THE report of the International Labour Organization, Employment and Social Outlook, Trends 2016 has underlined that: ‘Poor job quality remains a pressing issue worldwide. The incidence of vulnerable employment – the share of own-account work and contributing family employment, categories of work typically subject to high levels of precariousness – is declining more slowly than before the start of the global crisis. Vulnerable employment accounts for 1.5 billion people, or over 46 per cent of total employment. In both Southern Asia and sub-Saharan Africa, over 70 per cent of workers are in vulnerable employment’.¹

This brief essay provides an overview of the persistent vulnerability of labour in contemporary India. As is well known, even during the dirigiste era, overwhelming informality was among the most significant feature of the world of work and it was obviously connected with the overall trajectory of economic development since independence. The development strategy and economic policies pursued since the early 1990s appear to have put further pressure on an already fragile and precarious domain of labour, resulting in growing vulnerability and informalization.

This overview highlights some of the major structural factors and cojunctural forces that may be relevant in this context. Subsequently, a few core concerns relating to the current debates on policy reforms with particular focus on the new labour codes are flagged. In particular, the argument that ‘labour market rigidities’ are instrumental in hindering the growth of the Indian economy, and that the country cannot afford even the minimal social security for its workers, is examined. Needless to add that these arguments are central to understanding current assaults on the rights of a tiny segment of workers in the organized sector, as also on the unorganized sector in general; it is worth recalling here that the massive majority of workers in the latter happen to be the ‘labouring poor’.

The fact that there has been a considerable slowdown in employment generation in the global economy during the last three decades is well documented; in fact, this phase has often been described as a period of ‘jobless’ growth and in some parts of the world even as ‘jobloss’ growth. As per the estimates of the International Labour Organization (henceforth ILO), 2.4 million unemployed persons will be added to the global labour force in the next two years and India is projected to account for 17.6 million or nearly 60 per cent of all unemployed in South Asia by 2017.²

 

The persistence of this jobless growth has been influenced by several interrelated factors that characterize the current developmental trajectory in India. First, the country has been facing severe agrarian distress, in part because of changes in macroeconomic policies, for the larger part of the period since the early 1990s. This has adversely impacted the capacity of the agricultural sector to absorb labour in any meaningful sense, with not only landless workers but also marginal and small peasants being expelled from the countryside with little prospects of absorption in alternative options such as reasonable quality manufacturing or services employment. In fact, employment elasticity (i.e. quantum of employment per unit of growth) has tended to decline very significantly across almost all the sectors during the last three decades. It may be worth highlighting here that the quinquennium that experienced the fastest GDP growth, which was 2004-05 to 2009-10, was also the one in which there was negligible employment expansion!

Second, the period of economic reforms has not seen a growth in the share of the manufacturing sector in the overall national income and it has been stagnant around 15-16 per cent since the early 1990s. In terms of the share in the number of enterprises also, as per the data from all the major secondary sources (such as the Economic Census and the NSSO), the proportion of manufacturing has been stuck around 30 per cent of all incorporated and unincorporated enterprises. Further, over 85 per cent of all manufacturing enterprises work with either one or two workers, probably a good indicator of their vulnerability and fragility. In fact, almost all the recent (i.e. since the early 1990s) addition to employment has been in the so-called informal segments, both in urban and rural areas, and there has been a noticeable increase towards vulnerable self-employment.

As per the latest round of the NSSO (2011-12), 97 per cent of the self-employed in the rural and 98 per cent in the urban areas are in the informal sector; further, 78 per cent of the rural casual labourers and 81 per cent of the urban casual labourers are in the informal sector. The same data source also shows that 42 per cent of the regular wage/salaried employees in the rural areas and 40 per cent in urban areas are employed in the informal sector.³

 

Third, it is worth noting, a point highlighted by a large number of researchers, that although there has been some increase in the share of organized sector in the Indian economy during the last few years, a significant and rising proportion of workers in it (i.e. in the organized sector) are employed as contract and casual labour.⁴ In fact, the share of ‘informal’ workers in the ‘formal’ sector increased from about 30 per cent towards the end of 1990s to about 55 per cent as per the most recent estimates of the NSSO. In sum, an overwhelming majority of workers are in casual wage employment or in self-employment, and most of them are trapped in extremely insecure work and living conditions, characterizing informal employment. It is also important to emphasize that the prospects of upward mobility for most of them are severely limited.

