Ease labour laws now: UP gets it right, but relaxation must become permanent

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May 9, 2020 6:05 AM

Just to have employment levels rise meaningfully—let alone goals such as playing host to companies moving out of China, or raising manufacturing’s share in the GDP to 25%—the Centre and the states must quickly ease labour laws.

This allows companies lots of room to function with market-determined costs, unhindered by labyrinthine compliance requirements on firing, closing down, etc. (Representative image)This allows companies lots of room to function with market-determined costs, unhindered by labyrinthine compliance requirements on firing, closing down, etc. (Representative image)

Economic recovery from the Covid-19 pandemic will require states to relax labour laws—as Uttar Pradesh (UP), Madhya Pradesh, Gujarat and a few other states have done. The economy was not doing well even before the pandemic, and the lockdown decision and the need to enforce distancing at the workplace has meant that the risks to industrial growth have become manifold since. The unemployment rate is already near 25% and, as per data from the Centre for Monitoring Indian Economy (CMIE), nearly 9.13 crore small traders and labourers have lost employment in April 2020. Given the position industry is in, hiring labour—which would ensure restoration of wage-flow for millions—or even continuing with the existing pool of employees would need easing of labour costs, and the underlying labour laws. To that end, Uttar Pradesh has suspended all but three of its 38 labour laws for a period of three years; parts of the suspended laws applicable to women and children will remain in force, though. As per the ordinance brought by the state, only Building and Other Construction Workers Act, 1996, Workmen Compensation Act, 1923, Bonded Labour Act, 1976 and Section 5 of the Payment of Wages Act, 1936, which deals with the right to timely wages, will remain in force. All other laws—including laws governing minimum wage, unionisation, contract labour, health and working conditions, dispute settlement, pensions—won’t apply. This allows companies lots of room to function with market-determined costs, unhindered by labyrinthine compliance requirements on firing, closing down, etc. Madhya Pradesh, as FE reported last week, has proposed an amendment of the Factories Act to exempt new factories coming up in the next 1,000 days from many of the law’s provisions, except the security and hazard related ones. Meanwhile, Rajasthan, Gujarat, Punjab and Himachal Pradesh have amended their respective Factories Acts to allow for 72-hour work-weeks instead of 48-hour ones. These relaxations will help industry get back on its feet—at the very least, ease some of its current pain—which, in the long run, will benefit workers more than the immobilising labour laws that were enacted to ensure the workers’ interests were preserved.

Just to have employment levels rise meaningfully—let alone goals such as playing host to companies moving out of China, or raising manufacturing’s share in the GDP to 25%—the Centre and the states must quickly ease labour laws. Dictating terms of hiring or retrenchment to companies in search of a labour-cost advantage has proved detrimental to the interests of India and its labour force. Indeed, while the Centre has moved towards simplifying labour laws with four codes, the fact is that the swamp of state labour laws is a difficult one to cross for both large industries that can generate massive employment—this has led to increasing contractualisation of labour and the loss of economies of scale as creation of large employers is discouraged in the manufacturing space.

While states have eased labour laws in a temporary manner—effective over a range of three months to three years—India needs to have permanent easing of labour laws, especially ones that manage employee-employer relations, including firing and wage decisions, even as the ones relating to ensuring safety at the workplace are harmonised across states. Else, with the march of technology, India would have legislated the employment rate downwards.

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