Myth of Chinese Labour Flexibility

Prof. K.R. Shyam Sundar

14 November 2014

krshyams@xlri.ac.in

India is a land of myths.  Industrial relations is no exception to this rule. The arguments in the name of supporting the chorus for labour law and governance reforms if carefully reviewed would show that there are several myths doing round.  Employers have been complaining that labour laws and the labour market governance system in India designed as they were during the command economy regime are tough and even outdated and they impose rigidities on the working of the labour market processes.  In consonance with the globalization thinking, they often cite that countries like China are doing well and attracting foreign investment primarily due to its flexible labour market regime and further that India is not exporting as much as Bangladesh in the garment sector and so on.   

Researchers and employers reciting Chinese labour flexibility as a means of attracting more foreign investment are talking about history as they refer to the transition of Chinese labour market system from a rigid command economy to a market economy that took place till the 1990s.  In the 2000s, the Chinese social and labour policy did almost a “U” turn to promote social harmony which meant reordering of the social and employment relations in such a manner to correct the “historical wrongs” which provoked tremendous amount of social and labour unrest.  This policy correction is often missed out by the lobbying groups. 

During the command economy regime in China employment and wages were administratively determined which meant little or no freedom for the management to hire and fire of workers and structuring the reward for work.  Thus, instead of the labour market the government agencies performed the labour allocative and pricing functions; in that sense ‘labour market’ was absent during the command economy regime.  China started taking decisive measures to shift from its command economy regime to the market economy since the late 1970s. Through the introduction of labour contract system by which the workers worked for a fixed duration with no guarantee of re-employment at the end of the contract tenure, the ‘iron rice bowl’ system of the command economy regime was smashed.

The Labour Law (1994) defined labour contracts (i.e. agreements that establish labour relationship and specify rights, interests and obligations of both the parties) and gave them the legal status, detailed their contents, specified conditions for termination of workers among others. The Law was more about termination than of engagement.  In the pre-reform period firing workers was virtually ruled out. But during the post-reform period employers enjoyed the right to dismiss and discipline the workers.  Employers terminating the services of workers were expected to give 30 days’ notice and pay one month’s severance benefits.  Through various regulations the government introduced tremendous amount of flexibility in both open and special economic zones during the 1980s and the 1990s.  The labour dispatch system of employment provided further numerical flexibility. The retrenchment of workers in the state-owned-enterprises (SOEs) was aggressively pursued in the 1990s.

But overdose of labour flexibility, the aggressive reform of the state-owned-enterprises and resultant unemployment of a grand magnitude, the failure of re-habilitation of affected workers and exploitative labour market practices like poor labour contracting (including a preponderance of non-written contracts in the labour market), abusive working conditions led to tremendous escalation of social and industrial unrest in China in the late 1990s and the early 2000s.  These led to a search for systems of governance and laws to ensure “social harmony”.  The years 2007-2008 (the years of Social Legislation) witnessed discussion and passage of Labour Contract Law (LCL), The Law on Mediation and Arbitration of Labor Disputes (LMA) and other laws.

The LCL among others sought to toughen up the clauses to ensure labour rights.  It provided for ensuring even the basic labour right of a written labour contract for workers, introduced wired-ranging severance payments (though with a cap), restricted the frequency of renewal of fixed-term employment to two and so on.  The law provided for compulsory permanency after two cycles of fixed-term contracts, non-provision of written contracts within a year of engagement of workers and toughened up the severance payment system. The LCL was clearly an attempt to take two steps away from the flexible labour market regime thanks to the undesirable labour market and social consequences that stemmed from the earlier flexible regime.  However, thanks to global crisis unemployment erupted again in the post-2008 period and the government sought to provide some semblance of labour flexibility and took measures to cool the heated labour relations environment.

It may be mentioned here that in terms of the employment protection legislation (EPL) score following the methodology of OECD, China now (post-2008) is more rigid than several countries like France, Spain, Germany in the conventionally labour rigidity continent of Europe.  In terms of World Bank scoring, India enjoys more flexibility in hiring than China and less flexibility in terms of firing primarily due to the prior permission clause.  However, the severance pay in China for redundancy dismissal with 10 years of service is 43.3 weeks of pay while it is 21.4 weeks of pay in India according to Doing Business data base for 2014 of the World Bank.  Sri Lanka our neighbor also has a more generous severance pay system in place.  It may be noted here that severance pay in India is one of the lowest in the so-called rigid countries in the world which aspect is often missed out in the debate.  Then, there is always a trade-off between employment and income and social security.  

The LMA liberalized the procedures for filing of complaints, disputes and so on by the workers.  The LMA is often accused for escalating the number of industrial disputes, though recession impacted workers adversely as much as it did business.  The struggles for labour rights including the freedom of association have intensified in the last few years indicating that notwithstanding some significant changes in the labour law regime, labour rights are yet a far cry in China though slowing down of growth rates might reflect the labour pains as well.  The social dialogue system is yet to take roots in China while we have a highly institutionalized system in place, though not ideally functional. 