 

Yet another significant attribute of the world of labour in India is its bewildering and complex segmentation along multiple axes such as caste, gender, region and so on. These segmentations are not only characterized by relative immobility of workers across various strata but also by a great deal of wage differentials as well as various kinds of discrimination in working conditions. For instance, the segmentation between men and women workers constitutes an important feature, both with respect to employment opportunities as well as earnings. In general, women appear to be hugely disadvantaged vis-a-vis men in India’s labour domain with respect to almost every indicator ranging from participation to remuneration. Although there has been some increase in employment of women in regular work in recent years, studies have shown that this growth is primarily taking place in community and personal services of which domestic work forms a considerable segment.⁵ Another important trend is an increase in home based work amongst women; as per the NSSO data, the percentage of women workers in home based work increased from 26 per cent to 30.4 between 1999 and 2012.⁶

Similarly, caste discrimination continues to be a major feature of the world of labour in India. Even though the work participation rates among the scheduled castes and tribes are possibly the highest among all social groups, this does not necessarily mean that they are reasonably placed with respect to fulfilment of even basic needs. The poverty head count for these sections is among the highest and this is a function of the type of employment and discrimination across different axes that they are subjected to. The overwhelming majority of socially marginalized groups cannot get beyond manual, ‘menial’ and shop floor work while most of the skilled, supervisory and managerial workers come from better off socioeconomic categories.⁷

 

It was pointed out almost a decade ago, in a report of the NCEUS⁸ headed by late Professor Arjun Sengupta, that more than 80 per cent of the country’s workers fall under the category of the ‘poor and vulnerable’ which meant that their daily per capita total consumption, at 2004-05 prices, was 20 rupees or less than that. There is no evidence from almost all the major secondary data sources (official or otherwise) even with respect to narrow economic (i.e. consumption or income metric) indicators, that there has been any significant improvement in the well-being of workers during the era of so-called economic reforms. One can hardly escape the conclusion that the plight of an overwhelming majority of the workers in the country is utterly insecure and fragile even with respect to elementary economic indicators. It may be worth noting here that the real wages of workers in the ‘organized’ sector in India, as per the different rounds of the NSSO, has almost been stagnant since the mid-1990s!

 

During the era of so-called economic reforms, official spokespersons have often argued that India’s labour market is too rigid (due to several restrictive laws) and hence not attractive for investors, whether from India or abroad. This supposedly is particularly critical for foreign investments, which are assumed to scout the world for relatively low cost destinations. It is frequently suggested by policy makers that India’s key comparative advantage is its ‘demographic dividend’ which, if upgraded through skill development, and supported by labour market flexibility, will help to attract investments and create jobs. For instance, the Economic Survey of 2005-06 (Government of India) stated that the existing labour laws restricted labour mobility, led to capital-intensive methods in the organized sector and thus adversely affected the economy’s long run demand for labour. It was also argued in the same survey that the states which had enacted more pro-worker regulations, lost out on industrial production in general, and their growth rates and generation of employment had suffered.

A careful examination of the above arguments, and there is a large scholarly literature on this theme, clearly demonstrate that there is little merit in supporting the claims of labour market rigidity, whether theoretically or empirically. For reasons of space, it is not possible to engage in a detailed discussion here, but it is amply clear from economic theory that labour market regulation per se does not impede either economic growth or employment generation; likewise, the empirical literature is quite clear that better protection for labour does not come in the way of decent macroeconomic outcomes.⁹ Given the fact that China and India, as the two fastest growing economies in the world for approximately the last 35 years (with China’s growth on an average being 40 per cent higher than India), have been the focus of contemporary discourse, we may note the following in passing.

