A good crisis for exemption from labour laws: Miseries of Indian working class
States are providing industries exemptions from application of labour laws and extending the period of working hours. The apparent reason is that this will boost investment and employment. Is there any credible evidence to support this presumption particularly when the entire economy and working class in in dire straits? Or is this crisis being used as a pretext to implement a pre-designed agenda?
In the midst of the COVID-19 pandemic, a few state governments have announced exemption, for industries and business, from the operation of major labour laws for the coming three years. It seems a good crisis is an opportunity to fulfil an unfinished agenda. The apparent logic behind such exemptions is that this will boost investment and productivity, and improve economic activities. However, how exemption of labour laws is going to boost investment and economic activities is not explained anywhere, nor supported by objective studies.
The Uttar Pradesh government has approved an ordinance exempting businesses from almost all labour laws for the next three years in a bid to provide a boost to investment in the state in the wake of the coronavirus pandemic adversely affecting the economy all over the world. The ordinance will become law only after it receives the president’s assent.
“The horticultural and economical activities in the states have been severely affected and slowed down due to the outbreak of COVID-19. This is because businesses and economic activities came to a halt more or less due to the national lockdown,” a press statement issued by the state government said. The decision was taken in a meeting of the state cabinet, chaired by the Chief Minister on May 6, 2020.
The statement said that the government has cleared the ‘Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020’ to exempt all establishments, factories and businesses from the purview of all but four labour laws and one provision of another Act, for three years. Only the Building and Other Construction Workers Act, 1996; Workmen Compensation Act, 1923; Bonded Labour System (Abolition) Act, 1976; and Section 5 of the Payment of Wages Act, 1936 (the right to receive timely wages), will apply in the state, according to the statement. It also said the provisions related to children and women in the labour laws would continue. But those provisions were not specified. Such provisions are scattered across different labour laws.
Except those mentioned, other labour laws will become defunct. Those include laws related to minimum wage, settling industrial disputes, occupational safety, health and working conditions of workers, and those related to trade unions, contract workers, and migrant labourers. This will apply to both the existing businesses and the new factories being set up in the state.
‘The idea is that in the present circumstances where we need to provide employment to workers who have migrated back to the state and to protect the existing employment, some flexibility has to be given to business and industry,’ the Chief Secretary of Uttar Pradesh told the press.
The Madhya Pradesh Chief Minister announced on May 7, 2020, that the state government would exempt new manufacturing units from all but some provisions, in the Factories Act, 1948 for the next 1000 days (or over two-and-a-half years). The labour law changes in MP, which need the sanction of the central government, will allow more factories to operate without following safety and health norms and give a free hand to new companies to engage labourers without necessarily complying with the existing labour laws. The daily working hours have also been increased from eight hours to twelve hours. Further, new factories under the Factories Act, 1948, have been exempted from inspection and permitted the flexibility to conduct third party inspections at will. Some other states, including Rajasthan, Haryana, Himachal Pradesh and Punjab, have extended working hours in manufacturing units to twelve hours from eight hours (The UP government has later withdrawn the order, following a Public Interest Litigation (PIL) in the Allahabad high court that challenged it).
It is the worst possible time to announce such exemptions. The entire working class is undergoing an unprecedented crisis because of the nationwide lockdown. Economic activities have stopped, workers are losing jobs and facing starvation. A large number of migrant workers are forced to trek long distances back to their native places. The government’s directive to employers to pay wages and not to retrench workers during the period of lockdown is being observed more in the breach.
The issue of labour law amendment is not something new. It has been in the public domain for the last two decades. Labour is in the concurrent list. Therefore, such amendments take place at both the central and state levels. Broadly, such amendments are given the name of labour reforms. Not much, though, could be achieved at the centre. Tripartite consultation and social dialogue saved the day for the workers to some extent, but not much could be amended at the centre. Labour laws are being rationalized and all the laws are being categorized into four Codes. One such Code, namely, Code on Wages had already been passed in parliament and is now a piece of legislation. Three other Codes are in the pipeline and are being discussed at different levels. However, at the fundamental level, there has not been any significant change. What were earlier independent acts are now chapters in a broader categorization.
But many states did effect significant changes in the labour laws at their levels. Such states include Uttar Pradesh, Madhya Pradesh, Rajasthan, Gujarat, Haryana, Andhra Pradesh, and Telangana. West Bengal did not amend much, but relaxed provisions through administrative orders and through the implementation of an ‘ease of doing business’ module. Important provisions across labour legislations like threshold with regards to closure, lay-off, retrenchment, provision regarding strikes and lock-out, working hours, compounding of offences, and formation of trade unions were amended at the state level. Uttar Pradesh was the first state, way back in 2000, to put administrative restrictions on the conduct of the inspection. The Labour department needs to take prior approval from the district magistrate before an inspection is carried out. This violates the basic norms laid down in Convention 81 of the ILO, to which India is a signatory.
The present exemptions are given on the pretext that this would boost investment and employment. The underlying assumption is that labour laws are rigid and act as restrictive instruments. They prevent flexibility particularly with respect to the engagement of labour. It is alleged that the laws prevent the realization of economies of scale, as employers are forced to keep the size of their operations small to avoid the adverse implications of certain labour laws. Employers desire to have flexibility and determination of compensation (wages and salaries) based on market norms. The investment follows where labour is cheap and flexible. By providing exemption, states want to project themselves as cheap labour destinations. But such policies are very short-sighted. Investment is a function of many other things. Industrial infrastructure is very poor in these states. Only making labour cheap and flexible will not attract investment.
