Labor policy issues in India

Labour policy reforms in India are due for a long time, as the context in which they were framed has changed drastically. The Laws framed mainly to cater the manufacturing sector, do not address the problems o f the service sector, which today, accounts for approx. half of our GDP.  The out dated and inflexible nature of labour laws protects a handful of say 8-9 percent of the workforce, seriously hampering employment generation capacity of the organised sector and most of the 10-12 million youth joining labour force every year, are forced to join informal economy, where the working conditions are pathetic and earnings are also abysmally.

Issues related to Indian labour laws:

1. Archaic laws

• In the pre-independence period, British colonialists in India suppressed labour rights, trade unions and the freedom of association among workers. As a result, labour activism became a part of the Indian freedom struggle
• In 1950, the newly framed Constitution of India looked to undo these wrongs by including fundamental labour rights, along with complex labour laws. These laws made hiring additional workers increasingly difficult
• Despite several decades of economic progress, these laws have not been amended or reformed in order to foster a friendlier climate for business
• Now with in the manufacturing sector if you see there has been a bimodal distribution, there has been a concentration of the manufacturing units either as very large units or the micro and the small enterprises. The predominant amount of employment today is actually generated in the micro, small and medium enterprises and the large enterprises are also comparatively lesser. This has happened because of the rigidity of labour laws as is termed by a number of advocates of reforming labour laws.

2. Labour productivity

• India has low labour productivity in comparison with other developing nations. This is mainly due to lack of skilled workforce (which is only 2%).
• As a result, in the early days of off shoring, Western firms showed greater interest in setting up manufacturing facilities in Thailand, Mexico, China, Vietnam and Philippines rather than in India. All of these countries had as bad a record of bureaucratic corruption as India did at the time, but labour productivity was found to be higher because of comparatively higher percentage of skilled labour
• So the whole idea of “Skill in India”, the whole idea of Shramev Jayate and the whole idea of reaping demographic dividend is also clearly related to the idea that the labour reforms and the whole idea of labour reforms also has to improve. Not just the quantity and quality of employment but also the employability of the employees themselves.

3. Politics

• In 1970s and 1980s, Indian politics was dominated by socialists who created the impression that profit making by private enterprises is undesirable
• Policymakers also further strengthened India’s complicated labour laws
• Now another important crisis of the labour market today is the weakening of the labour unions.
• Even in 1970 only 45% of the population actually was covered by a labour union. And this decreased to 30% by 1980 or by 1980 only one third of the workers were actually part of one labour union or the other
• The importance of labour union can be judged by the fact that labour unions are often seen as those collective bargaining enterprises which bargain on behalf of individual workers with the management so as to secure better pay benefits, better wage benefits.
• Today these labour unions have lost relevance with supreme court banning strike as a weapon for their dissent demonstration and with regional political parties having amalgamated most of them.

4. Complexity

• Labour is a subject in concurrent list of the Constitution of India. Thus both centre and states can enact laws on labour matters
• There are about 45 central government laws and more than 100 state statutes, sometimes overlapping or contradicting
• Besides, using different terminologies like – employee, workman, worker to denote a worker or wages, basic wages, salary refer ring to the compensation, yet covering different components in each legislation, have made compliance very cumbersome multiplying litigations.
• Also another important problem related to the issue of multiplicity of laws itself is a poor enforcement of these laws and which diminish the protection provided to the workers themselves.
• We have Workers Aristocracy in our country. 8% workers are in the organized sector who take away most of the benefits provided by labour laws, while 92% of workers are in the informal sector

5. Rigidity

• India has one of the most rigid labour regulatory frameworks in the world
• Example- Industrial Disputes Act of 1947 stipulates that a firm with 100 employees or more cannot close down without government permission; they can’t fire a person without permission of the labour commissioner, etc.
• Such laws curtail the growth of a firm by forcing it to hire fewer workers and remain small

6. Cost of compliance

• There are also high costs involved in complying with several labour laws
• Example- under the Factories Act, firms with 10 or more workers and firms which use electric power are required to keep records and file regular reports on matters such as overtime work, wages, attendance, sick leave and worker fines

Way forward:

As early as in 2002, the Second National Commission on Labour suggested the formulation of labour codes similar to those in Russia, Germany, Poland, Hungary and Canada. The commission recommended that labour legislation be divided into five broad areas: industrial relations, wages, social security, safety and welfare, and working conditions.

• Legislative reforms such as those taken up recently by central government and states such as Rajasthan, Gujarat, MP are very much needed
• Empowering women to enter the workplace and providing them additional support
• Physically challenged- Increasing current 3% reservation in governmental and government-funded jobs. Also ensuring that workplaces are disabled-friendly
• Providing social security to workers in the informal sector would also pave the way for a more satisfied and productive workforce
• Training and skilling- India has a demographic advantage but in order to utilize this dividend, India needs to invest heavily in training its talent. India’s supply of labour presently outnumbers industry’s demand for them. As a result, the government and manufacturing firms need to invest in training and skilling

The present government has come up with a set of new measures. After having brought in amendments to the Factories Act and Apprenticeship Act, another set of reforms have been initiated. These reforms announced recently, like unified labour portal, universal account number for EPF among others, are expected to help in doing business easily apart from helping others. If “Make in India” is to be realised, then we have to work on improving ease of doing business in the country for both labour as well as the management. The measures announced are, in some ways, far reaching. These initiatives are expected to end the ‘Inspector Raj’ in the country. This is expected to bring down the corruption and increase the Transparency and Cleanliness within the system. The guiding principle for India’s labour policy reformers should not merely be ring fencing jobs but safeguarding workers through social assistance, re-employment support (such as that which is provided in several Western nations) and skill building, and supporting employers in employee training and development.

By: Abhishek Sharma