Industrial Disputes Act: Don’t tinker with Chapter V-B

It’s time to move away from this economically-irrelevant and socially-costly reform agenda.

Industrial Disputes Act: Don’t tinker with Chapter V-B
The reality here is that the employer is often the aggressor and workers are left with litigation option, which will be a long battle.

By KR Shyam Sundar  

Ever since the government introduced wide-ranging economic reforms, employers and critics of labour regulation—including the World Bank and IMF—have been persistently lobbying the government (both the Centre and states) for reforming labour laws and the labour inspection system. This relentless lobbying has especially targeted Chapter V-B of the Industrial Disputes Act, 1947. They argue that labour laws in general and this chapter in particular tie down the freedom of employers from quickly and suitably responding to ever-changing market forces in an intensely competitive world.
Owing to strident opposition by trade unions at least at national level, it remains non-amended, though few state governments like Rajasthan and Assam have amended the ID Act. Let us delve a little deep into this controversy and even assess the legitimacy of employers’ demand.

Chapter V-B of the ID Act was introduced in 1976 and it applied to industrial establishments employing 300 workmen on an average per working day for the preceding 12 months. By an amendment in 1982 (with effect from August 21, 1984), the threshold was reduced to 100 workmen, which currently is in force in the Central Act. The recommendations by some committees and demands for reform of this chapter range from its total repeal to narrower thresholds of 1,000 to 300.

Industrial establishments, as per the chapter, cover only factories, plantations and mines registered under their respective Acts and exclude construction and services sectors. Prof TS Papola and his colleagues estimated that the ID Act was technically applicable to 5.5% of the total workforce and 12.1% of hired workers in 1999-2000. It is not difficult to see that these numbers may be lower even now. Further, the Sixth Economic Census data show that establishments employing 10 or more workers in 2013-14 in manufacturing and mines accounted for just 2.05% of total establishments in the non-agricultural sector. At the same time, if we consider size-wise distribution of factories in the manufacturing sector and apply the suggested threshold of 1,000 workers, the non-covered factories will be huge (around 98%) and non-covered workers will be around half of the total; in case of 300, the relief will be only marginal to the employers. So, the numbers don’t justify the social costs arising out of reform controversy.

The term “workmen” used in the chapter should naturally include all those who are covered by the definition of “workmen” {vide S.2(s) in the Act}. I have a strong and informed hunch that not only academics but also employers and probably labour administrators interpret “workmen” for Chapter V-B purposes only permanent workers, which is patently wrong as the chapter does not, as in the case of industrial establishments, specifically define “workmen” for the application of it. This point is evident from the recent case of closure of Racold factory in Pune. The company reduced the workers’ strength from around 750 to reportedly 90 permanent and 40 temporary workers. The company has probably gone by the strength of permanent workers and hence it is reported to have abruptly closed it down. Even assuming that this is an illegal closure, the penalty is `5,000 and/or six months’ imprisonment. The reality here is that the employer is often the aggressor and workers are left with litigation option, which will be a long battle.

A parroted argument for removal or liberalising the chapter is the government, for political reasons, hardly sanctions closure or retrenchment. But this is not supported by hard data concerning patterns and trends in the post-reform period. The Labour Bureau data on closures are useless—they do not tell us the rate of rejections/permissions of employers’ applications for closure/retrenchment. In my rather dated research concerning Maharashtra, I found during the first half of the 2000s the government has been appreciative of employers’ concerns as reflected in reasonably higher sanction rates of closures. Press reports in the 2000s are awash with closures, retrenchments and layoffs, and relocation of firms in pursuit of labour flexibility and absence of trade unions.

The assessment of the impact of labour law and governance reforms by VV Giri National Labour Institute (in 2017) concluded that the reforms did not boost investment nor generated jobs. Former labour secretary M Sathiyavathy also sounded sceptical of the investment effects of reform of Chapter V-B in the states where it was effected.

Governments have sought to introduce reform of Chapter V-B heeding to severely-contested prior-driven econometric studies, which argued that lack of labour flexibility hurts growth, employment, poverty alleviation. But the Enterprise Surveys by the World Bank in 2014 show that most employers do not consider labour regulations as a constraint in conducting their operations. This should not shock us as, by now, it must be evident that employers do enjoy considerable labour flexibility. This what studies by Prof Lalit Deshpande and Prof Papola—based on firm-level or state-level data—have clearly established. Even the government has admitted we have moved away from long-term employment to short-tenure jobs. States that scored high on ease of doing business in terms of ensuring labour flexibility arguably do not stand higher in economic parameters. The faults lie elsewhere, surely.

Social and economic costs on the battles in the labour market will perhaps far outweigh potential marginal benefits that would have been accrued if the amendment of threshold to 300 for this chapter were to have been implemented. It’s time to move away from this economically-irrelevant, socially-costly reform agenda.

The author is professor, HRM Area, XLRI-Xavier School of Management, Jamshedpur, Jharkhand

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First published on: 03-01-2019 at 00:46 IST