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Business News/ Opinion / Views/  Labour laws could be good for business in the country
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Labour laws could be good for business in the country

Ground reality offers reason enough not to be reckless in weakening our labour regulations

Photo: MintPremium
Photo: Mint

Recent discontent in Uttar Pradesh (UP) and Bihar has been manifesting in a different kind of collective action: ‘job riots’. Perhaps this is unsurprising, given the employment crisis that plagues India, but the crisis in UP is in the spotlight because the state is in the throes of a high-stakes election.

Between 2016 and 2021, UP’s working-age population increased from 148 to 170 million, but its number of employed people decreased by over 1.5 million. A complex set of factors have fuelled these adverse trends and discontent. Among them is inadequate and ineffective policy action. Consider, for instance, UP’s 2020 decision to suspend labour laws to reduce the burden on companies and attract investment; other states undertook similar actions—all to no avail. At best, such actions are misguided; at worst, they are damaging to both work and workers. They fuel discontent.

Let’s imagine a nation with no labour laws. India’s vast majority of businesses have fewer than 20 employees; do we believe that they would grow if all labour laws were removed? Some firms may, but most would not. Why? Because most do not have adequate access to finance, markets, electricity and more; they simply do not have the capacity to satisfy over 30,000 non-labour compliances and more than 3,500 filings; they complain of a lack of access to—and retention of—a skilled, productive and professional workforce. Labour laws may take the blame for keeping our businesses small and informal, but the reality is more complex. A failure to acknowledge the array of constraints that hold businesses back and pinning the blame on labour regulations are poor responses to a pressing problem.

The claim that labour rules disincentivize hiring and prevent businesses from reaping the benefits of scale is invoked often. But ground reality does not support this assertion. Even when industrial units are small on paper, these firms frequently merge certain operations to take advantage of scale. Until recently, differential state tax regimes—the GST tried to rectify this but has other problems—and inverted duty structures were bigger barriers to realizing the benefits of scale than labour regulations. Weakened rules, far from spurring jobs, tend to exacerbate the precarity of employment and work conditions.

The government’s push for an Atmanirbhar Bharat, skill development and securing the future of our youth runs contrary to the disempowerment of workers under weakened labour laws. Not only are workers the backbone of our economy—a fact underscored by the labour shortfall after millions of migrant workers left big cities during the pandemic—but occupational safety and health, social security, training and apprenticeships, and appropriate wages are essential investments in productivity. The provision of these calls for greater private-sector engagement, not less. An effectively designed and implemented labour regime is good for business and investment.

What does an effective labour regime look like? Not like the one we’ve been handed. The consolidation of over 100 state and 40 central labour laws into four codes is welcome, but the current codes have gaping holes that squander a precious opportunity to help build productive businesses by enabling productive workers.

Let’s take a few examples. The four codes replace 29 of the existing labour laws, leaving at least 11 central and many more state regulations in existence, doing little to untangle the labyrinth. When it comes to social security, the government’s stated priority has been expanding coverage to include informal workers. But rather than moving in a fiscally prudent and iterative manner towards broad-based coverage, the relevant code extends coverage to specific groups like inter-state migrants and gig workers, while ignoring other categories such as intra-state migrants and other self-employed informal workers. What’s more, the code relies on several schemes to extend coverage, but many of these have low participation rates. Implementation has been relegated to the e-Shram portal, which faces its own set of challenges in access, registration and ultimately in the delivery of benefits.

Moreover, the code creates a social security fund to afford protections to gig workers. Aggregators will be required to contribute 1-2% of their annual turnover to the fund. The recognition that gig workers must be covered is commendable, but the past administration of such funds has been poor. For instance, in March 2019, Labour Welfare Boards cumulatively had just under 50,000 crore, of which less than 20,000 crore was spent.

The Occupational Safety, Health and Working Conditions Code excludes an estimated 99% of the manufacturing sector because it applies to factories that have at least 20 workers with power, or 40 workers without power. Are the safety and well-being of workers in smaller units worth less? State governments can also be exempt from the application of this code altogether. Similarly, relevant state governments can decide to exempt establishments from the application of the Industrial Relations Code. There are many additional oversights, but the point is that these gaps are bad for workers and for business too.

The dilution of labour laws is not the only cause of restlessness in UP, or elsewhere, but it suggests reckless policymaking. If our laws encourage employers to treat workers as expendable, businesses are unlikely to assume their share of responsibility in helping create human capital, encourage productivity and foster dynamism. This will likely continue to brew discontent to the detriment of our economy, businesses and workers.

Sabina Dewan is president and executive director, JustJobs Network and senior visiting fellow at the Centre for Policy Research

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Published: 22 Feb 2022, 10:50 PM IST
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