Seemingly competitive initiatives by some states to ease labour laws in the name of Covid compulsions have injected mistrust into a sensitive subject that requires the involvement of all stakeholders.
Uttar Pradesh has said it will issue an ordinance freezing for three years the enforcement of central labour laws on wage hikes, working hours and worker welfare to attract investments.
Madhya Pradesh has issued an ordinance to amend two state labour laws, giving more flexibility to investors but also drawing charges that it will make firings easier for smaller employers. Most restrictions are being waived for the first 1,000 days for new ventures.
Gujarat said on Friday that new industries that are set up will not be bound by labour laws for 1,200 days.
The states have cited two reasons: encouraging businesses to kick-start activities after the long lockdown and attracting foreign investors who may be looking for options outside China.
The stated objectives are laudable. But the timing of the drive by the states — all three are BJP-ruled but some run by other parties are not averse to easing the related laws, either — has created an impression that the virus outbreak is being used to push through thorny decisions.
Such mistrust has already the vitiated the atmosphere. Eight political parties, mostly from the Left, wrote to President Ram Nath Kovind on Friday registering their protest at the dilution of the labour laws.
Industry, which has been demanding flexibility in labour laws for a long time, feels it’s a question of survival for all.
“I do not see this as a debate, whether pro-industry or pro-labour. This is a situation where business units need to survive because economic activity needs to grow; for which some changes in norms and regulations may be necessary over a specified time-frame,” said Niranjan Hiranandani, president of the Associated Chambers of Commerce and Industry of India (Assocham).
“We need to take a holistic view rather than slot this into a debate of labour versus business. Ideally, more work opportunities will come up as a result of these changes in norms and regulations. That will definitely benefit all stakeholders, including labour, business units and the Indian economy.”
At a webinar held by Union labour minister Santosh Gangwar on Friday, business chambers like CII, Ficci and Assocham echoed the states and suggested a suspension of labour laws for the next two to three years -- except for provisions like minimum wages, bonus and statutory dues --- to help industry come out of the present crisis, a government release said.
The chambers also suggested increasing working hours to 12 a day, the release said.
Gujarat, Rajasthan, Punjab, Haryana and Himachal Pradesh have used powers granted under the Factories Act to increase the daily working hours from 8 to 12, citing the compulsions of reviving virus-stalled economies with truncated workforces.
Industry stand
Industry has been advancing the argument that many firms choose to stay small in India because they do not want to cross critical thresholds that would then force them to comply with what they describe as “overly protective labour laws”.
In its pre-budget memorandum to the Modi government ahead of this year’s budget, the CII had said that the labour laws in the country “discourage hiring and encourage substitution of labour with capital (automation)”.
Industry has consistently argued that there should be flexibility in labour laws -- a euphemism for hire-and-fire policies -- in order to encourage the creation of jobs in the formal sector.
It has suggested that the government create an empowered committee of state ministers and relevant central ministers to build a consensus on labour laws in consultation with industry.
Industry has buttressed its argument with statistics drawn from the Economic Survey for 2018 to show how badly job creation in India is skewed.
Small firms (those employing less than 100 workers) constitute 85 per cent of the manufacturing units in the country but account for only 23 per cent of employment in the organised sector, the data revealed.
The larger firms (100 or more employees) account for only 15 per cent of the manufacturing firms but provide jobs to 77 per cent of the workers in the organised manufacturing sector.
In his first term, Prime Minister Narendra Modi was forced to abandon a labour reform bill after facing severe resistance from Opposition-ruled states.
The Centre has renewed efforts to amend the rigid labour laws in Modi’s second term. It has already drawn up plans to bring 44 federal labour laws under four codes.
States like BJP-ruled Madhya Pradesh are now pushing for labour law amendments that will permit new establishments to seek exemption from many provisions of the Industrial Disputes Act for the first 1,000 days.
