Monday, June 8, 2020

Our labour laws 

Have we thrown the baby with the bathwater? 

The issue of our labour laws has come into focus recently. Revision in these laws has always been a crying need but successive governments only paid lip service to it. Any proposal for changes in these laws would be looked at with hawk’s eye not only by labour unions and allied interest groups but by the entire opposition as well. It is therefore, not surprising that the political will to address the issue is not easy to come by. The subject is in focus now-a-days as states try to woo investors in the industrial arena and somehow the Covid pandemic has acted as the catalyst to lead these states towards labour reforms. So far so good, just as Petruchio invokes in The Taming of The Shrew, “Come my sweet, Kate. Better once than never, for never too late”. Indeed it would be better to be late than never and also it is never too late to change. So, exactly on expected lines, the votaries of modifications in Labour Laws gave it an initial thumbs up just as the opposition and the trade unions cried foul. 


One would have liked that the subject of reforms in the labour sector came to into focus as a significant building-block as our country progressed. Instead it has happened like any port in a storm and that was a dampener. But be that as it may, there it was, a good news for the industry. Good news that the dirty bathwater of our labour-related consciousness was being thrown out. But there was an accompanying bad news as well. The baby had also been thrown away. They moved fast to beard the lion in its lair, and while bearding it, also turned it into a vegetarian beast of burden. 


Let us examine further as this issue is being debated for decades. On one hand, militant labour unionism, arising out of workers’ rights as enshrined in these labour laws and the same followed in word and not spirit, is blamed on rapid de-industrialization in certain regions. Kanpur is one big example which has seen unprecedented depletion of thriving factories and products, reducing it to a state of industrial graveyard, a rump of the famed Machester of East of yore. I am not saying that it all happened because of aggressive trade unionism. I am sure there were other factors like poor infrastructure, harmful inspector raj and some unscrupulous handling by the industrialists but intransigence of labour was certainly a major factor. On the other hand, there were numerous instances in the past, and some even today, of exploitation of labourers by certain industries; our labour force has been through the wars in spite of these labour laws on many occasions though such instances have reduced in the recent past. 


What would be a good middle path which would be equitable and would also not be a hindrance towards investments in industries? While we cannot deny that compliance with the maze of laws has been a stumbling block for industry, there is also a need to make sure that a knee jerk change in laws should not result in the workers getting a raw deal. A region or a country cannot advance industrially on the back of an exploited work force. 


Labour is a concurrent subject in India. That requires that the states do not overstep their domain and infringe the central laws; if there is any conflict between a central and a state law due to a modification or suspension by a state, it would be open to legal challenge. There would be the risk of a good initiative becoming stillborn, even counter-productive, due to hasty and ill-thought out actions to tinker with these laws. 

There are some 45/50 laws at the level of the Centre and some 150 to 200 depending upon the state. The central govt. has streamlined the central laws into four codes: Conditions of Work, Wages and Remuneration, Social Security & Occupational Safety and Industrial Relations & Employment Security. 

Conditions of work: Shops and Commercial Establishment and Factories Acts lay down in the respective areas the rules with regards to regulation of payment of wages, working hours per day and week, spread-over, rest interval and paid day off, opening/closing hours, overtime, closed days, annual leave and holidays, overtime, employment of children, young persons and women. The Factories Act applies to direct labour, subject to a minimum number of workers in a factory, and this provides for rigid and exhaustive working conditions in factories to regulate health, safety, welfare etc. and has many special provisions. The Contract Labour act is an all-encompassing act covering prevention of exploitation of indirect labour and stipulates similar conditions of work although the same are not that restrictive. 

The Minimum Wages and Payment of Wages Acts are self-explanatory. Social Securities and Occupational Safety area has Employees Provident Fund, Workmen’s Compensation and Employees State Insurance Acts. The Industrial Relations and Employment Security domain is covered by Industrial Disputes and industrial Establishments Acts. 

So what have the states done so far? Uttar Pradesh, Madhya Pradesh and Gujarat are in the forefront. Yogi ji has summarily suspended almost all Labour Laws, including the Minimum Wages Act and the only laws remaining applicable are Building and Other Construction Workers Act (regulates the employment conditions); the Workmen Compensation Act (compensation in the event of injury or accident), the Bonded Labour Abolition) Act; and Section 5 of the Payment of Wages Act (extrapolates provisions relating to wages). Gujarat, too, has done the same by suspending all but three labour laws. MP has been a little more circumspect but not too far behind. 

Such actions remind me of these memorable lines from poet Faiz, 

Jo ruke to koh-e-garan the hum, jo chale to jaan se guzar gaye, 

rah-e-yaar humne qadam qadam tujhe yadgaar bana diya. 

(When we were static, we were like solid rock, but when we moved, we passed out of life. Step after step, we have made the path to our beloved memorable) 

Are these earnest governmental efforts to modify the labour laws to revive the industry and the economy? Are these the long-pending reforms of the labour market that economists and industrialists used to talk about? Or are these suspensions and modifications of Labour Laws an ill-timed and retrograde step that critics have made it out to be? The truth lies somewhere in between. 