The upshot of this brief recount is that China paid a heavy price for its overly flexible and de-regulatory regime followed in the 1980s and the 1990s and took labour-rights-protective-steps in the 2000s.  Still the labour struggles are on to the extent we know from free agency reporting.  It may be mentioned in passing that unlike in India industrial relations and social dialogue have not evolved in China and political democracy does not exist therein.  So citing China as is even though fashionable is not advisable and the Second National Commission on Labour after its visit to China dismissed such submissions by the employers.

 Note: This is published in e-social sciences, November 2014, Public Policy

Central Government – It’s time to Enter the Labour Reforms Boxing Zone!

K. R. Shyam Sundar

Professor, HRM Area, Xavier Business School, XLRI, Jamshedpur

krshyams@xlri.ac.in

The labour reforms agenda has been there ever since the economic reforms aimed at liberalizing the product market were initiated in a significant sense since 1991.  It has been argued that reforms of the labour market and the industrial relations system (IRS) would complement the product market reforms and ensure better realization of pay-offs arising out of the latter.  While there are host of labour reform measures, three critical labour reforms demanded by the employers comprise relief from labour inspection regime, freedom to retrench workers and closure of establishments without prior government permission and freedom to hire contract labour without fear of prohibition of it by the government.  There are two major pillars of the labour reforms argument.  One, if India did not initiate these labour reforms ease of doing business in India would be “perceived” to be “difficult” and foreign capital would go to other developing and emerging countries.  Two, absence of labour reforms and especially the exit-prohibiting rigid labour laws affect the growth of firms, especially the labour intensive ones and hence hurt employment creation as firms fragment or adopt capital intensive technologies; as a result, the “missing middle” in the Indian industrial structure epitomizing efficiency and welfare gains is proving to be costly.  

The United Progressive Alliance-1 (UPA-1) was a non-starter as far as labour reforms are concerned thanks to the presence of arm-twisting Left-parties and strong minor regional political parties in the coalition. The UPA-2 failed despite the freedom it enjoyed.  Thus, the election of Narandra Modi-led BJP government with a considerable majority in the Lok Sabha has strongly revived the hopes of delivery on the labour reforms front.  Thus, it is not a coincidence that the state governments of Rajasthan, Haryana, and Madhya Pradesh irrespective of political parties in governance have initiated labour reform proposals. 

The cabinet of the central government has approved amendments to the Apprentices Act, 1961, the Factories Act 1948 and the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988.  Predictably, the trade unions have voiced strong protest for the unilateral executive sanction to the labour laws ignoring the tripartite consultative forums that exist in the country.

There are reportedly 0.3 million apprentices which constitute around 10 percent of the organized sector employment and a poor 0.01 percent of the total workforce – the latter is not a correct measure as it includes the vast informal workers.  But the point is, in its quest for skill-building, the government needs to make amendments to the law and the schemes concerning apprentices to cover a significant share of the organized sector, to start with.  In that sense, liberalization of the apprentice law is welcome.  The good part of the Factories Act amendments relates to strengthening of workplace safety, by giving a broad definition of hazardous process, which, in the wake of rather frequent incidence of fatal industrial accidents, is a good news.  The penal clause of imprisonment of employers is a serious threat and should be used judiciously and legitimately in labour laws – it is certainly not required for laws like the Apprentices Act but necessary even essential in the case of legalities concerning workplace safety.  The removal of restrictions on night work of women subject to “adequate safeguards” is welcome, though the corporates must ensure strong and uncompromising governance for the safety of women.  The gender imbalance in the labour market opportunities is corrected with this, though partially.  The extension of exemptions from labour bureaucracy to the establishments employing between 10 and 40 workers (as opposed to the current 10-19 spectrum) is expected to contribute to the growth and higher productivity of small enterprises.  While employers in this segment surely require relief from the heavy labour bureaucracy, workers in this segment are as much vulnerable.  To win the trade unions’ consent, strong penal clauses for violations for and strict compliance with social security legislation by employers in this segment will be required. 

The point is that India watchers will be keen to see whether this central government is able to push through these reforms, irrespective of whether they are worker-friendly or employer-friendly.  The India watchers are tired of still-born labour reform baby bodies thus far.   

It is important to understand the policy-stalemate at the centre. The central governments, viz. the National Democratic Alliance (NDA) led by BJP or the UPA-1 or 2 led by Congress could not carry out the critical labour reform measures for two principal reasons.  The labour reform issues unlike the capital market reforms belong to “mass politics” and hence enjoy huge social visibility.  The opportunist politics played by the political parties, i.e. oppose the reform measures when not in power and the strident protests by workers’ organizations unnerve the ruling party at the centre from carrying out this reform measure.  The workers in the organized sector whom these affect are though small in number as compared to the unorganized sector workers are well organized (and has powerful Left presence) and can and in fact did inflict tremendous costs through agitations on the government.  The political costs of labour reforms outweigh the unsure economic benefits from the labour reforms. 

