Reform? Not really: The complete picture on the labour law changes by states
For a society with herd immunity against questions of inequality, it can be difficult to understand the hullabaloo around the states promulgating ordinances to suspend many labour laws in favour of ‘flexibility’. The opinion is divided to say the least. One set of commentators argue that our existing labour laws are the reason behind casualisation of labour and the main factor behind why our enterprises have remained small in size and scale. The other set thinks that the states are using the pandemic to amass arbitrary powers, strip the labourer of their rights in favour of further empowering the companies. Here’s the full picture.
At exactly 2 minutes and 8 seconds into his monologue, Prime Minister Narendra Modi in his latest 8 PM address shared how the coronavirus crisis is something that we’ve not seen or heard of before. Though there is historical evidence to prove that there have been pandemics in the past and that too of the global scale, some features of this ongoing pandemic do make it stand out.
One of them is how some governments across the world have used the extraordinary circumstances to bring about substantial changes, which, in absence of a lockdown would have been very contentious and cumbersome to bring.
One such instance is how many states in India are promulgating ordinances to suspend key labour laws for a limited period of time. At the time of writing, Uttar Pradesh has brought an ordinance to suspend almost all labour laws for the next three years. Madhya Pradesh government first brought some startling labour law exemptions to new investors for the next 1,000 days; then through a simple executive order it suspended all labour laws except for the Building and Other Construction Workers Act, Bonded Labour System (Abolition) Act, and Section 5 of the Payment of Wages Act (which gives workers the right to receive timely wages) for all firms.
Gujarat soon followed suit and granted similar labour law exemptions for 1,200 days.
Himachal Pradesh, Punjab, Maharashtra, Odisha, Assam, Goa and Rajasthan are also promulgating executive orders to dilute the Factories Act, 1948, to allow increase in working hours from the existing eight hours to a new 12-hour shift, among others.
The proposed ordinance titled, “Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance” exempted all establishments, factories, and businesses from the purview of all but four labour laws for three years - to give a fillip to investment in the state affected by COVID-19 and lockdown.
The main argument in favour of suspension of these laws have been that if labour laws are eased, it would incentivise economic activity and firms would be more interested in investment.
The crux of that argument lies in the apparent “inflexibility” of the existing labour laws.
Amitabh Kant, the CEO of government think tank NITI Aayog, said “India has so far had the most inflexible labour market regulations, which hindered large scale investments, productivity and enhancement, technology absorption and high employment growth in Indian manufacturing.”
He holds the “red tapism, inspector raj and all that is antiquated in our labour laws” to be the main reason why our industries remain small in size and scale, and why 90% of India’s labour force is “informal”.
Pratap Bhanu Mehta, columnist, former vice-chancellor of Ashoka University and president, Centre Policy Research, partly agrees with Kant.
He said, “Indian labour laws had the unique distinction of representing the state’s war on both capital and labour. They were irrelevant to 90 per cent of India’s labour force. At best, and very rarely, they protected a small section of it. They created enough distortions to prevent greater formal protections for the labour force.”
He believes that the “excessively complex” labour laws did not increase Indian labour’s bargaining power, but can unfairly hurt businesses at the same time.
In fact, most commentators across the spectrum agree that our “archaic” labour laws need amendment and reform to suit the 21st century climate. However a part of them opine that empowering the management while curbing the rights of labour is perhaps not the way to do that.
This is what KR Shyam Sundar, labour economist and professor at XLRI, Jamshedpur, calls the marker of a neo-liberal regime. “In a neo-liberal economic regime the balance of power tilts largely towards capital,” he said.
Shyam Sundar is also someone who doesn’t buy the “archaic” argument. “What is archaic? You have to look whether the labour laws have substantive and procedural provisions that could be applicable to this time or not. The archaic-ness of the laws is a pretext for employers to demand these changes (what the states are promulgating) but the basic fact is that, while labour market reforms may be necessary in the context of globalisation to shed some of the dead weight, but to blame labour laws as a primary factor responsible for restricting the expansion of firms from small to medium and large and to say it deters foreign investors to establish shops in India is to take the argument in an extreme radical direction,” the labour economist said.
Watch the full conversation with labour economist KR Shyam Sundar:
Another argument in favour of these supposed “reforms” has been that economic activity is hampered by the pandemic and governments across the country need to give greater flexibility to businesses and industries to provide employment to returning migrants, among others.
