Given the Centre’s inability to pass critical labour legislation, it is natural to feel there is no labour reform in the country.
Given the Centre’s inability to pass critical labour legislation, from allowing factories to retrench workers without requiring government permission if they have under 300 employees to reducing the EPFO-ESIC burden or to allow reassigning of workers, etc, it is natural to feel there is no labour reform in the country. That, then, is reinforced by the very poor level of fresh jobs creation. Compared to the two million jobs India needs to create each month—one to cater to new entrants to the labour force and one to take people off the farm—according to the Labour Bureau that tracks eight important sectors, just 32,000 jobs were created in July-September 2016. It is true this doesn’t capture all sectors of the economy, but given they are the largest, it does give an indication of the poor jobs creation.
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Though labour laws are generally associated with just hire-and-fire, the labour cholesterol is much higher. Under Section 9A of the industrial disputes Act, companies find it difficult to even reassign workers across the shopfloor. The Factories Act, similarly, caps the maximum number of overtime hours at 50 per quarter. Even the miniscule change the government was willing to push – to raise this to 100 hours – has been passed in the Lok Sabha but remains stuck in the Rajya Sabha. Between EPFO and ESIC, similarly, over 40% of the salary of workers earning under Rs 20,000 a month gets cut, leaving very little incentive to accept formal employment. Which is why, last year, when the government came out with a special textiles package, an important part of it was fixed-term employment (so, no need for retrenchment laws) and voluntary EPFO, among others. While the plan was to create one crore direct and indirect jobs over three years, the scheme hasn’t really taken off due to, among others, the government’s inability to notify critical sections of it.While the Centre will have to do its bit on EPFO/ESIC and other labour issues, the good news is that the states have been doing some good work. Rajasthan, Madhya Pradesh and Haryana have already modified their Industrial Disputes Act to allow automatic retrenchment for a factory with 299 workers. Gujarat has gone one step ahead and allowed automatic retrenchment of workers in any factory in SEZs, Special Investment Regions and NIMZs provided 60 days of wages are paid for every year of employment. Maharashtra is the latest to allow automatic retrenchment for up to 300 workers. To be sure, getting more employment will require the economy to take off and correct tax policies – the big plans in the mobile phone manufacturing sector could soon evaporate without a post-GST sops plan and even the textiles package had a Rs 18,000-crore duty drawback plan to compensate firms for state taxes that could be as high as 5% of the total value. What’s important, however, is that a start has been made.