Organised industry not affected by labour laws

Font Size

Print

Feedback

Email

Discuss

: The debate on labour reforms in India has centered mainly on the argument that labour laws in India have produced serious rigidities on the operation of the labour markets with adverse consequences for the performance, especially of the organised industry sector. The major rigidity argument revolves around the effects of two legislations, Industrial Disputes (ID) Act, 1947 and Contract Labour (Abolition and Regulation) Act, 1970.

As regards ID Act, the specific provision that are under a cloud relate to Chapter V-B, wherein any industrial establishment employing more than 100 workers must apply to the government for permission before resorting to layoff, retrenchment or closure. Employers resorting to any of these forms without permission are acting illegally and workers are entitled to receive wages for the period of illegality. It is argued that labour market rigidities, induced by labour laws that effectively guarantee job security have hindered employment growth since firms have a strong disincentive to hiring additional labour, which cannot be laid off easily.

It is important to recognise that the current debate, especially in relation to the effects of Chapter V-B is more about perceptions rather than facts. It is to be noted that the employees protected under the current provisions constitute utmost 3% to 4% of the labour force and about 10% of the establishments. The arguments over the rigidity effects of Chapter V-B are applicable to this tiny segment of the labour force.

What can be seen is that the employment in 100-999 size class has increased (as a percentage of total employment) much more than the below 100 size class. The presumed deceleration of employment seems valid only in the case of 1,000 plus size class employment. It is possible that the employment decline of 1,000 plus size establishments is due less to the labour laws than to the substantial restructuring of large public sector units and traditional manufacturing industries. Thus, these data do not seem to support the presumed employment effect of the labour laws. Similarly, contrary to the presumption of labour legislation contributing to a rise in disputes, the trends indicate a generally secular decline in both the number of disputes and person-days lost because of disputes. This trend has been all the more pronounced since 1984, when labour regulations were tightened in a pro-worker direction. Moreover, since 1990 person-days lost because of strikes have consistently been below those lost because of lockouts.