Will suspension of labour laws create more formal employment?
Nitin Pai, the director of the Takshashila Institution, said that a more relaxed labour environment will lead to greater investment, which will cause more people to be employed, and also increase the numbers in “formal” employment.
Shyam Sundar completely disagrees with him. He is of the opinion that liberalisation of labour laws will create more informality because standard jobs with job security, skill security, income security or possibly social security may not be available anymore as in the neo liberal economic environment employers are employing cheaper labour cost strategy - leading to more informal employment.
“It will be informalising formality rather than formalising informality which is the agenda of International Labour Organisation (ILO),” he said.
CP Chandrasekhar, noted economist and professor at the Centre for Economic Studies and Planning of JNU, agrees with Shyam Sundar.
He looks at these changes promulgated by the states as their way to provide subsidy at the expense of the workers to fatten the profits of some set of investors. He doesn’t think that changing or diluting the labour laws will bring Foreign Direct Investment (FDI).
V. Anantha Nageswaran, the Dean of the IFMR Graduate School of Business (Krea University), also seemed unsure if the changes in laws will immediately lead to employment generation. Though, he said, “but its (existing provisions) existence would surely retard job creation.”
Sundar points towards another factor which heavily influences job creation - skill. “Employment generation will not depend on the Labour cost but on skilled workers. Gujarat, Maharashtra and Tamil Nadu have fared well and states like Telangana and Andhra Pradesh have caught up with the race mainly because they pushed for a skilled workforce.”
The problem with the “changes”
The suspension of key labour laws proposed by the states comes at a time of acute economic distress and labour insecurity. The pandemic and the lockdown has exposed the lack of safety nets and the limited access of workers to healthcare.
Pratap Bhanu Mehta calls these changes a whole-scale assault on labour - by increasing working hours, taking away rights to grievance redressal and stripping labour of its bargaining power completely.
Lawyer and constitutional expert Gautam Bhatia brought the topic of our right against forced labour, guaranteed by Article 23 of the Constitution. He wondered whether these changes in laws will compel the already-hit labourers into forced labour. He talked about “compulsion that is exerted by serious and enduring differences of power, compulsion that may not take a physical form, but instead, have a social or economic character that is nonetheless as severe.”
AK Padmanabhan, former president of CITU, looks at these changes as arbitrary amassment of power using the pandemic. “It is not only arbitrariness , it is denying the workers their minimum rights and that has been never given to them by anyone - neither the Britishers, nor the independent governments of the last 73 years. But now they are using this opportunity to take away workers’ rights. That too at a time when the workers cannot take to the streets and demand their rights.” he said.
Listen to the full conversation with former CITU president AK Padmanabhan here:
Shyam Sundar in agreement, said, "one of the reasons the States are using the COVID context to drive down extensive labour changes is that thanks to lockdown, labour mobilisation, trade union mobilisation has considerably weakened. There is no social dialogue, which is in violation of ILO convention c144 which requires the union and state governments to consult trade unions and other bodies before any policy changes - be it economic or labour or industrial relations. Today it is being done unilaterally. Trade unions are not being given enough audience.”
Gautam Mody of New Trade Union Initiative thinks that the states are blindly and unambiguously favouring capital over labour. They have received representation from the chambers of commerce but they haven't even turned their ears to labour. “And that is happening when hundreds and millions of workers in this country are in misery, in destitution,” he added.
Are labour laws deterrent to industrial growth?
Labour productivity has dipped significantly in the last eight years. Labour productivity fell to 2.6% and 2.9% in FY17 and FY18 respectively compared to high growth phase of FY04-FY08 when it grew 14.2%
“Find me one company in the country that can actually prove that they weren't able to make money because of the labour laws,” asked Mody. He said, “what industries need is a stable and skilled workforce and for that industries need to invest in workers - in its employees and it needs to pay decent wages with social security and that's really the only way forward.”
Listen to the full conversation with Gautam Mody here:
Shyam Sundar said it is not proved beyond point that labour regulations are deterrents to investment and industrial growth.
“The manufacturing sector accounts for only 35-40% of the FDI inflows. That shows that the potential of generating jobs by amending Labour laws that apply to manufacturing sectors is not going to make significant difference in the employment generation or attract capital in India,” Shyam Sundar opined.
