dna edit: It’s complicated

Since India liberalised its economy in 1992, there has been increasing talk of reforming the antiquated labour laws. But the move to restructure these laws ran into severe opposition from the Left parties which were in a position (between 1992-2009) to stall such reform. Despite pressures from the Indian industry, labour law reforms were put on the backburner — mostly because of political compulsions. 

This stalemate however could now break following the paradigm shift in numbers at the Centre and further strengthening of BJP governments in states. Last week, the BJP-led Rajasthan government gave the go-ahead for the amendment of three Central labour laws, which once they are passed in the state assembly, will need to be ratified by the President. Out of a total of 45 Central laws, the three laws that are now under consideration are the Industrial Disputes Act, 1947, the Contract Labour Act, 1970, and the Factories Act, 1948.

The debate over labour laws has been a fractious one with the Indian trade unions of the Left and the Right arguing that an easy hire and fire policy — a critical aspect of labour law reform — would further hit the already squeezed workers in the expanding informal sector. Significantly, its the unorganised sector which employs over 90 per cent workers. However easy retrenchments are but one aspect of labour law reform. The need for amending the outdated labour laws, getting rid off red tape, redrafting guidelines for unions, surely can’t be dismissed. At the same time the ambit of labour laws has to be expanded and strengthened to ensure health and safety of workers — particularly in the unorganised sector.

In this context its important to note that India has not yet succeeded in achieving the kind of labour-intensive manufacturing jobs that have transfigured the economies of China and Vietnam. In contrast, India has mostly performed well in skill- and capital-intensive sectors. The question of job security tied to labour law reform at a time when the job-generating manufacturing sector continues to be sluggish is bound to raise valid concern. There is bound to be renewed apprehension about an accelerated pace of retrenchment. Recall that notwithstanding ‘stringent’ job protection laws in the present Industrial Disputes Act, contract labour has emerged as one of the principal methods used by employers to gain flexibility in the labour market. Contract workers are liberally employed in jobs that are regular, perennial and permanent in nature, in contravention of the law prohibiting employment of contract in these tasks. 

One of the ways of easing the tortuous process of labour restructuring could be by putting together an attractive package deal. The economist Pranab Bardhan argues that if more flexibility is to be allowed in hiring and sacking, it must be combined with a well thought out scheme of unemployment compensation or adjustment assistance. The money can be drawn from an earmarked fund contributed to by both employers and employees. Much is made of China’s flexible labour market despite the hukou restrictions on migration. Yet the Chinese government — until the late 1990s — curtailed the sacking of workers.

The policy that was later overturned with large-scale layoffs from state firms. Even though nearly half of the retrenched older workers could access public subsidies for three years followed by other unemployment and social benefits. Besides, since January 2008 a new labour law in China has partially secured the tenure of longtime workers.

Any recasting of labour laws must have the interests of workers and not simply business at its heart.