The proposed amendment to the Madhya Pradesh Industrial Employment (Permanent Order) Act, 1961 will exempt factories employing up to 100 workers from the provisions of the act and enjoins workers to “faithfully cooperate with production”.
In 2014, Rajasthan amended its labour laws making it easier for companies to hire and dismiss workers and tightened the rules for registering trade unions. Ever since, the states have been under pressure from industry to adopt the Rajasthan legislation, and risk losing out on investments if they don’t.
CII director-general Chandrajit Banerjee said: “The labour law changes initiated in UP and MP are both steps that will give huge flexibility to industry in their labour practices. Coming at such disruptive times, when livelihoods have come under pressure and multitudes of people have had to move away from their workplaces, these new policy interventions will come as a huge relief to economic activity. There is a need to re-skill and map the workers who have been displaced and re-employ them as per the needs of the industry.”
The dissent
Not everyone is, however, effusive about the changes.
K.R. ShyamSundar, labour economist and professor at the Jamshedpur-based XLRI, said: “The sweeping exemptions offered by the UP government and the rather detailed, but not sweeping, changes made by MP and now Gujarat pose considerable cause for concern as these spell labour market anarchy. These labour changes are based on three key principles: that labour laws are not needed in society, which means no role for the State in the labour market; that workers should rely solely on the goodwill of the employer; and that the labour rigidities are the principal irritants that halt investment and hence economic growth.”
He said the changes effected in these states may impel other states to undertake amendments that are even worse in order to compete for capital.
‘Chakravyuh’
This time, states like Madhya Pradesh have shown an interest in foreign investors at a time some American companies have started to shift production out of China.
Vietnam, Indonesia, Thailand and Malaysia are strong contenders for the new production facilities that the US companies will be looking to shift -– and are not trammelled by tough labour laws, a weak contract enforcement regime and what former chief economic adviser Arvind Subramanian labelled as the “chakravyuh” challenge in India that allows foreign firms to come in but doesn’t make it easy for them to move out.
A labour economist challenged the Uttar Pradesh government’s reasoning that the eased rules can attract investments, quoting a World Bank survey to contend that worker-friendly labour laws were not as big a barrier to industrial growth as shortcomings of electricity, infrastructure or logistics.
Labour economist Santosh Mehrotra, chairperson of the Centre of Informal Sector and Labour Studies at JNU, said: “About eight years ago, the World Bank had conducted a survey to find out from employers in South Asia what they considered the most important barriers to industrial growth.
“They mentioned electricity, infrastructure, logistics --- the labour laws came after these barriers. It means they (employers) have adjusted to the labour laws in India.”
Mehrotra added that the findings were particularly true for “Hindi-belt states like Uttar Pradesh, Madhya Pradesh and Bihar, where agriculture is the main source of employment”.
The lack of infrastructure and development in these states is their main hurdle to attracting investment, he said.
“This not to say the labour laws are not a problem at all, but they are not the major problem. In any case, the Centre is bringing in four (industry-friendly labour) codes,” Mehrotra said.
The Uttar Pradesh release did not say which central laws would be waived. Some labour economists and bureaucrats said that while the states could modify central laws or rules, they could not dilute their spirit.
Asked about the legality of the proposed ordinance, former labour welfare commissioner G.P. Bhatia said: “We have to see the exact language of the ordinance as well as (whether there are) compelling reasons (for it).”
He said “any exemption has to be consistent with the objective of the act” --- it has to further it, not dilute it.
Anoop Satpathy, a fellow at the V.V. Giri National Labour Research Institute, explained the implications of the proposed ordinance in Uttar Pradesh. “There will be a reduction in labour standards leading to a reduction in labour cost for production, the objective being to attract investment to the state,” he said.
“The wage rate will be kept frozen for three years. The working hours will be increased. The workers’ health and safety, and other working conditions, will not receive attention.”
Madhya Pradesh does not face questions of legality since its ordinance has merely amended state laws.
