) industrial relations. Blood pressures tend to mount when one mentions those under industrial relations: the Industrial Disputes Act (IDA), Contract Labour (Regulation and Abolition) Act, and Trade Unions Act. Modernizing and revamping (a), (b) and (c) are less controversial. Prior to the recent state-level changes, there was an impression that the Union government, through a labour ministry initiative, was about to consolidate all labour laws into four codes, of the kind I outlined. That impression is correct, but only partially. Any statute is administered by a specific ministry or department, whether at the Union or state level. The Union labour ministry only administers 40 of those 50-55. There were statutes outside the purview of the ministry’s unification exercise. The Apprentices Act is an example of this. Any reform exercise should be about employment, not labour. If one doesn’t think in terms of silos and departments, shouldn’t the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) be apiece with whatever perspective one has on labour market reforms? As is obvious, this scheme is not administered by the labour ministry.
The labour ministry didn’t examine labour laws from first principles. It took existing statutes, did not question their necessity, and unified definitions. In itself, this is a laudable exercise. But it doesn’t go far enough. In recent announcements, it has been recognized that the distinction between manufacturing and services is artificial, at least for micro, small and medium enterprises (MSMEs). Yet, labour laws for manufacturing will be Union-government level, driven by the Factories Act. But those for services will primarily be state-government level, driven by the Shops and Establishment Act. Should one drive a wedge between organized and unorganized sector units, using definitions based on use of power and number of employees? Surely, labour laws, enforcement problems notwithstanding, should apply equally to all workers. What is our view on the employment of minors, those under 18? There is no bar on the employment of someone who is, say, 17. But, if he is employed, he should have some rights. However, as a minor, he won’t be able to join a union.
Law is often about boring nitty-gritty details. At the risk of boring you, let me give you an example. There is an Occupational Safety, Health and Working Condition Bill, 2019. Section 134(1) of this mentions the repeal of the Plantations Labour Act of 1951 and has welfare provisions under Sections 24(1) to 24(3). Ergo, similar safety-related provisions will apply everywhere. Nothing special need be done about plantations. But Section 24(4) states, “Every employer of plantation shall be responsible…to provide and maintain welfare facilities through his own resources relating to drinking water, housing, medical education and toilet to the workers." Despite the Plantations Labour Act being repealed (as a proposal), vestigial traces remained. This is precisely what happens if bills are drafted in silos and not from scratch. Bangladesh inherited the IDA we did and its success in garment exports is partly attributed to reformed labour legislation. This was recently done through a new and unified statute in 2006, known as the Bangladesh Labour Act. The first occasion I heard of a unified labour code for India was in 1994, more than two decades ago. There was a tentative draft at the time. More recently, in 2018-19, Jammu and Kashmir’s budget mentioned the introduction of a unified employment code and there was a draft too. For other reasons, that exercise led nowhere. But under Article 254(2) of the Constitution, states can pursue that route, one taken by states in their recent tinkering. Given the diversity in labour and employment conditions across states, state-level initiatives are better than Union-driven changes. Even before covid-19, Andhra Pradesh (AP), MP and Rajasthan had introduced IDA changes. Maharashtra, AP, MP, Punjab, Karnataka, Rajasthan and Goa allowed night shifts for women, for example.
At present, India’s organized sector is a high-wage island and labour market inflexibility is a deterrent to employment creation and an incentive to opt for capital-intensive production. This has been substantiated by research. But simultaneously, few rights are enforced in the unorganized sector. Genuine reforms will bring the two closer together, leading to a drop in wages (or cost of labour) in the organized and an increase in the unorganized sector. We shouldn’t applaud the former without also applauding the latter. Minimum International Labour Organization norms must be followed for everyone. This is not the best place to spell out all details of a unified employment code, but a prerequisite is a registration system for employers (not just corporate) and employees (perhaps excluding domestic help, part-time and agricultural workers to start with). Next, we must recognize that an employer-employee relationship is fundamentally bilateral, with recourse to government only in case of disputes. The government should not be an automatic third party. Surely, productivity-based incentives are individual. At best, they can be extended to the enterprise-level. Why should these be determined nationally? Shouldn’t employee associations and unions be at the level of establishments, not all-India? Shouldn’t they only have actual workers as office-bearers, not outsiders? And so on.
Bibek Debroy is chairman, Economic Advisory Council to the Prime Minister