What changes in labour laws and its likely Impact

Image Source: Aftab Shah from Pixabay 

Amidst the crisis of the global pandemic COVID-19, several states like UP, MP, Gujarat, Odisha and Rajasthan have promulgated an ordinance in their respective state to offer relaxations in labour laws. Especially, BJP ruled states-UP, MP and Gujarat- have kept in abeyance almost all the labour laws to attract foreign investment for close to 3 years; for an instance, UP government has suspended all labour laws, except three, which include abolishment of bonded labour, ex gratia to workers in case of work-related diseases and disabilities, and timely wage payments. Some states have allowed to push working hours from 8 to 12, amounting 72 hours a week.

Why were Reforms brought in?

As labour laws fall in the Concurrent List of the constitution, the states have reformed the labour laws to give a new breath to the industries shut down because of COVID-19-induced lockdown and attract businesses contemplating to move their base out of China. Japan has also decided to extend help with huge economic stimulus to their indigenous firm based in China if the firm wishes to shift their business. With industries being shut for around two months now, the unemployment rate witnessing a record jump, reaching 27% in the first week of May as per CMIE’s data, the states considered the reforms to be necessary to kick start the economic activities by giving new industries-UP has even suspended the provisions for even existing industries- more operational freedom.

How do Current Laws serve as Impediment?

Indian labour laws have been termed ‘outdated’ and hard-to-follow. The legal framework for the firms employing more than 100 workers, put in place for employers to hire new workers makes it an arduous task as -in addition to other legal requirements- they need government approval to fire them, leading firms to mostly adopt informal hiring. Even the organised sector is increasingly hiring workers without formal contract. According to Periodic Labour Survey,2017-18, the organised sector hired 36.1 million workers without any contract-compared to 28 million formally- in 2017 -, while this count was 13.1 and 24.4 million in 2004 and 2011 respectively.

Workers without Formal Contract in Organised Sector
Image Source : India Today

These laws entail too cumbersome license norms for firms to comply with. Rituparna Chakraborty, who is the founder trustee of Indian Staffing Federation, which helps firms in hiring contract workers, while outlining difficulties associated with obtaining a license for hiring contract workers through manpower agencies, revealed that such companies needed different licenses in all states and for all firms, and even harder was the process. Every time the headcount changed, contractors needed to apply for updating their licence because the fee varied and that was no less than taking a fresh licence, he further added.   

Employers, especially of small and medium firms are often made aware of their failure to comply with one provision or the other under Indian labour laws due to a chunk of legal requirements during various inspections, often leading to corruption and bribes extraction, making their life harder, which, in turn also affects workers employed in the firm.

What will be gained?

These reforms are highly expected, in view of the COVID-19-induced shutdown of manufacturing firms across the country, to ease resumption of industrial work and set up of new firms, attempting to resuscitate economy. These efforts have been made to attract foreign businesses, especially from China. Our biggest competitors are countries like Vietnam and Bangladesh, especially the former, since they already made bold reforms. Like it or not, the competition, to a great extent, is on low wages. The labour cost in Bangladesh and Vietnam is cheaper than other countries, and their laws are industry-friendly. The UP government has promulgated an ordinance to exempt employers the provisions under the Minimum Wages Act, 1948 along with more than 30 laws including the laws related to maternity benefits, the Factory Act, 1948; and the Trade Union Act, 1926. The MP government has relaxed licences norms for contract workers through a notification, released on May 5, to simplify the complex procedure.  In the same way, several states have proposed ordinances, and made many changes through notifications, from the purview of most labour laws to ease norms related to businesses. Attempts were also made at the Central last year to bring about changes in the labour laws, however, they are still in progress. In a bid to improve “ease of doing business” index by taking business-friendly measures, India’s rank went up to 63 in 2019 from 130 in 2016.

Why are reforms being criticised?

The reforms to be brought by several states have also attracted severe criticism on account of ordinances proposing the suspensions of even the laws protecting the welfare of labours.   The ordinance released by the Uttar Pradesh government exempts employers to comply with the provisions under the Factories Act, 1948, which ensures safety and encourages health of workers on factory premises; the Minimum Wages Act,1948; the Industrial Dispute Act,1947, which will free employers to hire and fire workers; and laws related to maternity benefits. The states have also made many changes by releasing notifications on a timely basis since the first lockdown was imposed on March 25.

 Increasing working hours from 8 to 12 by some states will cause dissatisfaction, disappointment and health issues among workers. It has also been argued how pushing working hours will help in employment generation.

As the Trade Union Act,1926, has also been proposed to be suspended in the ordinances of some states, if passes, it will shift the center of power more towards employers; this act empowers unions to compel management to meet their appropriate demands, which will not be the case if the ordinance is passed.

The long-awaited reforms will give industries a freer hand to operate. Only around 10% of the total employed works in the formal sector, therefore, the existing labour law provisions fail to transfer benefits to 90% of those employed in the informal sector. Even the formal sector hires a large number of its workforce informally- without formal contracts- to avoid dealing with complex laws. While the states try to woo investors through the labour reforms, they must also keep in mind the labour laws have never been the main hurdle for businesses. It is the responsibility of a state to protect the dignity of the vulnerable. Had these states laid more emphasis on what they could possibly do, apart from suspending even some of the basic rights of labour workers, which came after years of struggle,  on their part, It would have certainly led to do a better job; these reforms, though necessary, will only pay off when more skilful and efficient workers are prepared through various state-run programmes and workshops. The efficient and timely response to the COVID-19 pandemic by states and the Center will also decide how much we actually grab out of our efforts to revive the economy.