Harsh Mander - India: Labour reforms of the wrong kind

Livemint, 30 July 2014 - India needs to amend its labour laws. Not to destroy the weak safeguards that exist now but to strengthen them

High among the expectations from the avowedly industry-friendly government in Delhi is that it will muster the political will to “reform” labour laws to render these more flexible. The rigidities of the current labour regulatory regime, it is alleged, are major hurdles to attracting private investment to manufacturing. Greater freedom to hire and fire workers, a less intrusive labour welfare supervisory regime and reduced power of unions will, it is argued, benefit workers, as greater private investment will result in higher economic growth and therefore, more jobs.

There are many problems with these arguments. Firstly, during the high noon of growth in India, 2004-05 to 2009-10, when growth averaged 8.43%, only two million new jobs were added for 55 million people who joined the workforce. Second, although labour law prohibits appointment of contract workers for perennial tasks, these years saw a sharp growth in contract and casual work, at the expense of regular employment. Atul Sood, Paritosh Nath and Sangeeta Ghosh in a recent paper in the Economic and Political Weekly (Deregulating Capital, Regulating Labour, 28 June) demonstrate that the share of contract workers in total organized employment rose from 10.5% in 1995-96 to 25.6% by 2009-10, while the share of directly employed workers fell from 68.3% to 52.4% in the same period.

Even regular workers are appointed increasingly on short-term contracts, with little or no social security, as termination of their employment is not legally barred. The increasing informality in the organized labour market has, in turn, blurred distinctions between formal and informal labour.

In this way, without changing laws, fewer and fewer workers enjoy the protections of secure employment and social security which the letter of the law intends. This regime is of what commentators describe as “reform by stealth”. This unstable employment landscape is further stymied by a poorly staffed, badly trained, and loosely supervised labour department, notoriously prone to rent-seeking. The growth sector of construction is almost entirely powered by unprotected, unorganized workers at dirt wages and unhealthy environments, in open violation of the law. Likewise, a greater part of factory floor work is shifting to home-based work, where low wages are paid for long hours, with no social protection; the work environment is extremely unhealthy and child labour has burgeoned through the back door.

In this light, labour law amendments introduced by the Vasundhara Raje government in Rajasthan—and likely to be passed by its large majority—is a cause for deep disquiet. These amendments firstly reduce the application of the Contract Labour Act to companies with more than 50 workers, against the current 20. This statute prohibits engagement of contract labour in tasks requiring perennial work in the production process, and prescribes a mechanism for registration of contractors.

The amendments, likewise, reduce the protections of the Factories Act only to units employing 20 workers with power supply and 40 workers without power supply, down from the existing norm of 10 and 20 workers respectively. This, in effect, reduces protections of workers with health, safety and welfare standards their employers were earlier legally bound to ensure.

The proposed legal changes further exempt factories employing 300 (up from the current 100) workers from the protections of the Industrial Disputes Act, which provides for collective bargaining, and raise the minimum numbers of workers required to register a trade union from 15% to 30%. Sood et al estimate that after this amendment, around 57-60% workers in the formal sector can be fired, or subject to suppressed wages and degraded work conditions.

The cumulative impact of these amendments will be to free more employers from even the poorly enforced and modest obligations they currently hold for ensuring job security, health and social protection of their workers. It is hardly convincing to state that this dilution of labour protections will indeed spur economic growth, or that this is an ethically just social bargain even if it does. And there is even less evidence that this is an assured pathway for creation of millions of jobs which India’s teeming youth aspire for.

What is more, even the scant, fast-eroding and poorly enforced protections extended by India’s labour laws exclude nine out of ten workers who toil in the unorganized workforce. The only guarantee these workers enjoy is of uncertain, sporadic, low-paid, often unhealthy work, without social protections for health and old age. Labour economist K.P. Kannan believed that the major problem of construction workers was payment of minimum wages, until he realized their predicament was more often the payment of any wages at all, as every other worker he met in construction sites had not been paid any wages for long durations. Sociologist Jan Breman records poignantly the plight of millions of footloose workers: “hunters and gatherers” of any kind of work, on any terms, anywhere in the country, in unending struggle to keep their families alive.

There is indeed an urgent need for labour reforms, but not the dilution of the few labour protections which still survive on India’s statute books. Instead, what is essential is the rationalization and codification of all labour protections into a single law, and the commitment of employers and governments to adhere to this law and extend its coverage resolutely to every worker in the country. It is only the assurance of decent work to all workers which can ensure that households can afford food, education, healthcare and housing necessary for a life of basic dignity for all, a promise withheld too long from most Indians.

Harsh Mander is a former member of the National Advisory Council
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