Labouring on reform | The Financial Express

Labouring on reform

Four labour codes passed in Parliament in Aug 2019-Sept 2020 are yet to be implemented

Labouring on reform
The perception that states are laggards on labour reform is not necessarily true.

Prime Minister Narendra Modi has rightly called for a speedy rollout of the four labour codes—in which 44-odd central labour laws have been converted into codes on wages, social security (SS), occupational safety, health and working conditions (OSH), and industrial relations (IR)—at the national conference of labour ministers of states and Union territories. Industry has sought greater flexibility to adjust the workforce with the ups and downs of the business cycle, while trade unions have resisted any effort to make regulations less restrictive as they considered it an unbridled licence to hire and fire! For such reasons, successive governments at the Centre have shied away from this crucial reform, which remains a major lacuna of economic liberalisation since the early 1990s. To its credit, the NDA government has firmly grasped this nettle. However, as labour is a concurrent subject, the delay in rolling out these four codes is largely because quite a few state governments still haven’t notified them. Whether the trade unions are on board is also relevant for their successful implementation. Although these laws were passed in Parliament between August 2019 and September 2020, till now, five states still have not released draft rules under the wage code, nine for IR, 10 for SS and 11 for OSH.

However, the perception that states are laggards on labour reform is not necessarily true. Even before these four codes, certain states like Gujarat and Rajasthan pushed the envelope on reform. Eight years ago, Rajasthan passed laws that allowed employers employing up to 300 workers—from the earlier limit of 100—to reduce the workforce without government’s nod. It also raised thresholds for the Factories and Contract Labour Acts, an example that was later adopted by several other states. When fixed term employment (FTE) contracts were launched for apparel manufacturing and later extended to all sectors in 2018, virtually all states were on board. An impact assessment of such reforms in selected states by the VV Giri National Labour Institute and Indian Institute for Public Administration showed that in reforming states, average plant sizes went up, and so did formal employment in the manufacturing sector. According to a report in FE, while FTEs have helped in creating new employment opportunities, formalisation of jobs and improving productivity, just one in five contracts were renewed for the second term while the rest graduate into unemployment. Unions, for their part, oppose FTEs.

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It is therefore important for the various states to notify the four labour codes after consulting with the trade unions. This reform will certainly help Indian industry and revive investments as they provide greater flexibility to employers to cope with the fluctuating fortunes of their business while protecting the interests of workers. These codes would indeed be efficacious if they encourage retraining of workers for new jobs as also upgrading their skills to make them mobile and adaptable to change. Above all, they would serve the cause of greater inclusion by providing a social safety net to the vast majority of unorganised workers. It is indeed a positive development that manufacturing employment increases as firms acquire scale with reform. After all, that is what modern economic development is all about—labour shifting from agriculture to manufacturing and service jobs in towns and cities. The VV Giri Institute study interestingly observes this structural transformation in the several states that it has studied.

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