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Labour Law Shakeup: A Possible Starting Point

Programmer, Freelance
Nov 24, 2017 12:54 PM 3 min read

The Indian labour law has somehow missed the train of radical reforms, despite being one of the few domains where practically all stakeholders share a common ground – be it businesses, unions, and individuals. This common ground is that change is due. Even Moody’s while gifting us a 1-notch credit rating upgrade flagged that labour market reforms in the country have “yet to reach fruition”.


One of the many promises made by the present government during elections was the creation of 10 million jobs to which end campaigns like ‘Make in India’ were launched. However, labour data has been anything but upbeat. Unemployment rate had gone up by 0.10% in 2015-16, labour participation rate stood at 44.3% and the Centre for Monitoring Indian Economy (CMIE) estimates that c.1.5 million people lost their jobs in first four months of 2017, presumably due to demonetisation.


A quarterly manufacturing survey released in July this year by FICCI revealed that 73% of the sample participants were unlikely to hire in the next 3 months. Slow hiring combined with the rapid growth in employable workforce has put enormous pressure on the market. With the advent of Artificial Intelligence and machine learning, further cuts can be expected.


The history of labour laws in India is intertwined with the history of British colonialism. Post-colonial legislation underwent considerable reconstruction in a newly independent India. Ex-Labour Minister Bandaru Dattatreya stated earlier this year that 4 outdated labour laws were repealed and 38 more would be amalgamated into 4 codes on wages, industrial relations, social security and working conditions. He further stated that these laws were made between 1932 and 1945 and needed to be replaced.


To help the government in this process, the Centre for Civil Society (CCS) has come up with “The 100 Law Repeals Project” to identify and repeal such obsolete colonial laws. The fact that ‘Labour’ has been a concurrent list subject in the Constitution leading to sizeable overlapping of legislation makes the CCS’s job even more challenging. 


Newly appointed Minister of Labour and Employment Santosh Gangwar recently reiterated the importance of legal consolidation while suggesting steps towards safeguarding workers’ interests. He asserted that workers are the backbone of the economy and it is essential for minimum wage to be increased in all sectors.


However, the problems of the labour market are multi-dimensional and structural in nature, making any over-simplification bordering on populism - as in this case - ineffective. Even if wide reforms are out of the question, a decent starting point would be to re-evaluate the legal relationship between the employer and the worker, which acts as the seed behind a variety of issues.


Absence of written contracts is rampant in the country. A survey by the National Sample Survey Office revealed that only 1/3rd of all workers have a written official contract, naturally reducing job security for the remainder.


Restrictions on laying-off full-time workers, especially for large manufacturing firms, results in preference for temporary labour through agencies on “contract”. According to the Annual Survey of Industries, a contract worker earns 29% less than a regular worker. In turn, inadequate protection for contractual workers means there is irregular hiring and dismissal, financial instability and decreased productivity.


Workers don’t really have much leverage, either in terms of legal options or a financial stomach to fight back. Relatively small trade unions (thanks to low minimum membership requirements) implies that any potential bargaining power is also lost. This lack of representation reinforces double standards regarding wages and rights, based on both location and gender.


According to a report by CBGA, wages for regular jobs is around 1.7 times higher in urban areas compared to rural areas. Gender gap has been extensive since decades and in 2011-12 females were paid only 65% of what was paid to men in casual employment.  


An overtly restrictive labour framework is a legacy of our country’s socialist origins. The dynamics of supply and demand should be allowed to play in the realm of labour markets as well. Employers, whose decisions will always be driven by commercial considerations, should be allowed to hire or lay-off workers based on performance.


Restricting their ability to manage their permanent work-force has only incentivised them to use lightly-regulated alternates and ironically suppress the very rights of workers who were supposed to be protected.