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”!