 

In comparison to India, China has had much better ‘protection’ for labour in terms of laws and regulations, and the average wages have been almost two-to-three times higher than in India. Yet in terms of attracting foreign investment the gap between the two countries has been huge, with external investment flows in China, on an average, being three-to-four times higher than in India during the last couple of decades. China continues to be among the most promising destination for foreign capital, despite having one of the highest rates of growth of wages in the global economy. In any case, as should be evident from the earlier discussion, given the extremely small size of the organized sector in India, any claim of ‘labour market rigidity’ is highly exaggerated. Moreover, whatever protection this small segment of workers has, is being gradually dismantled.

The other issue worth flagging relates to the provisioning of a modicum of universal social security for workers in India. The advocates of labour market flexibility have implicitly or explicitly claimed that providing universal social security is an unviable proposition as the cost incurred on this count will in fact make India less competitive. Although such a claim is deeply flawed both theoretically and empirically, but even if taken at face value, the proposition is untenable as has been demonstrated by economists and scholars who have been trying to estimate the cost of universal social security.

For instance, it was suggested by the NCEUS (as per its projected model and package) that when all the informal workers are covered, the Union government contribution will be Rs 20,583 crore (including pension to below the poverty line workers and administrative expenses), and the contribution of state governments will be Rs 4,819 crore, by the end of financial year 2010-11.¹⁰ Overall, as per the projection of eight per cent GDP growth, this worked out to 0.48 per cent of GDP for the year 2010-11. Other estimates show that it is possible to raise these resources by improving the overall architecture of taxation in the country. The simple point is: meeting the needs of a basic level of universal social security is hardly expensive and does not in any way hurt the country’s global competitive potential.

 

Coming back to the issue of the changes in labour laws, the current government at the Centre has sounded very keen on a major overhaul. Regulatory provisions, among others the Minimum Wages Act, the Factories Act, the Industrial Disputes Act, and the Contract Labour Act have often been questioned both for their rationale and effectiveness; the major bone of contention relates to the issues of job security and the right to association of workers. It is proposed that the laws be restructured through the introduction of four labour codes of which two have already been prepared and put up for discussion. These are the Wage Code and the Industrial Relations Code.

 

Three principles lie behind the proposed reforms. First, the employers should have the freedom to hire contract labour and to dispense with labour services and shut down business in accordance with the market dynamics and not be restrained by administrative interventions. Second, the employers should not be constrained by collective institutions such as trade unions and that collective bargaining and industrial actions should operate in a manner conducive to competitive market economy. Third, state governments should be given freedom to pursue investments. The recent talk of ‘cooperative federalism’ and deregulation of labour markets is aimed at making it easier for the state governments to ‘attract investments’.

We may also note here that in November 2014, the central government secured parliamentary approval for Labour Laws (Exemption from Furnishing Returns and Maintaining of Registers by Certain Establishments) Amendment Bill, originally proposed by the previous government in 2011. This law grants state governments the authority to change the definition of ‘factory’ with no mandatory threshold criterion. It has also drafted a Small Factories (Regulation of Employment and Conditions of Services) Bill, which proposes that ‘small factories’ (employing up to 40 workers) or a group of small factories may be exempted from at least 14 basic laws, including the 1947 Factories Act, the 1948 Minimum Wages Act and the 1961 Maternity Benefit Act. Moreover, it has proposed to repeal many labour laws, such as the 1963 Personal Injuries (Compensation Insurance) Act.

Meanwhile, several state governments have already adopted far-reaching labour reforms. Notably, the Government of Rajasthan on 1 August 2014, amended the Industrial Disputes Act, Factories Act and Contract Labour (Regulation and Abolition) Act. These changes are ostensibly designed to replace the ‘complex’ regime of labour regulation by a simpler and technology-friendly system which includes reduction in the number of relevant forms from 16 to one; a portal for self-certification and online compliance of labour laws; and elimination of unannounced labour department checks and significantly narrowing the scope of such inspections.