As a result, the labour reforms mantle was often passed on to the state governments.  The state-level labour reforms enjoy[ed] the advantage of muted and low-decibel protests by trade unions and the divisions in the political spectrum did not aid consolidation of opposition to labour reforms measures.  The regionalization of industrial relations governance has been an “escape route” for the willy-nilly central government thus far.

It is significant to note that the current labour reform measures do not include the critical reform measures mentioned earlier.  But the proposed labour reform measures constitute a “test case”.  The Modi-government is using these somewhat-neutral labour reforms measures to test the waters.   The political failures in the past may not haunt the current BJP government as it is early in the day. Further, it has unassailable majority in the Lok Sabha; it needs to battle only in the Rajya Sabha.   The divisions in Congress and the opportunistic regional political parties (who may wish to appear reform-friendly) offer hopes of slender majoritizing in the upper body.  It appears that the central government is in no mood to hold social dialogue on the current reform proposals.  It is surely not healthy to bypass the consultative forums, but the government appears to be keen to change the “India Doing Business” image.    

On the other hand, the critical labour reform measures involving amendments to the central labour laws have been lobbed by the state governments to the Federal power centre for nods from the President, which necessarily involve the executive cabinet’s involvement in them.  The central government may continue to use the federal politics channel to “wait” till the critical state elections (Maharashtra) are over.  While the industry leaders may be pleased if these reform processes are carried out successfully, they are waiting for the critical labour reform measures.  At any rate, the Modi government has surely entered into a “benevolent trap” of high-expectations-high performance.  Sooner or later, it has to enter the “critical labour reform boxing zone”!

Shramev Jayate – An Interrogation and Exhortation

Prof. K.R. Shyam Sundar

XLRI

The main message that came out of the Prime Minister's speech is that by shying away from labour law reforms we will not be serving the interests of labourers and only through labour reforms could the government seek to serve their interests.  The real target of benefit of labour law reforms and governance through increased investment and employment is the blue collar workers.

The labour law and governance reforms announced by the government are a mixed bag.  The portable EPFO accounts management (through Universal Account Number) was a long pending one and in the era of electronic management this was expected since long and it has been delivered a little too late in the day.  Nonetheless, better late than never.  The press reports suggest that this scheme will cover the employees in the organized sector.  While this is a welcome administrative rationalization move and would hugely benefit foot-loose employees who shift from one firm/region to another, the key issues that is not addressed relates to the vulnerably placed workers in the organized sector: it is well-known that the contractors often collect the contributions towards the social security funds and yet do not deposit them with the respective organization; further, these workers are highly foot-loose by the very nature of their jobs and the portability scheme should cover these workers foremost.  Policy clarity on this vitally important issue is expected from the government.  

The second issue concerns the e-governance which not merely minimizes the governance but also if properly coordinated and is efficiently functional would boost the efficiency of governance of industrial relations.  The Unified Labour Portal or Shram Suvidha seeks to ensure a transparent and accountable labour inspection system.  Both are welcome objectives.  But there are some vital concerns.  The Government of Maharashtra introduced first a pilot project and later an universal project called, Maharashramm, an e-governance initiative with a lot of fanfare and it sought to cover all the major players in the labour market governance via electronic methods, viz. the government officials, the business firms and the workers.  The system envisaged covered both width and depth of coverage.  It also had a financial inclusion of workers by providing for wage payments through bank accounts and creating Business Correspondents who would operate via e-tools.  Maharashramm was managed by the private service provider, viz. Goldyne Technoserve. It started in big-bang manner and later developed some problems.  Presently the site is non-functional due to the litigation process.  This creates serious concerns as without private providers these e-governance schemes could not be implemented.  Further, without efficient telecom services no e-governance system however well-conceived can ever become successful – for example, the salary and pension in administration in Maharashtra often get stuck because of jamming and hanging issues.   

While the medium and large scale establishments will have the wherewithal to manage e-governance mechanisms and they powerfully lobby the government, the micro and small establishments whose owners are often uneducated and even illiterate and performing multiple services in the establishment would find it difficult to cope up with the e-governance mechanisms.  The e-governance assumes the adequacy of supply of electronic equipment with the labour inspectors which assumption is not well founded. 

The so-called inspector-raj reform is more a "signalling" to the prospective investors, especially after Mr. Modi's visits to Japan and the U.S. of the government's resolve to move ahead on the reform path.  The potential investors have almost cultivated a “habit” of submitting labour law and governance reforms as a part of their interactions with any dignitary who interact with them. 

India, a founder member of ILO has ratified only 43 ILO Conventions out of 189 and four out of eight Fundamental and Core ILO Conventions.  The Core ILO Conventions that India has not ratified relates to child labour and freedom of association and collective bargaining.  The non-ratification of ILO Core Convention relating child labour becomes quite embarrassing especially when Mr. Satyarthi has been honoured with Noble Prize for Peace (along with Pakistan citizen), whose crusades against child labour were recognized.  While labour law reforms concerning the organized sector though contestable are welcome, the blatant ignorance of the vital concerns relating to the vulnerably placed workers and people does not enhance the Shramev Jayate sloganeering. 

