It is unfortunate, but not unexpected, that the country’s labour unions should be objecting to the government’s proposal, reported in Business Standard, to hire fixed-term workers for a specified period of time. The proposal has naturally been welcomed by industry, which needs this in order to have more flexibility in its hiring of labour—only two states have changed Chapter VB of the Industrial Disputes Act that deals with hire-and-fire, and allows this for firms with up to 300 workers, up from the current 100. But in the absence of any such flexibility, industry has made do with hiring temporary workers, often through contractors on whose rolls the workers are registered. This has resulted in a situation where workers on the same assembly line, often doing similar kind of work, get disparate emoluments—indeed, several high-profile labour disputes in recent years have been the result of the tension due to excessive use of contractor-workers. What the proposed changes, in what are called Standing Orders, do is to allow for fixed-term contracts where fixed term workers will get the same benefits that permanent employees get—except, these workers have a fixed tenure. This was initially proposed by the Atal Bihari Vajpayee government in 2003 but formally junked by the UPA later.
Were the trade unions to accept the change, ironically, this will strengthen their membership since this will lead to more jobs and at better salaries—right now, with rigid labour laws, firms are hiring a smaller number of people which, in turn, puts a cap on the membership of trade unions. In the textiles sector, for instance, the industry had been proposing a double-MGNREGA for a long time—guaranteeing 200 days of work a year at a minimum salary of Rs 200 per day—but this was never accepted by the government; had this been done, it would have been a big jobs-creator, considering the sector has traditionally been a big employer but has been losing its competitiveness of late.
The urgency to reform labour laws is best seen from the fact that India is simply not creating enough jobs. A Crisil study had found that employment elasticity—the percentage rise in employment for every percentage point rise in GDP—fell from 0.52% in FY00-05 to 0.38% in FY05-12. As a result, according to Crisil, while India’s working age population will rise by 85 million in seven years to FY19, around 51 million will be seeking employment. But industry—which includes construction—will be able to absorb 20 million people in FY12-19 as compared to 31 million in FY05-12. As for the more dramatic changes in Chapter VB, as this newspaper has been arguing, rather than the Centre trying to push through the changes, as is happening right now, this is best left to state governments like Rajasthan. This is so since, even if the Centre makes a change, there will be no change on the ground until the states change their rules—so why take on powerful trade unions, and give the Opposition parties another cause over which they unite?