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Weak state capacity and bad labour laws make deadly cocktail

By DM Deshpande

About half a dozen states in India, UP, MP, Gujarat, Karnataka, Punjab, Rajasthan and Odisha, have passed ordinance that have made certain provisions ineffective. More states are contemplating jumping into the band wagon.

In the meanwhile, the Union government has assured the Parliamentary Standing Committee on Labour that it will strike down state level changes that have gone against labour welfare. Ironically, these changes have been made because of the extraordinary situation created by COVID-19.

In addition, these states might also be eyeing to get additional investments by wooing firms that want to relocate from China. This is a utopian idea.

In the past firms leaving China have chosen to go to Vietnam, Bangladesh and Thailand with just a very few deciding to locate in India. Most of these state legislative actions have an expiry date. That is, these laws are suspended for a period of three years to 1200 days. No investor would be enthused by such measures that lack continuity, conviction and longevity.

Labour laws in India are in the concurrent list, meaning, both states and the centre can enact laws and make changes therein. There are over 50 central laws and over 200 state laws pertaining to wages and remuneration, social security and condition of work and employment security. Compliances run into over thirty thousand according to Team Lease study, a HR company that is the largest provider of temporary workers to industry. The company has 85 employees looking after these compliances alone!

A direct consequence of this anarchy is that it drives both firms and workers into the informal sector. Anywhere between 85 to 90 per cent of the workforce is employed in non formal sector that has no legislation to provide labour protection of any kind.

Gig economy and workers are a recent phenomenon. Before the pandemic, it was a source of employment to lakhs of workers/partners in businesses such as private transportation, food delivery, movies, malls and hotels. Gig economy does provide certain flexibility to both the parties but there is no direct relationship with the employer. Even while using smart phones, this sophisticated sector still remains ‘non-formal’.

Myriad laws and weak state regulatory capacity means that men in power can pick and choose actions as well as targets. Very often political considerations and corruption guide actions. This is the biggest challenge that requires states and centre to act in a cohesive and coordinated manner if the aim is to really bring about positive change in the ease of doing business.

The inherent imbalance between labour and capital is more pronounced in India. In theory, it may call for stringent labour laws. Experiments with them have failed miserably till date. Pragmatism demands that we go by the dictates of the demand and supply. This is where a provision of social security to workers comes into play. Greater freedom to ‘Hire and fire’ certainly gives much needed flexibility to firms but weakens the bargaining power of workmen especially without social security.

It is possible to work out an arrangement whereby governments and the employer and even the employee contribute while at job share the funding burden. It may also take the form of Universal Basic Income for workers as Nobel laureate Abhijeet Banerjee has argued.

Post 1991 reforms, there has been greater concentration of industries spatially and in cluster forms. One fall out of this is seen in mass migration of workers. It has also resulted in huge increase in numbers of temporary or contract workers. In manufacturing, they form more than one-third of the total work force. Labour contractors have become important links in labour market dynamics of the present day world. They are largely outside the purview of labour laws. Unscrupulous though they are, their omnipresence cannot be wished away.

Finally, sometimes it is believed that if we fix the labour problem in India, all will be well for the industry. Sadly, it is not so. Reforms in labour should go hand in hand with reforms in other factors of production such as land and capital. There are a plethora of problems, there too, which needs fixing almost as urgently as in the arena of labour.

The narrative presently is growth vs protection of labour. We need to move from the entrenched positions. Protection of labour is not tradeable, that is, compromise here will not bring the economy long term growth, productivity and sustainability.

Simplification of laws and labour reforms are surely needed. There is a need for fresh thinking on the subject of what makes a good labour law that also takes care of other stakeholders. What should be the governments and employers appropriate roles and contributions in this regard? Trade unions too need to reimagine their relative position and role in the context of emerging industrial and technology driven trends.

It does no good to their morale or standing when it is pointed out that the IT industry did well and succeeded because they did not have labour unions. Trust and equity should be the guiding principles in any exercise of labour reforms. 

The author has four decades of experience in higher education teaching and research. He is the former first vice chancellor of ISBM University, Chhattisgarh.

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