India has ratified ILO Convention on Labour Inspection, 81 (1947) which requires well-equipped and sufficient labour inspectors to inspect any undertaking at any time and without prior authorization.  However, the governance reforms including those announced by the Prime Minister, viz. centralization of labour inspections, dictation of labour inspections from above and time management of labour inspections do violate the letter and the spirit of the ILO Convention which India has ratified.  Controlled and command performances defeat the very objective of labour inspection.   

The good reform measure has been to lighten the administrative load on the micro and small establishments (MSs) which clearly require least government intervention in terms of scrutiny and most government support especially support in terms of skill building as quit rates are highest in this sector.  These micro and small establishments often "feed" the large establishments by providing unofficial apprenticeship scheme of training workers and seeing them going away to large establishments where these workers are willing to "queue" up for permanent vacancies. 

To labour researchers, it is the skill deficit or mismatch in skills that hurts more the competitiveness of the companies rather than the so-called rigidities created by the labour laws.  Hence, the skill building support measures announced by the government will go a long way to address the critical skill related issues and they are particularly welcome given the onset of demographic dividend.   

Mr. Modi's exhortation about the respect to blue collar is a timely reminder about the dignity of labour. The government also needs to step up its programmes to greatly reduce the child labour, wipe out the bonded labour and assure freedom of association and collective bargaining rights to all kinds of employees.  The slogan Shramev Jayate will achieve meaning if the workers, the vulnerably placed fee secure and are confident of state support in a comprehensive manner in their efforts to nation building.  This is the key to Shramev Jayate.

Prof. K.R. Shyam Sundar

Professor, HRM Area

Jamshedpur

krshyams@xlriac.in

Labour Rights and Globalization in India: Challenges to and Opportunities for Trade Union Movement in India

K.R. Shyam Sundar

Professor, HRM Area, Xavier Business School, XLRI, Jamshedpur

In the current globalized context, rights of every constituent of the society, be it racial, caste, class, gender, etc. is a subject of discourse and a source of collective concern and action.  I dwell on labour rights here which of course cannot be delinked from other identities, say gender, tribal, etc. The controversies that surround the land rights especially in the mining pursuits highlight the intersectionality of rights. As the discussion of labour rights is contextualized in the intersectionality of rights, the struggle agenda becomes broader and more inclusive.   Trade unions are institutions of empowerment and act as swords of justice and they should play a vanguard role to promote and protect labour rights in these adversarial times.  

Conventional Labour Reforms Argument

India embarked on the path of economic liberalization as the “Hindu growth rate” of 3 percent was attributed to the failures of the command economy.  The liberalization of the product market and the opening up of it to foreign capital, technology, goods was expected to launch India on the “Asian Tiger if not Cub growth rate” trajectories.  During 1996-2005 economic growth was an average of 6.42 per cent per annum and it accelerated to 8.39 percent per annum during 2006–11. However, growth slowed down to 5.73% in 2012 and 5.1% in 2013.   While growth rate deceleration is perhaps due to economic slow-down at the global level, pro-reformers insist that as India is significantly insulated, labour reforms complementing the product market reforms are necessary for sustainable growth rate.

The pro-reformers further argued that what was good for the product market is also good an even necessary for the factor market, especially the labour market.  The legal framework derived from the command economy regime is argued to be characterized by rigidities that hamper the free working of the market forces and these in turn hurt the competitiveness of the economy in general and the firms in particular.

Employers demand that the firms should enjoy labour flexibility to fire workers and close down unviable firms as per market dynamics, employ workers on temporary contracts such that they could be dispensed with when not necessary, have the power to initiate technological and other changes in work organization and production and enjoy freedom from the nosy labour inspectors.   Also, there are strong criticisms pertaining to the dearness allowance in India, the bonus system, political affiliations of trade unions, the role of outsiders in the trade unions at the shop floor and so on. 

Re-strategizing Trade Unions’ Protests and Agenda

The trade unions have to a larger extent resisted and even stalled some of the labour reform measures introduced at the national level.  However, there is a need to reconsider some of their protest techniques, strategies and even their agenda. I outline the cardinal principles and arguments briefly here.

(a) The unified trade union movement has gone on national strike on a ten-points agenda and in the earlier strikes issues included issues concerning food security via public distribution system etc. The general economic policy issues like inflation, food security and foreign direct investment (FDI) will anyways be taken up by the political parties including those associated with the trade unions; the trade unions can make these as “secondary issues” in the general strikes and include issues like FDI in their sectoral strikes, say by defence or insurance sector.  The “core issues” must be re-structured in the light of the demands presented below.

(b) There must be in the public space the conceptual and empirical bases for formulation of trade unions’ demands.  Further, from the generic specific demands must be generated.  For example, on the enforcement of labour laws issues, there is a need to provide statistical and/or strong anecdotal evidence for formulating specific solutions.  These strengthen the social legitimacy and create bases for negotiations.

