Organised industry not affected by labour laws

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: 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.

The Contract Labour Act, which has been in force since 1970, seeks to abolish contractual employment in activities and processes, which are identified as core or perennial, and additionally seeks to regulate contract employment in other peripheral activities. Although one of the main aims of the Act was to reduce the use of contract labour in industries, what is emerging is quite contrary to that.

Available data and field-level evidences show a considerable increase in the deployment of contract labour, especially in the organised industry. Given that widespread adoption of modern technology and rise of outsourcing have significantly blurred the distinction between the core and the peripheral work, there is a case towards recognition of contractual employment as a reality and shifting the emphasis of the Contract Labour Act, from abolition to that of regulation. However, it must be emphasised that such an option must be considered with the caveat that the working conditions of contract workers are improved by guaranteeing adequate safeguards on wages, social security and a minimum tenure. There is an urgent need for the deliberation pertaining to labour reforms to go beyond the domain of labour flexibility. This is crucial from the perspective of situating labour policies at the centre of macro-economic policy.