Let us first check out this business of time-barred proposals. States have taken up modifications and suspensions as a temporary measure for 3 years or 1000 days and so on. Now, this in itself is defeatist. Let the modifications be of a permanent nature. Doing it temporarily conveys the impression that the original laws were fine and just but because of the Covid complications, the labour simply has to bite the bullet. This will not work. If the laws need changes to facilitate investments, then these investments are not going to be guided by a three-year reprieve. If there is an immediate need to boost industrial employment, states must whittle down the temporary modification to the bare minimum. Rest of the proposal of modifications should be there to stay, removing any uncertainties and imponderables for the investors; they should favour long term profitable employability and actual gainful employment without giving the labour a bad deal. 

Let us start with The Minimum Wages Act which covers more workers than any other legislation for labour and I absolutely do not see any reason to touch it. Can a progressive society ever do without the provision of minimum wage? I would think that since there already is blatant disregard of this in certain sectors, the provision for direct transfer of wages has to be strengthened, especially for casual and contract workers. There is today a problem that industries and other employers are not being able to pay minimum wages but the solution lies in looking at the minimum wage itself, albeit for a temporary phase, and not in suspending the law. 

All acts related to conditions of work, including safety measures on factory premises and promotion of health and welfare of workers need not be touched at all. Our standards in these areas are far lower than the West, in provisions, and even more in implementation. We already have our workers dicing with death in work areas and we just cannot lower the safety and well-being of the workers further. The compensation for disability caused at work must obviously stay; the recent Vizag gas leak case clearly shows occupational safety should not be messed with. 

Let us also see the acts which govern the working hours, specifically the 12-hour shift. These provisions do need some practical changes. A 12-hour shift is harsh but not inherently so. A 12-hour shift with regular wages, instead of overtime, gives the employers the option to run a longer shift. I know of many industries which practice it already except that the rolls are manipulated to show only 8-hour shift. It does make some sense to make what is de facto into de jure, given that certain intense works should be excluded from this relaxation. There is, of course, another view that if the intention was to ensure more people had jobs, we should not increase the shift duration from 8 hours to 12 hours but allow two shifts of 8-hours each instead, so that more people can get a job. The discussion is endless but to my mind, some adjustments here would, by and large, help the industry without any significant strain on workers. 

One of the most contentious issues has been the Industrial Disputes Act which certainly needs a hard look as it relates to terms of service such as layoff, retrenchment & closure of industrial enterprises, strikes and lockouts. Because of very unfavourable provisions, companies with more than 100 workers are hesitant to hire new workers because sacking them requires government approvals. Even the organized sector increasingly employs contractual and casual workers with no formal contracts or only loose contracts which are followed more in violation; such workers are seldom on any formal rolls. This, in turn, the argument goes, has constrained the growth of companies on the one hand and exploited a large group of workers on the other. The viewpoint of those seeking reforms in labour laws in favour of making the companies free to hire and fire as they expand and contract following market conditions has been that it is aimed at helping to bring more workers in the formal sector. This would help bring more employment in formal from informal economy with attendant benefits of better salaries, social security benefits and improved working conditions. To cut a long story short, let us be clear about one aspect: employment follows a need for employment but employment itself cannot be an end. While the government has the responsibility to improve employability and employment, this burden of job security cannot rest with the industry. Industries must employ as per their need but during the employment, there should be no let up on the provisions related to wages, working conditions, safety etc. 

The hire-and-fire model for availing a workforce will add to the growth of seasonal employments but if the demand is seasonal in some sectors, we have to put up with seasonal employments. This, of course, has a flip side. In the backdrop of seasonal employment, more workers will face eroding wages or less work, which will further push them off the cliff of poverty. This will, eventually, come back to bite businesses as lower wages would lead to a decrease in consumption, a double-edged sword. 

But view this in the light of suspension of the Minimum Wages Act. This move would, instead, lead to formal workers being given up in favour of informal ones. That cannot be the intention or the aim of the reforms in labour laws. In the scenario of no regulation on minimum wages, how do you ensure that there would be no blatant exploitation; once you strip the labour of its basic rights, it can easily drive down wages by first firing all existing employees and then hiring them again at lower wages. 

Look at the irony. The govt. at the start of the Lockdown stipulated that companies should not fire workers and pay full salaries at the start of the lockdown. Suspension of Minimum Wages, Industrial Disputes and Social Securities Acts makes it look like the government has done an about turn, depriving the workers of any even-handed negotiating exchange. In recent years, the growth in wages has already been sluggish and that is understood because there was already a downturn in the economy. In addition, the gap between formal and informal wage rates has already and always been huge, based on gender, type of setting (urban, semi-urban or rural), type of work, cost of living and so on. With the removal of the crucial labour laws which provide protection and a semblance of invulnerability to workforce, there is a big risk of the informal sector growing in strength replacing the formal workers. These replaced workers would have no scope of any expedient remedy. In the last 15 years or so our informal sector strength has gone up from approx 36% to nearly 56%. With these so called reforms, the percentage of informal workers in the total workforce would climb substantially. 

