Need faster labour reforms if the economy is to thrive

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Published: April 27, 2020 1:10:07 AM

Parliamentary panel’s recommendations aren’t bold enough, and in some areas, they are even regressive.

In fact, some of the recommendations of the parliamentary standing committee on labour, if approved, will make life even harder for companies.In fact, some of the recommendations of the parliamentary standing committee on labour, if approved, will make life even harder for companies.

In its six years in office, the NDA government has moved painstakingly slowly on labour reform. The main changes in labour legislation, so far, relate to more safety measures for workers, benefits for women, especially pregnant women and new mothers. Little has been done to make it less onerous for establishments to hire and retrench workers. In fact, some of the recommendations of the parliamentary standing committee on labour, if approved, will make life even harder for companies.

On the matter of fixed term employment (FTE), for instance, the committee wants that a minimum and maximum tenure for such employees be specified. Moreover, it recommends that there should be a cap on the number of renewals as it fears employers will manipulate the tenures.

Such provisions, and many more in the report, are stifling. Companies must be allowed to hire as many persons as they want—whether on a permanent basis or for temporary periods—and let go of them if needed. The government doesn’t seem to appreciate that even otherwise, at a time of rapid changes in technology and increasing digitisation, there will be fewer employment opportunities. If employers are not allowed to retrench or lay off workers, they will simply stop hiring.

The government has been reluctant to raise the threshold for the number of employees up to which an employer can let go of workers without the permission of the authorities from the current level of 100. It has been content to support states like Andhra Pradesh, Rajasthan, and Uttar Pradesh that have raised the threshold from 100 to 300. The hesitation suggests the government doesn’t want to upset the labour unions and workers. The committee has suggested that the threshold be raised to 300 workers in the code so as to avoid duplication and overlap in the legislative procedure. This is an incremental increase; the threshold should have been raised to at least 1,000 to make it meaningful and cover a larger number of units.

If the government is serious about raising the contribution of manufacturing to the GDP to 25%, it needs to be far bolder, and impress upon the unions the need to make labour laws flexible. Merely dropping the corporation tax rate won’t be incentive enough for companies, who would increasingly resort to greater automation and mechanisation. Already, one reason India is not able to compete effectively in overseas markets is because the workforce is not as productive as in peer economies, and because wages are high. Given how global trade will shrink in the aftermath of the pandemic, labour rules must be more flexible, else India will lose whatever little share it has.

As the economy shrinks in FY21, with demand for goods and services wilting, manufacturing will slow, causing job losses. Already, the average number of persons employed in FY20, at around 403.8 million, was lower than the 406.1 million in FY17 and the 405.9 million in FY18, according to CMIE’s household survey estimates.

While daily workers, and those employed in the services sectors are among the most likely to lose their livelihoods in the next few months, the absence of purchasing power will compel even top manufacturers to step on the brakes. Unless labour rules are relaxed and workers agree to take pay cuts, it is hard to see businesses hiring.

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