Exit route

Labour market reform gets a boost

Economists have known it for a long time. That rigidities in the organised sector artificially increase capital intensity and reduce the employment elasticity of manufacturing output. Hence, rigid labour laws are not in the broader interests of labour. These arguments have been bandied about ad nauseam and also surfaced in the Montek Singh Ahluwalia report on employment generation. But it has taken our populist politicians a while to understand this. While labour laws cover a broad spectrum, the most contentious and visible one has been the Industrial Disputes Act. Several sections in IDA need revamping but much of the controversy has centred on Chapter V-B clauses on retrenchment, closure and layoff. These require permission from appropriate government authority before any action can be taken and thus, make the government a mandatory third party to industrial disputes. Arguably, even if Chapter V-B were to be completely junked (the original IDA of 1947 lasted till 1976 without this offending section being necessary), labour interests wouldn’t suffer and would be protected adequately by other laws, including other sections of IDA. However, such a radical departure is politically difficult (the suggestion of scrapping Chapter V-B in special economic zones hasn’t worked) and therefore, one has the second-best solution of altering coverage of Chapter V-B. Instead of Chapter V-B being applicable to enterprises with more than 100 workers, it will be applicable to enterprises with more than 1,000 workers. And the retrenchment package will increase from 15 to 45 days for each year’s completed service.

Finance minister Yashwant Sinha built these proposals into this year’s budget speech and contributed to much of the hype about the budget in industry circles. He also promised that the labour minister would introduce appropriate legislation to amend IDA. Admittedly, there was no timeframe for this introduction, although most people presumed it would be the budget session. The budget session, the monsoon session and the winter session have come and gone. Clearly, there was a problem within government and within labour ministry. The Group of Ministers, which had difficulties meeting, was reshuffled. The Cabinet was reshuffled. Finally, persuaded by GoM, the labour ministry has agreed to prepare a Cabinet Note for amending IDA. This is still a far cry from actual amendment, since Cabinet approval will lead to a Bill that will be placed before Parliament and referred to a committee for any number of years before actual changes are made. Incidentally, the labour ministry still refuses to agree to the parallel process of redoing the Contract Labour (Regulation and Prohibition) Act. However, on IDA, there is now a ray of hope. In the 2002-03 budget speech, Mr Sinha can retain this year’s paragraph 52 and insert a timeframe for the labour minister to introduce appropriate legislation.