Analysts feel govt seems to have lost opportunity to position India as an alternative to China in manufacturing
The Industrial Relations Code tabled in Lok Sabha on Thursday turned out to be doing much less than expected to reform the country’s labour laws to improve the ease of doing business in the country or reducing the cost of labour for Indian industry to make it globally competitive. In its attempt to please all, the government seems to have lost a precious opportunity to position India as an alternative to China in manufacturing, analysts feel.
The most important proposal contained in the 2015 draft version of the Code to allow factories, mines and plantations employing up to 300 people — against 100 now — to retrench/lay off workers and/or shut shop without government approval has been removed in the final Bill, though states will have a window to change the employee strength threshold for retrenchment purpose via the notification route. A proposal to bar outsiders from becoming office-bearers of trade unions in the organised scetor establishments have been nixed to maintain status quo.
“The power given to the states to change the employee strength threshold for retrenchment signifies nothing considering the fact that global investors always look at the national laws and not the state laws for investing. It is not going to change their perception about India. There is nothing in the Bill that can be said as radical departure from the existing laws. The code is not going to be a game-changer,” said KR Shyam Sundar, professor at XLRI Jamshedpur and labour law expert.
Rituparna Chakraborty, co-founder and executive vice-president, Teamlease, said, “We have to ask ourselves how much the said changes or otherwise in the code helps ease of doing business and hence, formal job creation. India is at a juncture wherein formal job creation needs to be prioritised ahead of job preservation.”
Over the years, India has significantly improved its ranking on ease of doing business and now it at the 63rd slot, as per the World Bank’s 2020 survey among 190 nations, but the world’s third largest economy has failed to catch the fancy of the global manufacturing biggies mainly because of its archaic labour laws that barely allows enough flexibility to businesses.
Of course, the Code providing for full-benefit, fixed-term employment of any duration in all industries would come in handy for manufacturing units, including MSMEs to adjust their pay rolls to the seasonality and vicissitudes of their businesses. This flexibility, however, first introduced in the export-intensive garment sector in June 2016, was later extended to the leather industry and put into effect in all sectors via a March 2018 notification issued under the Industrial Employment (Standing Orders) Act, 1946. The Code will only cement the norm.
The only aspect of the Bill that domestic industry might feel good about is that the new legislation will make it near impossible for trade unions to hold the employers to ransom, even as it seeks to pioneer the concept of unions with defined representative character as determined negotiating agents for the causes of workers. It would also more difficult to strike work legally in establishments once the Code takes effect, as it proposes to extend the mandatory 14-days prior notice condition to practically all sectors, while currently such notice is required to be served only in case of “public utility services”, although these are defined very broadly.
When the conciliation process — which usually follows the strike notice and often takes several months — is initiated, unions cannot resort to strikes either. Also, either party — employer and the sole negotiating union — will have the option under the Code to refer an industrial dispute for adjudication. This again could come come in handy for the businesses to frustrate bids to use strike tools like mass leaves because once the adjudication process begins, strikes will be illegal till till reaches a finality.
According to the Code, in cases where there are multiple trade unions in an industrial establishment, for any union to be designated as sole negotiating union, it will require the support of 75% of workers on the muster roll, a condition which experts say would make it virtually impossible for any union to get the title. If no union meets the criterion, a negotiating council will be set up.
In many states like Maharashtra, West bengal, Gujarat and Kerala, there are already state laws in force recognising trade unions and the proposed central Code won’t override these laws. But in other states, including Uttar Pradesh, Tamil Nadu, Karnataka, Rajasthan, the central law will apply in this regard.
Immediately after assuming office, the present dispensation embarked on long-pending labour reforms by proposing to amalgamate 44 existing labour Acts into four codes — on IR, wages, operational safety, health (OSH) and working condition, and welfare and working conditions — with the aim of simplifying them and ensuring a conducive and harmonious environment for doing business. The IR Code is at the centre of the proposed labour reform initiative.
The Code on wages has already been passed in both the houses of Parliament; the OSH Code was introduced in the Lok Sabha which decided to send it to the select committee.