The Centre’s decision to finally notify the four labour codes passed by Parliament in 2019-2020, is designed and expected to prompt the hesitant among the state governments to get their “Acts” together. A uniform policy framework for the labour market is key to structural improvement of the economy, and would complement the reforms undertaken of other factors of production.
Balancing Interests
The codes contain both finer regulatory and stronger rights-based features, as compared to what’s prescribed under the 29 “fragmented laws”, which they seek to replace and modernise. The codes can’t be faulted for favouring just those who hold the levers of capital. Measures like statutory backing for minimum wages, extension of a modicum of social security to fast-emerging gig and platform workers, facilitation of the welfare of migrant labourers, and fortified rights for women workers, testify to a balancing of the interests of capital and labour. More precisely, these two interests are seen to converge under the codes.
To be sure, certain key provisions of these laws have already come into force in several states. For instance, the facility of fixed-term employment, which gives firms greater freedom to “hire and fire”, has benefitted industries prone to the seasonalities of goods and services markets. The Union labour ministry has said the states that implemented the reforms have reported “significant economic and employment gains”, like relatively higher GSDP growth, rise in organised-manufacturing employment, and increase in the share of female workers. However, it may be a stretch to directly correlate these gains with the labour law changes.
Even at a broader level, the country has at best had a mixed experience over the last decade and more when it comes to producing decent remunerative jobs. While 7-8 million people enter the employment market every year, job creation is faltering. Concerns about whether “self-employment” with abysmally low income or no-pay work could be counted as employment also linger. A rise in the share of employment in the farm sector, which is losing share in the gross value added, is also worrisome.
Wages, Social Security, and Economic Growth
On the one hand, “formal work arrangements” are on the rise, but the share of workers without any social security cover remains high. The share of salaried employees without a written contract fell to 58% in 2023-24 from 62% in 2021-22. At the same time, contract workers now account for 42% of the workforce in organised manufacturing, more than double the level at the turn of the millennium. This is far higher than even in the US (11%) or Europe (12.3%). Minimum wages at the national level haven’t been revised for the past eight years and aren’t effective in most places, even as notified rates lag the median income of the low middle-income country that we are.
While there can’t be any argument with the need to streamline labour laws, additional safeguards are required to ensure that the policy steps don’t end up giving an undue focus on preventing average factor cost of labour from rising faster. Adequate wages and reasonable social security cover for workers are critical for boosting purchasing power and economic growth. The assorted government schemes for skilling need to be broadened in scope and capacity, and public spending on education raised as a fraction of the GDP. India’s labour productivity is about one-eighth of that of the US in purchasing power parity terms. Raising this should be the chief goal.