 

It may be recalled that only a minuscule proportion of the total workforce, which is part of the organized sector, enjoys some protective coverage. Except for the Minimum Wages Act in some states and some sectors, informal sector activities, for all practical purposes, remain unaffected by the existence of the major labour laws which were enacted to address the relevant labour relations in the organized sector. Keeping such a backdrop in view, it seems difficult to make sense of the shrillness with which the absence of flexibility in India’s labour market is bemoaned. Add to that the well known problems relating to implementation of labour laws, partly because of extremely inadequate infrastructure for enforcement, the argument seems almost surreal. In fact, as we have argued in the foregoing, the problem with more than 90 per cent of India’s labour force is one of inadequate laws in the de jure sense and almost a picture of lawlessness in the de facto sense.

Thus, a huge challenge confronting policy makers in India is to design and implement a floor of labour rights, with a vision of a ‘national labour market’ in view. Such a vision should clearly spell out a set of core labour standards, including a national minimum wage. This ought to be on the front burner of the policy agenda so that the informality in labour market can be addressed. Further, the discourses on social security need to be located in the currently dominant trajectory of growth and accumulation.

The refusal of the contemporary Indian state to address the concerns of labour in the current context of the overall macro-economic policy regime is predicated on reaping advantages from a ‘cheap labour regime’. However, the rationale of such a stance is seriously questionable both on grounds of theory and global experiences. It is important to shift away from such a strategy and focus on a wage-led, employment-led developmental strategy which could facilitate the generation of decent work and ensure a greater viability of the small-scale unincorporated enterprises which constitute an overwhelming share of economic activities in the country.

For workers in informal employment, there is an urgent need to ensure universal social protection that improves their conditions of work and helps them live a life with dignity. In order to do this there has to be a simultaneous focus on both expanding and improving delivery systems in the provisioning of basic services like nutrition, sanitation, health and education. This will improve the material and social conditions of workers and help to reverse the processes that increase the vulnerability of a majority of the workforce. There is no reason to believe that the position of India in the world economy, with respect to basic macro-economic indicators, will be compromised on account of a set of core protective legislations for workers. We have enough scholarly research on what these provisions could be.

 

Footnotes:

1. World Employment Social Outlook, ILO, 2016, p. 1, http://www.ilo.org/wcmsp5/groups/public/–dgreports/–dcomm/–publ/documents/publication/wcms_443472.pdf

2. World Employment Social Outlook, ILO, 2016, http://www.ilo.org/wcmsp5/groups/public/–dgreports/–dcomm/–publ/documents/publication/wcms_443472.pdf

3. NSSO, Informal Sector and the Conditions of Employment in India (June 2011-July 2012). NSSO, July 2014, p. ii.

4. T.S. Papola and Partha Pratim Sahu, Growth and Structure of Employment in India: Long Term and Post Reform Performance and Emerging Challanges. ISID Working Paper, March 2012, pp. 3-4.

5. Indrani Mazumdar and Neetha N., Gender Dimension: Employment Trends in India 1993-94 to 2009-10. Occasional Paper no 56, Centre for Women’s Development Studies, 2011, p. 11.

6. Govindan Raveendran, Ratna M. Sudarshan and Joann Vanek, Home-Based Workers in India: Statistic and Trends. WIEGO and Homenet, December 2013.

7. Ashwini Deshpande, The Grammar of Caste: Economic Discrimination in Contemporary India. Oxford University Press, Delhi, 2011, and T.S. Popola, Social Exclusion and Discrimination in Labour Markets, ISID Working Paper 2012/04, ISID, September 2012.

8. Report on Conditions of Work and Promotion of Livelihoods in the Unorganized Sector, August 2007, NCEUS.

9. For a fuller discussion of the relevant literature on the theoretical and empirical considerations, see, Praveen Jha, Labour in Contempory India. Oxford University Press, Delhi, 2016.

10. Report on the Social Security for Unorganised Workers available at http://nceuis. nic.in/Social%20Security%20-%20 Cover%20and%20index.htm