Pai on the other hand believes that without labour “reform” India can’t progress and “mass manufacturing, along with infrastructure industries, is pretty much how every other big country solved its employment problem.”
CP Chandrasekhar, who refuses to call these proposed changes as “reform”, points out that a narrative has been built that India’s inability to attract companies leaving China has largely to do with labour.
“As far as I can see this is just an excuse, it comes from an inability to formulate a strategy which can allow India to make a transition from agriculture into manufacturing and services. If you look at the share of manufacturing in the GDP of India, it never went beyond 16-18,%. Whereas if you look at the share of manufacturing in countries in southeast Asia it goes beyond 30-35%. In China it was about 39%. These countries made the industrial transition. Here is a country which has a long history of industrialisation. The first Factory in India was set up in 1884 so rather than looking to find a way of doing it you're actually trying to blame a set of laws that applies to 6 to 7 per cent of the labour force in this country. This is sort of a baseless argument,” Chandrasekhar said.
Watch the full conversation with Economist CP Chandrasekhar here:
The constitutional question
Gautam Bhatia said that the steps being taken by various State governments, ostensibly under cover of the COVID-19 pandemic, are "grossly unconstitutional."
He talked about how this legal structure was created to ensure that capital and labour do not face each other as equals across a mythical bargaining table.
“There is a structural inequality that enables the former, going back to B.R. Ambedkar’s language, to “make the rules” for the latter. This amounts to a form of “private government”, a situation in which there exists democracy in the political sphere, but unilateral term-setting in the context of the workplace,” Bhatia explained.
Labour is a concurrent subject and the significant laws are central laws. Constitutional experts have questioned how they cannot be done away with through state ordinances.
There is a serious question of propriety and legality in using the ordinance route to suspend central laws. And repealing many of the provisions will put India in contravention of ILO conventions.
Ordinances promulgated by the executive can take place when the urgency of the situation so demands. Even then must be laid before the Legislative Assembly of the state or when there is a Legislative Council in the state, before both the Houses when they reassemble.
Ordinance is an exception not rule. As was clarified by BR Ambedkar during the Constituent Assembly Debates (Vol. 8 pages 208, 214,215) that it is not a parallel power of legislation and would have a very limited scope conferred only to deal with urgent matters when the Legislature was not in session.
And all this comes when the Modi government was in the middle of codifying the existing laws into four labour codes in a bid to modernise.
Labour suffers in this battle of ideologies
Chandrasekhar said that because of how the already slowing down economy has been hit by the pandemic, different sections have built up huge resentments as they've been hit adversely. “In cases of some sections you (governments) don’t care. Like when it comes to labourers or migrant workers and so on. But possibly this is a government which cares when sections of big businesses begin to express their disappointment with the fact that not enough is being done to bring the economy back.”
He hints towards the government bowing down to the demands of the big businesses the changes are their way of offering “concessions” to them.
In fact, representatives of 12 employers’ associations and industry bodies on May 8 had asked the government to suspend labour laws for the next two to three years “to help industry come out of the present crisis,” according to a statement from the Ministry of Labour and Employment.
If more states follow MP, UP or Gujarat’s footsteps it would mean that the employers would not be bound to ensure worker safety and provide the labourers minimum standards for working conditions. And in a post-corona world that can be a huge problem in case the social distancing measures are not followed and personal hygiene is not given importance.
If these suspensions become the norm, then about 11 million formal sector workers would lose their rights to raise industrial disputes, rights to unionise and freedom of association. The proposed suspension of laws would mean that workers would lose any degree of protection or redressal mechanisms. It will further reduce the bargaining power of labour, their right to negotiate.
Not only would these changes deepen the inequality between capital and labour, it could even fuel gender inequalities, thinks Shyam Sundar.
“Gender equality in terms of pay and recruitment will no longer be applicable. In other words Male and female workers performing the same work cannot go and tell the employer that you cannot discriminate based on gender. Also, if the working hours are extended, it will affect the female workers more than the male workers. A male worker may be able to adjust but a female is a multitasker. She may not be able to leave her family for this long. Travel insecurity and physical and mental exhaustion can discourage female workers. It will push more female workers out of their jobs. In economic terms they will withdraw or be discouraged to enter the labour market,” he said.
Essentially, our country would have to make a choice. The choice is between keeping big businesses happy by further tilting the balance of power in their favour or invest in human capital, empower its workers, protect basic rights and uphold equality.