Given how India is fast losing its competitive edge in exports, and enterprises at home are increasingly automating operations, it is unfortunate the government doesn’t think it important enough to move on critical labour reforms. After four years of inaction, news reports suggest the government no longer wants to talk tough and would rather change those laws that placate the labour unions. For instance, the Draft Code on Wages, 2017, which seeks to usher in the concept of a statutory minimum wage, and which was introduced in the Lok Sabha in August, 2017, could soon become law. This would suit both the government and the Opposition a year ahead of the general elections as would a universal social security scheme and changes that relate to more benefits for workers without hire-and-fire.
To be sure, the government has amended the Industrial Establishment (Standing Order) 1946, which allows fixed-term work workers across sectors—earlier, this option was available only to apparel manufacturers. This will no doubt give companies more leeway, but going by the limited traction in the textile sector—where less than 700 units have used the package since 2016 to create some 1.55 lakh jobs—the impact could be limited.
Watering down key legislations sends the wrong signals. The crucial Labour Code on Industrial Relations—already diluted to pacify labour unions—is now unlikely to see the light of day. The government had first sought to allow companies to lay off 300 workers without approval but later abandoned the idea saying it would stay with the current level of 100 workers. Ideally, the threshold should be 1,000 persons.
The government needs to understand that companies, even smaller establishments, need to be able to hire and fire, or they will simply stop relying on permanent work-forces. In fact, the Centre had also objected to proposals from Madhya Pradesh to exempt micro industries—those with an investment not exceeding Rs 25 lakh—from the purview of seven central laws, including the Contract Labour Act and the Factories Act, even though the state had pointed out that small factories were unduly subjected to harassment.
At a time when the economy has been slowing, the government should have made it easier for business enterprises to hire. The KLEMS India database shows a contraction in the workforce between 2013-14 and 2015-16, with about 1.2 million jobs being lost and the total employment down from 483.9 million to 482.7 million.
This ties in with the poor growth in sectors such as exports during this period. As has already been pointed out, countries with more practical labour laws such as Bangladesh have been growing their share in the global textile market at India’s cost. The government may cite subscriber additions to the EPFO to claim millions of new jobs have been created but few are convinced.