Centre shouldn’t be pushing labour reforms
With 11 central trade unions announcing their decision to go on a nationwide strike on September 2, it is clear they have not bought the government’s line that it is looking for a consensus before attempting to change the country’s archaic labour laws. Among the various labour laws the government was attempting to change was one that allowed firms with under 300 workers to shut shop without requiring permission from the government—right now, that limit is 100 workers. That this law is contentious can be seen from the fact that the last government to try to do this was Atal Bihari Vajpayee’s, more than a decade ago. To address the unions’ concerns, the government had set up a committee of 5 to examine a 10-point charter—the committee included finance minister Arun Jaitley, minister of state in the PMO Jitendra Singh, petroleum minister Dharmendra Pradhan, power minister Piyush Goyal and labour minister Bandaru Dattatreya.
It is, of course, critical that labour laws be simplified—and hire-and-fire is just one of them—since there is enough evidence to show that states with more liberal labour laws have not just more industrial growth, this has benefited labour. Indian states that have flexible labour laws, a McKinsey study found, had 35% of the workforce employed in the organised sector where wage levels are much higher; the figure was 23% in states that didn’t have flexible laws.
Indeed, a Crisil analysis found that while 12 workers were hired for every million rupee of manufacturing GDP in FY05, this is down to around 7 today—this is something that can be seen by just looking at the labour hiring in most big firms; the number of workers in most organisations is growing at a much slower pace than the growth in production. At the extreme, an Economist cover story pointed out that humans can be replaced by machines in about 47% of occupation categories, with telemarketers and accountants most at risk.
What is decidedly odd, though, is why the central government is even pushing the labour law changes since, when it came to power, it decided to allow states to go ahead and change their laws. Rajasthan was the first to do so, and its labour changes were quickly okayed by the President—under Article 254(2), even if a state law is in contravention of the central law, it can come into force once the President gives it his approval. In Rajasthan’s case, once the central government recommended this, the President signed on. Indeed, another area where the government is unnecessarily taking a confrontational approach is the land Bill. Land is a state subject and, at best, a concurrent subject—which means that, in this case too, the Centre can leave it to the states to come up with their own version of the law. The Centre insisting on pushing through the land Bill, in fact, has managed to consolidate the Opposition and given a lease of life to Rahul Gandhi. It appears as if the insistence on passing changes in the labour law could have the same impact.