Theoretically, it is possible to generate more employment in a market with fewer labour regulations. But to what extent, such that governments have gone ahead and banished so many laws. There is a need to examine clear evidences from the states which have relaxed Labour Laws and make an informed opinion before starting to dismantle the age-old regime of protection to workers. Did we see any upsurge in investments and increase in employment without causing any increase in worker exploitation or deterioration of working conditions in such states? It would need some analysis and it would not be a straight cause and effect scenario. 

Maharashtra had earlier amended the Contract Labour Act extracting some units from its applicability. Trade unions had opposed it saying that even large units would work around this act by employing multiple contractors’ entities, each below the new barrier of 50 men. In any case, this amendment sought to improve employment of informal workers and facilitate ease of doing business. How much has this helped? 


MP has abolished the necessity of multiple registers and returns for getting a business permit. The state has also made provisions that ensure licences will be issued within 24 hours. Renewals of licenses/registrations would have a validation for a decade, not one year. MP has removed the requirement for inspections at factories that employ less than 50 labourers and inspection of SMEs can now only be done with the prior approval of a labour commissioner or if there is a complaint. Kerala and Maharashtra, too have simplified the returns and application procedure for permits. In the short-term, these reforms may help improve India’s place in the World Bank’s ease-of-doing-business ranking, for instance. It may even help somewhat in an earlier-than-expected economic recovery. 

Yes, there is a need to transform the current inspectorial regime to one with less infrequent audit but harsher punishment for violations. The devil’s advocate would say that since sizeable part of the reforms involve eliminating inspections and verification by government authorities, it could lead to increased misuse, for example, deployment of poor child labour or manufacture of counterfeit goods as there would be no. merchandise. I would, however, treat this as simple negativity as world-over countries have migrated to a system of more and more of self-certifications and the new India cannot treat itself as an exception. 

Let us see the short term impact in the current Covid and the immediate post Covid scenario. This suspension and resulting fall in wages will further depress the overall demand in the economy, thus hurting the recovery process. So while the act of suspension of these laws has been done to facilitate the supply side, it may lead things in an exact opposite direction of making the demand sluggish. Employment may not increase in short term because of several reasons. Companies are slicing off salaries and cutting out jobs already as many of them have unutilized capacities. The overall demand has continued to fall. Will companies hire more employees in such a scenario? 

Were these Labour Laws indeed a handicap in the growth of our industries’ economy? To some extent but by and large, no. There are so many other factors, which we would discuss on some other day, like infrastructure. Building infrastructure needs sincere and sustained government efforts and it is not as simple as bringing an ordinance by a majority government. What we do know is that labourers have been the biggest sufferers in this pandemic. We can forget their cause at our own peril as India now has to rely on them to prevent it from going to seed. 

It is also true that there is an unnecessarily complicated maze of laws which are not even amenable to meaningful and effective implementation and this needs simplification. The labyrinthine catacomb of these laws is a major wellspring of corruption and venal deals with inspectors. Facilitated by fewer and easier-to-follow labour laws, formalization of the labour force would certainly be helped. 

What else could the governments have done? There is a view that instead of creating exploitative conditions for the workers, the governments should have done what the governments have done in the west - allocating 2 to 5 % of their GDPs towards sharing the wage burden with the industry. That is easier said than done in respect of India as our government has other priorities like catering to the poorest of the poor through DBT and higher allocation to MNREGA. 

In conclusion, let me see what has emerged from this analysis today: 

Reforms in labour laws are required but let it not be done for temporary periods. Let us think of reforms which would stay. Some temporary relief may be thought off for one or two provisions, depending upon the extreme situation presented by the Covid problem. 

Do not throw the baby with the bathwater; time-tested laws which ensure that labour force is not exploited must stay. 

There are too many laws and some even contradictory to each other. Let there be a comprehensive exercise for reduction in the number and simplification of the laws without diluting them. 

Inspectorial regime for licenses and permits should be dismantled to more and more self-certification and less frequent preventive audits with stringent punishment for irregularities. 

There is definitely a need to review the Industrial Disputes Act and move towards a liberal hire and fire policy.The provisions in working hours should also be relaxed to regularize what has been happening in many MSMEs. 

Beyond the regulations for labour, companies face a lot of other hurdles like the shortage of skilled labour and the weak enforcement of contracts etc. This should be the next focus. 

I hope things move in the right direction because it is like now or never. Having disturbed the hornet’s nest, governments cannot abandon these reforms with a whimper and have Macbeth declare it from above as, “a tale told by an idiot, full of sound and fury, signifying nothing”. 

(The author’s views can also be heard on weekly news analysis section Straight Drive of YouTube channel the public.india) 

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