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Labour reforms: Jammu and Kashmir makes a good beginning

Budget 2018: Provisions of the proposed J&K Employment Code are not in public domain. Indeed, the Budget speech suggests it is still work in progress. But there are some clear principles that should drive any such initiative.

Budget 2018: There will be a Uniform Employment Code applicable to all labour, except domestic workers and agricultural labour. (PTI)

Budget 2018: Jammu & Kashmir (J&K) is notching up several firsts. Abolition of the Plan versus non-Plan distinction was one. Paragraphs 212 to 214 of the J&K finance minister’s Budget speech for 2018-19 has another remarkable first. “While the whole country currently grapples with the issue of labour law reforms, I have decided that the State should take the lead and show the way to the country.” There will be a Uniform Employment Code applicable to all labour, except domestic workers and agricultural labour. With exception of mines, oilfields and Union employees, all other labour laws (trade unions, industrial and labour disputes, social security, labour welfare, pensions, workmen’s compensation) are in the Concurrent List of the Seventh Schedule. However, de facto, most of what we interpret as labour law is Union government legislation, with some State-level amendments. Seventh Schedule reflects a lot of centralisation and this increased over time.

Labour conditions vary between States, as do other factor markets. If land is in the State list, why should labour be in the Concurrent List? There may be ILO Conventions India is signatory to, and there may be other minimum standards that should be applicable everywhere in the country. But beyond that, since labour conditions differ between States, why should we expect uniformity?

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Whenever something like labour standards crops up in international fora, we rightly argue countries are at different levels of development and factor endowments. There are countries where labour should be relatively cheap. Hence, one shouldn’t expect wages in India to be as high as those in USA. By the same logic, even if one accepts a concept of minimum wages, that minimum can’t be the same in every State. That’s like saying circle rates should be identical everywhere. Ideally, labour should be in the State List. But no Seventh Schedule amendment can occur fast. Nevertheless, if J&K wishes to reform its labour laws and replace them with a Uniform Employment Code, it can use provisions of Article 254(2) of the Constitution to do so.

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Provisions of the proposed J&K Employment Code are not in public domain. Indeed, the Budget speech suggests it is still work in progress. But there are some clear principles that should drive any such initiative. All too often, people have a jaundiced view about labour law reform, such as scrapping, or relaxing, Chapter V-B of the Industrial Disputes Act.

First, all law reform, not just labour law reform, must start with a clean slate. What should the law look like if we start from first principles? Depending on how you count, there are around 55 Union statutes that have something to do with labour. The oldest is Fatal Accidents Act of 1855. The most recent are (amendments) from 2017. Tinkering with one section here and another statute there is not proper reform. The entire set must go back to the drawing board. Second, some, but not all, labour laws are implemented by labour departments (or the Union ministry). Reform isn’t concerned with niceties of such silos and departments.

All labour laws, regardless of who administers them, must be examined. Third, since we borrowed a fair bit of labour legislation from the West in the aftermath of the Industrial Revolution, labour laws drew on notions of factories and manufacturing, generating other silos. How many employees are there? Is power used? Depending on the answer, the enterprise will be in the so-called organised sector, with rigid labour laws, or in the so-called unorganised sector, with fluid and unenforced labour laws. Depending on the answer again, there will be a silo between manufacturing and services (generally governed by Shops and Establishments Acts).

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Fourth, statutes provide no more than an enabling framework and must be minimal. There is a temptation to bung everything into them. There is a difference between rules and statutes and statutes cannot be continuously amended. Hence, anything administrative in nature belongs in rules, not statutes. Fifth, language must be simple and precise, not requiring judicial interpretation to fathom the meaning. Sixth, since an employer-employee relationship is required, some categories of labour can’t be covered. (That’s presumably the reason why domestic workers and agricultural labour have been excluded.) With those six principles, there must be a system of registering employers and employees, delinked from Factories Act and breaking down that particular organised/unorganised silo.

One then sets out principles for conditions of work and remuneration, working conditions (including safety and accidents), social security, employer-employee relationships (including termination), norms for employees’ associations and procedures for dispute resolution. In the process, one also determines the role of appropriate government. The government shouldn’t automatically become a party to what is essentially a bilateral contract. It has a regulatory role and a dispute regulation function, in addition to whatever contributions government wishes to make for social security. This is a rough template of what a Uniform Employment Code should look like and if J&K approaches this, it will really take the lead.

The Fatal Accidents Act was amended several times, 1871, 1914, 1951 and 1963. It is a legal provision we need, though not necessarily as a stand-alone statute. It is a short statute with four sections. Read Section 1 and tell me how many times you need to read it to understand what it means. The antecedents are UK’s Fatal Accidents Act of 1846, since overtaken by UK’s Fatal Accidents Act of 1976. Contrast the present UK language with ours. We haven’t moved on.

Bibek Debroy

Chairman, Economic Advisory Council to the Prime Minister

Views are personal

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