(c) The effectiveness of protest techniques needs to be critically assessed.  The trade union reports show that while the UPA government initiated dialogue with the trade union leaders post-the February national strike in 2013, the government was simply buying time to delay any possible policy action in favour of the workers. Further, the trade union movement should assess as to how long the same demands should stay in the protest space – it at once reflects the stagnation of trade union movement and the lack of delivery on the demands by the government.

(d) While trade unions and perhaps the government take technical assistance of ILO for ratification of the un-ratified ILO Core Labour Standards, it is clear the government is slippery on its commitment.  There is a perhaps a serious need to project this issue (which enjoys policy legitimacy as they have been re-christened globally as the Fundamental Human Rights) in the public domain and perhaps explore possibilities taking them to the judicial body? Also, the trade unions must include all the four un-ratified conventions in their struggle agenda.

(e) The fight for workers’ rights needs to be waged not merely on the streets as the battle is largely fought in the realm of ideas.  There is a serious need for research that can counter the highly visible pro-reform research output and significant projection of the same in the public space via media (supported by big business houses) and influence over the policy-makers through soft lobbying.  In other words, research by trade union organizations must be a priority thrust.  While labour flexibility has come to enjoy social and even intellectual legitimacy as it is seen as a driver of economic growth and employment generation, trade unions’ opposition has not earned them positive points in the public space. This is a serious challenge for the trade unions.

(f) As the conventional trade unions make forays through their inclusive labour agenda, the institutional interface between the conventional organizations and the workers’ new forms of organizations needs to be strengthened.  The trade unions must be at the vanguard of the new working class movement and the protests are not restricted to the factory gates but spaces less traversed before.  

(g) The labour reforms agenda must be projected to earn legitimacy: it must be projected to show they not only promote the welfare of the working class but also contribute to the economic efficiency.  For example, universal coverage, effective and statutory and national floor level minimum wage, safe workplaces, sound and less cumbersome governance and so on promote workers’ welfare and at the same time enhance productive efficiency via better labour standards, nutritional, high work-effort (via less absenteeism) and motivational effects on the one hand and reduce unit labour costs due to higher productivity and lower conflicts, less scope for litigations and reduced compensations on the other hand.  Perhaps, the biggest gain is shared monitoring by both managerial supervision and trade union supervision.  In other words, trade unions become a part of workplace governance. 

(h) India has adopted the Decent Work Country Programme (DWCP) in 2010 for a five-year period and is committed to the pursuit of programmes designed to lead to decent and productive, social protection and elimination of all forms of unacceptable forms of work.  The decent work agenda is necessarily productivity-friendly agenda.

(i) From a random survey of the cases filed before the ILO Committee on Freedom of Association (CFA) one sees that most cases have been field by CITU only.  Though a careful study is required to get a clear picture, the trade unions must resort to lodging complaints to CFA.  In the case of MRF recognition issue, the Madras High Court took cognizance of the complaint and the ILO comments in delivering its judgment in which it asked the Tamil Nadu government to conduct membership verification to determine the bargaining agent in the absence of law for the same.  Neither the employers not the government could go scot free under the pretext of absence of law for union recognition. 

(j) Another important source of assertion of workers’ rights is to make use of Right to Information Act, 2005 which trade unions in Pune are making good use to their advantage.  This is especially useful in correcting deficits in enforcement and securing vital information in the cases involving contract labour employment.

(k) The regionalization of industrial relations governance has shifted the reforms agenda to the states.  While the national trade unions and others wage battles targeting the central government much reform actions are taking place at the micro levels quietly.  There is a need to “imitate” the structure of protest actions at the regional level as well.   

The Good Labour Reform Agenda

Universal Coverage of Labour Laws

The use of the “thresholds” (size of employment, seasonal nature of industries, tenure, etc.) to exclude vast sections of workforce is exclusionary governance.  Nearly about 75 percent of total workers in India in 2005 were employed in the establishments employing less than 10 workers. These workers are most likely to be not covered by most labour laws save the Shops and Establishments Act at the state level and the federal Minimum Wages Act, 1948.  The gradual coverage of all the workers would ensure not only protection to the workers but also floor level labour standards which could enhance productivity through incentives (better labour standards) and penalties (better enforcement). 

Fundamental Labour Rights

The eight ILO Core Conventions have been designated as the Fundamental Human Rights (on child labour, forced labour, non-discrimination, and trade union and collective bargaining rights) and the most immediate agenda of the labour movement is to have the un-ratified four ILO Core Conventions ratified and give effective effect to them.  While mere ratification does not lead to solutions, non-ratification cannot be the block towards social progress.  The commitment of the Indian government for decent work makes it all the more imperative; however, the delays on the delivery of the promises of ratification show that the government is slippery on this.

Complementary Institutions

The social actors need to resort to market techniques such as negotiations, industrial sanctions and so on to govern their world of work – but what is missing is the facilitative legal framework. At the same time, the union movement needs to set its house in order on the issue of method of determination of the bargaining agent.  Five specific labour reform measures in this regard are, viz. (a) provision for method of recognition, (b) notification of ULPs, (c) deemed registration of trade unions upon expiry of a specified period, and (d) information sharing for meaningful and productive collective bargaining, and (e) strengthening of trade union governance.  

