The problem

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IT has long been argued that India’s labour laws are complex (on last count, the country had 44 central and upward of 150 state level laws governing labour), inhibit the growth of large-scale industry and encourage employers to minimize the number of permanent employees on their rolls. Further, they contribute to an avoidable rise in capital intensity in the choice of technology and thereby stunt organized sector employment. Little surprise that there has been consistent clamour from industry, the business press as also many economists to remove the many rigidities in the functioning of our labour market – increase flexibility in hiring and firing, lower the level of protection under multiple acts which ‘artificially’ raises the price of labour, and so on, in the process eroding the competitive advantage of Indian goods and services.

Much of this might appear intriguing, if not cruel, in a country where not more than ten per cent of the labour force comes under any regulatory frame, be it in manufacturing or services. An overwhelming proportion of Indian enterprises are small and medium, if not tiny. With over 90 per cent of all employment in the ‘informal/unorganized’ sector, enjoying no protective cover and receiving poor remuneration, demands for lower statutory protection and greater flexibility appear a tad unfair. Expectedly, trade unions and labour federations have continued to deride any demand for a rationalization of labour laws as anti-worker and anti-poor, designed only to subserve the needs of a rapacious capitalist class.

Ideological over-determination rarely permits meaningful debate and careful consideration of alternatives. The need, thus, is to move beyond generalities to an examination of the actual conditions of labour and employment and which set of laws and numerous provisions that we have on our statute books are needed or should be jettisoned and how they might be altered. To, however, initiate a constructive process, the first requirement is to minimize, if not eliminate, the distrust between workers and entrepreneurs. Difficult, both because of the differences in relative power between the two sides and the less than salutary, if not biased, functioning of our labour dispute mechanisms that arguably seem to favour employers. Nevertheless, unless both sides are willing to recognize that the current arrangements are detrimental to both, we are unlikely to witness any movement towards meaningful reform.

At the heart of the contestation over labour law reform lie the Factories Act and the Industrial Disputes Act, both suffused with innumerable thresholds and boundary lines demarcating worker from worker and factory from factory, the classification deciding what rules apply to whom. Since the number of conditionalities to be satisfied increase as the numbers employed cross a specified threshold, escalating not just direct costs but time and effort involved in meeting procedural requirements, the net effect, it is claimed, is to keep enterprise size low, depress formal employment, increase reliance on contract labour and so on. In addition to keeping labour informal and underpaid, such a process also mitigates against efficiency improvement through increasing returns to scale.

Despite the seeming obviousness of this argument, why is it that those individuals and organizations ostensibly committed to the welfare of labour remain so deeply hostile to any talk of labour law reform. In part it is because extant laws, no matter how limited, represent the partial success of decades of difficult struggle. There is also the ‘vested’ interest of representatives fearful of any change in their relative status and power. But equally, if not more, it is because governments at both the Centre and in states often blatantly favour industrialists, not usually industry, thereby enabling them to continue flouting rules and regulations that they see as burdensome. Many of the changes in laws and rules, introduced or proposed, remain piecemeal with likely discriminatory impact on labour welfare.

For instance, it is often claimed that introduction of greater flexibility to hire and fire will increase formal employment and encourage a scaling up of production processes. This still remains to be proven. While cumbersome laws and regulations likely depress the desire to add to formal employment or add to factory size, the factors governing an upgradation of technology and increased hiring of permanent labour are influenced by conditions that go far beyond labour regulations. Without addressing other factors promoting industrialization, or bringing in higher levels of social security for working people, it is as likely that proposed changes will further erode the bargaining power of an already weak and embattled organized sector working class. Creating a new social contract demands honesty and a commonality of purpose on all sides – industry, labour and the government. And none of the three has really covered itself with credit.

Many of the laws were drafted under conditions very different from what obtains now. They may, or may not, have served a purpose then. But now, under different market conditions, new technologies, new products and services many of which are produced, traded, and consumed differently, it may well be that they have become counterproductive. Alongside, the actual drafting of laws, we also need a closer look at how the laws are implemented, i.e., the working of labour courts and tribunals. Finally, there is a need to examine the framework governing the organization of labour. Do trade unions contribute to the growing divide between categories of workers, thereby resulting in the creation of a small labour aristocracy? Are the dispute resolution mechanisms efficient and fair?

The half-hearted economic reforms initiated in the early nineties sidestepped the seemingly politically difficult questions relating to labour reform fearing electoral backlash. Today, however, with a single party majority government at the Centre, whose charter explicitly endorsed labour law reforms, it is reasonable to hope for some worthwhile action on this front. And while we are witnessing some moves, initiated primarily at the state government level, the larger politics of both the object and process still remains shrouded in uncertainty. Equally important as a decoding of the politics is the need to evolve greater clarity on both the implications and experience of specific interventions, in the country and elsewhere, so that the public debate does not, once again, get mired in ideological strait-jackets. This issue of Seminar is a small attempt in this direction.