Actually, the Indian labour market is reasonably flexible. In spite of labour laws being in place, the Indian labour force has undergone a steady informalisation over the years. About 93 per cent of the labour force is in the unorganized sector. Protections provided under most of the labour laws do not extend to the vast majority of labourers. Labour laws basically offer protection to about seven per cent of labour in the organized sector. Informalization is an outcome of the effort of the employers to bypass the application of most of the labour laws. Thus the actual labour market is very flexible.
Further, there is no empirical evidence or objective study to show that protection under labour laws adversely affects industrial profitability or dampens economic activities. But a narrative has been constructed in the public domain that labour laws have been hindering industrial growth. This narrative has no objective basis. The fact remains that even though labour laws are there, they are very poorly implemented. In recent times the priority of the labour administration has been to provide social security to the vast number of unorganized sector workers. Implementation of labour laws has been relegated to the back. ‘Inspection raj’ is actually a misnomer. In fact, the entire inspection procedure is currently randomized through the use of technology. Routine inspections are not entertained and inspections happen only when there is a written complaint. Compliance is based on self-certification on the part of employers.
Given the nature of the Indian labour market which is characterized by a large excess supply of labour, strict implementation of labour laws is very difficult. Minimum wages are paid only in about fifty percent of the cases where it is applicable. The market plays an important role and labour laws at best provide some protection only to the organized sector. The organized sector is only a small part of the total diasporic labour. The ongoing corona pandemic has starkly demonstrated the vulnerability of the Indian labour force, particularly the workforce in the unorganized sector. Most of them are left to fend for themselves and the sudden announcement of lockdown aggravated the problem. The foreseeable future looks very bleak for them, as things may not return to normal in the short run. Employment is likely to take a significant blow. In fact, the labour market scenario was particularly bad in the pre-COVID period too.
Under such circumstances, exemption of labour laws would further worsen the plight of the workers. Basic minimum sustenance in the form of a minimum wage would be in jeopardy. Minimum wages would no longer be applicable, along with many other provisions. Collective bargaining, the right to compensation in cases of retrenchment and lay-off, the right to form trade unions, protection against unfair labour practices, would all become non-existent. These are not just labour rights, but basic human rights. These labour laws have linkages to rights enshrined in our Constitution. Also, certain labour laws are the outcome of international conventions which India has thought fit to adopt. The present exemptions are being provided in violation of the Right to Freedom of Association (ILO Convention 87), Right to Collective Bargaining (ILO Convention 98) and also the internationally accepted norm of an eight-hour working day espoused by core conventions of the ILO. India stands in danger in violating these conventions which she has agreed to and signed.
There is also the important need to reinforce safety provisions, more so after the Visakhapatnam gas plant tragedy of May 7, 2020. For instance, Madhya Pradesh’s amended law has done away with the need of even installing a fire extinguisher if an industrial unit employs less than 50 people. Further, in addition to removing some of the regulatory requirements, Madhya Pradesh will let companies hire contract workers for a longer duration, allow them not to recognise trade unions for collective bargaining in a number of sectors such as textiles, cement and auto, and not provide any mechanism for raising industrial disputes in new firms. Even if most of the labour laws don’t directly apply to the unorganized sector, removing or scrapping them hurts the sector in many ways, since labour market outcomes are inter-related and subject to a cascading effect.
The extension of working hours by six state governments from eight hours to twelve hours is detrimental to occupational health and safety and the welfare of the workers. It is tantamount to reducing three shifts to two shifts. This has actually already been happening for the last few years. Now, this crisis is being used to good effect to formalize this practice. This extension of working hours will further rob workers of any opportunities to earn overtime wages and even compromise their safety while at work.
The context of these exemptions is important because states are purportedly making these changes to attract business that would have otherwise gone to China or other states in India. These states are trying to promote themselves as cheap labour destinations where labour laws are not a hindrance anymore. Migrant workers are back at their native villages. They may not like to return to their previous workplaces in the immediate future. Under such circumstances, such exemptions reflect the aspiration of these states to set up sweatshops to produce stuff for everyday use.
Further, the timing of the exemption suggests that the state is making good use of a crisis to bring in something difficult to push in normal circumstances. The entire working class is in serious crisis. The number of migrant workers’ death is tailing COVID death figures. Continuous lockdown (presently in phase 3.0) is causing enormous harm to the economy. The relevant stakeholders are not in a position to stage meaningful protests. It seems a predetermined agenda which is being fulfilled amidst the present crisis. Workers needed hand-holding by the state at this juncture, but instead, basic minimum legislative protections are being withdrawn.
Further, there is a lack of appreciation on the part of the state that workers are not mere cogs in the production function. They are consumers too. Their large numbers also make them an important component of the aggregate demand segment. Their marginal propensity being very high, putting money in their hand makes good fiscal sense amid a pandemic crisis. But instead, even their basic rights are being curtailed. Labour laws are not inherently rigid; nor do they drive away investment. Rather, labour laws as a whole ensure an environment where labour productivity is being achieved at the optimal level. They create a level playing field between labour and capital by protecting the working class from being exploited. The current rash of exemptions defies that logic and may indirectly encourage exploitation of labour by capital. The only reason that comes to mind is that this crisis is being used as a pretext to carry out the pre-designed reform pending for the last two decades.
(*Dr. Kingshuk Sarkar is an independent researcher and works as a joint labour commissioner with the Government of West Bengal. He can be contacted at email@example.com)