Towards an Effective Minimum Wages Regime

The complexities and the inefficiencies associated with minimum wages in India often defeat the very objectives of it.  Minimum wages is at the centre of decent wage agenda and technical research and social dialogue can secure this. This could probably correct the declining shares of wages in gross value added in the factory sector (from 27 percent in 1980-81 to around 11 percent in 2011-12) which could represent a model for equitable work regime in the society. 

Effective Compliance Regime

The need for better labour market governance is felt in the market economy more than before thanks to profiteering and cheap labour cost regime.  While the accusations of over drive of inspection regime and rent seeking tendencies in the regulatory regime are true, the inefficiencies arising out of deregulation are perhaps stronger than the former?  Indeed, better compliance, technological progress, pro-active role of trade unions and some rationalizing of labour laws (removal of absurd and complex clauses) would weed out these inefficiencies.  The ratification of ILO Convention on Labour Inspection Convention 1947 by India requires the maintenance of effective inspection regime necessary. 

Strong Penal and Just Rights Regime

As a complement to the effective enforcement, penalties need to kept high enough to dissuade cheating and as in the football penal system repeated acts of violation must lead to de-registration of firms from business.  In the case of non-payment of statutory compensation, speedy and high cost-penal system should be devised to punish both the defaulting employers.  . 

The judicial dispensation system is known for its tardy progress if not for delivery of some controversial judgments. The social actors must insist on speedy resolution of industrial disputes.  It is costly not only for the workers but also for the employers in the age of intense competition. The trade union movement must operationalize their demand for effective enforcement regime by including the demand of optimum ratio of enforcement officials and judicial officials to workforce.  

Safe Workplace and Safe and Green Environment

Trade unions must focus on workplace safety and health as a major national issue and a labour reform agenda. The sorry tales of non-payment or delay in payment of compensation to the fatally injured workers and the family of the deceased workers reflect not only poor governance but also weak monitoring by trade unions.  The “must labour reform” is the fast-tracking of compensation to the industrial accidents, especially the fatal ones. The erring employers and the slack enforcement agencies must be penalized sufficiently.  In the larger sense, from safe workplace we need to move on to a safe and green environment. 

Skills Building and Human Resource Development

Trade unions must focus on skill building though this has begun to receive policy attention of late.  Skill emphasis will shift the debate from employment security to employability.  Trade unions must demand just allocation of social resources in building the human resources of the country which would mean going beyond the workplace issues to macro-economic issues.  The labour flexibility drive could have grave social consequences in that with lower levels of income and health hazards including stress could lead to multiple forms of deprivations not only for the present workers’ generation but also for the future generation. The working class cannot provide adequately for the health (nutrition) and education of their children.  It is not only the burden of public debt that poses dangers to the posterity but human capital deficit as well.

Livelihood Issues

It is to the tribute of the working class movement that some measure of social security (I am aware of the inadequacies), the right to street vending and the right to limited job assurance in the rural areas have been secured. Many others wait on the wings, the forest workers, the tribals, and the fisherpeople and so on.  The trade union movement’s demands on universal pension and the creation of social security funds are important issues which need sustained action as the government denies this in the name of fiscal prudence.

The agenda is vast but there is promise as workers are increasingly becoming cohesive and the intersectionality of issues and agencies is structuring the movement and the agenda.

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Labour Law Reforms: Shift from Labour Market to Industrial Relations is the Key!

K.R. Shyam Sundar

Violence-laced industrial conflicts and long, sustained and costly industrial conflicts have taken place in the 2000s as they did in the 1970s and the 1980s primarily on the trade union recognition issue, though the complementary labour flexibility strategies followed by the employers in the post-reform period has been additionally responsible for the conflicts.

Consequent to reforms relating to the product market both domestically and on the external front since 1991 the industry leaders and others have been loudly and insistently clamouring for reforms of certain clauses of labour laws (core labour law reforms) and of the labour governance system.  They demand labour flexibility in terms of freedom to hire contract labour without the fear of prohibition, retrench workers and close down undertakings without the compulsion of prior government endorsement and enjoy the freedom to introduce technological changes having loss of employment implications.  Further, they want a liberal labour inspection system and a rational and modern system of records compliance.  The employers may have a case here or there in these demands. 

But there are other compelling issues which hurt industrial relations governance at the plant level the cure of which would, along with the aforementioned demands – granting their economic rationale for a moment – enhance the competitiveness of the firms.  One of the core issues is the absence of provisions in the central trade union law providing for mechanism for determination of collective bargaining agent, resolution of intra-union disputes by labour judiciary and allied aspects such as unfair labour practices as they do in some state labour laws like in Maharashtra.  These measures would surely pre-empt and prevent the incidence of a significant share of the industrial conflicts and provide a basis for building sound industrial relations governance.  The labour flexibility and governance issues have disproportionately dominated the debates on the labour law reforms and this issue has not been mentioned in them.  

In the given legal context, the multiple unions fight for recognition by the employers and the inter-union rivalries vitiate the industrial relations at the workplace.  Even if an employer wishes to negotiate with the trade union, in a multiple trade union set-up with which union does he negotiate? What is the basis on which the bargaining agent status be granted as several methods such as membership verification, check-off and secret ballot compete for attention?  The trade unions are divided over the method of determination.  In the absence of a law on union recognition even a minority union could raise industrial disputes and affect industrial relations.  The intra-union disputes especially over the election of office-bearers are taken up for resolution in the civil court which as is well-known lead to excessive litigation.  Even if the employer enjoys labour flexibility, these issues would lead to worsening of the industrial relations governance and labour flexibility often becomes counterproductive. 

As archaic as any other labour law is the Trade Unions Act, 1926 and it is of limited use unlike most labour laws.  Cast in the colonial period and constructed along the lines of the then extant British law it merely provides for voluntary registration of trade unions, affords certain protections and regulates rather severely the internal affairs of the trade unions.  With a rather liberal eligibility condition of seven members for formation of a trade union and given the splintered nature of Indian society and polity, these fostered unbearable multiplicity of trade unions resulting even in intra-union splits.  It took exactly 75 years to cure this malady! In 2001, the law was amended to raise the eligibility conditions for formation of trade unions.  The protective clauses of the law were rendered technically superfluous once the Constitution of India assured the fundamental right of association.  

Despite the incidence of bloody industrial conflicts in Tamil Nadu (e.g. Simpson strike, the TVS strike) and the Bombay textile industry strike and despite the recommendations of several high profile commissions, the Central government has remained unshaken.  It has kept the central law as tepid as possible.  It blamed the trade unions for not coming to an agreement on the choice among the competing methods of determining the bargaining agent.  The dominance of INTUC and its political mentor, Congress’ long rule helped to sustain the stalemate.  

State level laws and voluntary code of discipline were considered sufficient to deal with this crucial issue!  Maharashtra led the show by enacting the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act [MRTU (PULP) Act] in 1971.  Several state governments like Madhya Pradesh, Rajasthan, Kerala, Bihar have either legislated rules or made regulations for determination of collective bargaining agent.  The long industrial conflict in MRF Company’s plant in Tamil Nadu in 2009 over the recognition of trade union further exposed the inadequacies in the central law on trade unions and revealed the imbalances in the legal structure on the same subject in the country.

The absence of a national legislation providing for determination of collective bargaining agent exposes the irrationality on the part of the central/state governments.  The governments and others persistently cite the need to provide labour flexibility to capital to precisely attract foreign productive investment into the country.  Labour flexibility is necessary to manage the labour market factors efficiently.  But workplace governance is even more important as cordial labour relations are essential for productivity and progress which can be ensured only by sound industrial relations governance.  The invite to [foreign] capital is inadequate as there is no law on union recognition.  The foreign firms complain that even if they desire to – an ambitious thought given the recent trends! – negotiate with trade unions they need to know with which trade union should they negotiate among the several that crowd the negotiating table.  As industrial conflicts thanks to these inadequacies play spoilsport, the government and others are unduly preoccupied with securing labour flexibility as if it is the only magic wand that would ensure competitiveness of a firm or the economy.  It is another matter that India unlike its neighbours in South Asia has not ratified the Fundamental ILO Conventions on freedom of association and the right to collective bargaining even after 65 years of their adoption. 

The dormancy on the part of employers and trade unions on this issue is striking.  Even if the employers did not make the demand for recognition law, the trade unions purely to make themselves attractive in these adverse times should demand legal mechanisms to set their distraught house(s) in order. 

The government, the employers and the trade unions need to apply their minds on this crucial even basic issue of union recognition before or along with effecting other reform measures to ensure efficient and equitable outcomes.

K.R. Shyam Sundar

XLRI

17 September 2014

krshyams@xlri.ac.in

Central Government – It’s time to Enter the Labour Reforms Boxing Zone!

K. R. Shyam Sundar

Professor, HRM Area, Xavier Business School, XLRI, Jamshedpur

krshyams@xlri.ac.in

The labour reforms agenda has been there ever since the economic reforms aimed at liberalizing the product market were initiated in a significant sense since 1991.  It has been argued that reforms of the labour market and the industrial relations system (IRS) would complement the product market reforms and ensure better realization of pay-offs arising out of the latter.  While there are host of labour reform measures, three critical labour reforms demanded by the employers comprise relief from labour inspection regime, freedom to retrench workers and closure of establishments without prior government permission and freedom to hire contract labour without fear of prohibition of it by the government.  There are two major pillars of the labour reforms argument.  One, if India did not initiate these labour reforms ease of doing business in India would be “perceived” to be “difficult” and foreign capital would go to other developing and emerging countries.  Two, absence of labour reforms and especially the exit-prohibiting rigid labour laws affect the growth of firms, especially the labour intensive ones and hence hurt employment creation as firms fragment or adopt capital intensive technologies; as a result, the “missing middle” in the Indian industrial structure epitomizing efficiency and welfare gains is proving to be costly.  

The United Progressive Alliance-1 (UPA-1) was a non-starter as far as labour reforms are concerned thanks to the presence of arm-twisting Left-parties and strong minor regional political parties in the coalition. The UPA-2 failed despite the freedom it enjoyed.  Thus, the election of Narandra Modi-led BJP government with a considerable majority in the Lok Sabha has strongly revived the hopes of delivery on the labour reforms front.  Thus, it is not a coincidence that the state governments of Rajasthan, Haryana, and Madhya Pradesh irrespective of political parties in governance have initiated labour reform proposals. 

The cabinet of the central government has approved amendments to the Apprentices Act, 1961, the Factories Act 1948 and the Labour Laws (Exemption from Furnishing Returns and Maintaining Registers by Certain Establishments) Act, 1988.  Predictably, the trade unions have voiced strong protest for the unilateral executive sanction to the labour laws ignoring the tripartite consultative forums that exist in the country.

There are reportedly 0.3 million apprentices which constitute around 10 percent of the organized sector employment and a poor 0.01 percent of the total workforce – the latter is not a correct measure as it includes the vast informal workers.  But the point is, in its quest for skill-building, the government needs to make amendments to the law and the schemes concerning apprentices to cover a significant share of the organized sector, to start with.  In that sense, liberalization of the apprentice law is welcome.  The good part of the Factories Act amendments relates to strengthening of workplace safety, by giving a broad definition of hazardous process, which, in the wake of rather frequent incidence of fatal industrial accidents, is a good news.  The penal clause of imprisonment of employers is a serious threat and should be used judiciously and legitimately in labour laws – it is certainly not required for laws like the Apprentices Act but necessary even essential in the case of legalities concerning workplace safety.  The removal of restrictions on night work of women subject to “adequate safeguards” is welcome, though the corporates must ensure strong and uncompromising governance for the safety of women.  The gender imbalance in the labour market opportunities is corrected with this, though partially.  The extension of exemptions from labour bureaucracy to the establishments employing between 10 and 40 workers (as opposed to the current 10-19 spectrum) is expected to contribute to the growth and higher productivity of small enterprises.  While employers in this segment surely require relief from the heavy labour bureaucracy, workers in this segment are as much vulnerable.  To win the trade unions’ consent, strong penal clauses for violations for and strict compliance with social security legislation by employers in this segment will be required. 

The point is that India watchers will be keen to see whether this central government is able to push through these reforms, irrespective of whether they are worker-friendly or employer-friendly.  The India watchers are tired of still-born labour reform baby bodies thus far.   

It is important to understand the policy-stalemate at the centre. The central governments, viz. the National Democratic Alliance (NDA) led by BJP or the UPA-1 or 2 led by Congress could not carry out the critical labour reform measures for two principal reasons.  The labour reform issues unlike the capital market reforms belong to “mass politics” and hence enjoy huge social visibility.  The opportunist politics played by the political parties, i.e. oppose the reform measures when not in power and the strident protests by workers’ organizations unnerve the ruling party at the centre from carrying out this reform measure.  The workers in the organized sector whom these affect are though small in number as compared to the unorganized sector workers are well organized (and has powerful Left presence) and can and in fact did inflict tremendous costs through agitations on the government.  The political costs of labour reforms outweigh the unsure economic benefits from the labour reforms. 

As a result, the labour reforms mantle was often passed on to the state governments.  The state-level labour reforms enjoy[ed] the advantage of muted and low-decibel protests by trade unions and the divisions in the political spectrum did not aid consolidation of opposition to labour reforms measures.  The regionalization of industrial relations governance has been an “escape route” for the willy-nilly central government thus far.

It is significant to note that the current labour reform measures do not include the critical reform measures mentioned earlier.  But the proposed labour reform measures constitute a “test case”.  The Modi-government is using these somewhat-neutral labour reforms measures to test the waters.   The political failures in the past may not haunt the current BJP government as it is early in the day. Further, it has unassailable majority in the Lok Sabha; it needs to battle only in the Rajya Sabha.   The divisions in Congress and the opportunistic regional political parties (who may wish to appear reform-friendly) offer hopes of slender majoritizing in the upper body.  It appears that the central government is in no mood to hold social dialogue on the current reform proposals.  It is surely not healthy to bypass the consultative forums, but the government appears to be keen to change the “India Doing Business” image.    

On the other hand, the critical labour reform measures involving amendments to the central labour laws have been lobbed by the state governments to the Federal power centre for nods from the President, which necessarily involve the executive cabinet’s involvement in them.  The central government may continue to use the federal politics channel to “wait” till the critical state elections (Maharashtra) are over.  While the industry leaders may be pleased if these reform processes are carried out successfully, they are waiting for the critical labour reform measures.  At any rate, the Modi government has surely entered into a “benevolent trap” of high-expectations-high performance.  Sooner or later, it has to enter the “critical labour reform boxing zone”!